Renowned entrepreneur and star investor Jim Mellon shares his investing ethos as well as predictions for the next 'money fountain'.
'An evening with Jim Mellon' was held by Syndicate Room, in partnership with Master Investor, City A.M., UKBAA, London South East and BDO. The event took place in London on 24 November 2016.
8. • Repatriation amnesty -> USD 2 trillion at 10% tax
• Corporate tax likely to decrease from 35% to 20%
• Simplification of tax code
• Worry on trade but watered down
Trump Presidency
8
11. Europe
• From crisis to crisis
• Banking system a house of cards
• Brexit just the beginning and a side show
• Rise of populism and other nationalist
movements
11
12. From Crisis to Crisis
Oct ‘16 - Hungarian
referendum on
immigration
Dec ‘16 - Italian
referendum
Current - Spanish
political deadlock
Oct ‘17 - German
federal elections
Aug ‘16 - Italian
banking crisis
Current – Catalonian
separatist
movement
Halt on further EU
integration
Dec ‘16 – Denmark -
greater immigration
control
Ongoing – Greek
economic crisis
Ongoing – Greek
economic crisis
Current - French rise
of national
sovereignty
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13. 0% 5% 10% 15% 20% 25% 30%
United Kingdom
Germany
France
Euro area
Portugal
Italy
Spain
Greece
Unemployment Rate
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
DebttoGDP%
Source: Bloomberg – end of 2015
European Debt and Unemployment
13
16. UK & Brexit
What we know:
– GBP under pressure
– No financial Armageddon
– No recession
– FTSE100 and 250 near all time highs
– Article 50 before end of March ’17
16
19. Emerging Markets
• Strong USD a negative for EMs
• China significant non-performing loans
• Significant debt problems elsewhere
• Still commodity dependent
19
20. Macro Summary
• Capital misallocation with QE, ZIRP & NIRP
• US equities overvalued
• Bonds ridiculously overvalued
• Selective emerging markets attractive
• Political problem and rise of populism
20
25. Valuations Over 10 Years
Value Fwd PE Growth Fwd PE Value P/BV Growth P/BV
Current 14.2 17.7 1.5 3.5
Per cent rank 89% 86% 56% 88%
High 15.2 19.4 2.2 3.7
Low 7.8 8.9 0.9 1.7
Median 12.3 15.7 1.5 2.9
25
Valuations Since Start of Data Set
Value Fwd PE Growth Fwd PE Value P/BV Growth P/BV
Current 14.2 17.7 1.5 3.5
Per cent rank 65% 64% 30% 61%
High 24.7 40.5 2.5 7.6
Low 8.9 11.0 1.1 2.1
Median 13.2 16.9 1.8 3.3
Source: Bloomberg
26. 10-Year Growth Forward PE Premium
-10%
0%
10%
20%
30%
40%
50%
Premium/Discount
PE Premium MSCI Growth Index vs Value Index
26
Source: Bloomberg
29. Investment Dos and Don’ts
• Status quo investments = penury
• Look for:
– Disruptors;
– Comparative advantage; or
– Deep under valuation
• Research, probe and specialise
29
33. Productivity & Tech Stasis
• Moore’s Law broke down in 2005 due to Dennard
Scaling
• Cost of computational power is rising more than
benefit it delivers e.g.:
– Aerospace relies on efficiency gains from computing power
– Drug development for more complex diseases requires
exponentially more computing power
• Marginal productivity gains in decline
33
34. Technology
1. Virtual / augmented reality & AI
2. DNA sequencing machines universal clinical practices
3. CRISPR / CAS9 - Synthetic life
4. Truck platooning & self driving robots
5. Li-Fi
6. Blockchain and payment technology
7. Reusable rocket - SpaceX
8. Improvement in battery technology – Tesla Model 3
9. Voice recognition
34
36. US Productivity Growth
-1.0%
1.0%
3.0%
5.0%
7.0%
Manufacturing Retail (2013) Restaurants
(2013)
Air
transportation
(2012)
Trucking
(2013)
Commercial
banking
ProductivityGrowth
Before and After Recession
1995 - 2007 2007 - 2015 (or as noted)
Source: Bureau Labour of Statistics and Kauffman Foundation 36
37. Quantum Computing
Classical Computing
In classical computing a bit is 0 or 1. A 2-bit
computer has four ‘states’ but can only
perform one of these operations at a time:
Quantum Computing
In quantum computing a qubit is 0 or 1 or
both at the same time (!?!) because of “super-
positioning.” A quantum computer can thus
analyse all four states in one operation:
0 0
? ?
? ?
? ?
0 0
1 0
0 1
1 1
37
38. Quantum Computing
A computer with n cubits can be in super-position of 2n states at the same time. So a
4 qubit quantum computer could analyse 16 parallel states in a single operation:
0 0 0 0
1 0 0 0
1 1 0 0
1 1 1 0
1 1 1 1
0 0 1 0
0 0 0 1
0 1 1 1
0 0 1 1
1 0 0 1
0 1 1 0
1 0 1 0
0 1 0 1
0 1 0 0
1 1 0 1
1 0 1 1
Quantum Computer
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
1 0 1 0
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
Classical Computer
38
39. Quantum ComputingOperations Required to Analyse All States
# bits / qubits Classical Computer Quantum Computer
1 2 1
2 4 1
3 8 1
4 16 1
5 32 1
6 64 1
7 128 1
8 256 1
9 512 1
10 1,024 1
11 2,048 1
12 4,096 1
13 8,192 1
14 16,384 1
15 32,768 1
16 65,536 1
17 131,072 1
18 262,144 1
19 524,288 1
20 1,048,576 1
A quantum computer with 300 qubits (2300
classical bits) can process as much information
as there are particles in the universe!
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20OperationsRequired
toAnalyseAllStates Number of Qubits
Classical Computer Quantum Computer 39
40. Driverless Technology
• One billion vehicles on the road today – majority with just a single passenger
and idle 95% of the time
• Driverless cars will:
– Use roads efficiently - Reduce congestion
– Increase car sharing - Reduce energy requirements
– Improve safety - Disrupt insurance industry
– Free up time – NO PARKING!
• 2.5m driving jobs in the U.S. alone
• Uber has demonstrated its driverless technology for trucks delivering beer
40
41. Energy Revolution
• Energy conversion of fossil fuels is ~13%
• Significant production efficiency gain possible
• Solar power cost is at grid parity in southern US and
southern Europe and many parts of Asia
41
42. Energy Revolution
1. Bioo plant – photosynthesis
2. Gold nanowire – no degradation
3. Magnesium – no shielding required
4. Solid state lithium ion – super capacitor
potential
5. Graphene car batteries – charge and
discharge 33 times faster than lithium ion
6. Foam batteries, safer (not flammable), higher
energy density, cheaper and longer life
7. Aluminium graphite – fully charged in one
minute
8. Alfa battery – 40 times charge of lithium ion
9. Skin power – current from skin using gold
film
10. Foldable batteries – bendable gadgets
• Over the last four years, battery costs have
declined over 50%. A further 50% price
decline is anticipated by 2020
• Tesla’s Giga-factory will produce 35 giga-
watts of batteries by 2020, more than 2013’s
global batter production
• Many new technologies in development
Foldable Battery
42
46. Longevity
31
72
1900 2015 2050
Four million years
produced an 11-year
increase from 20 to 31
115 years
produced a 41-
year increase
Source: James Carey; Longevity United Nations Development Program
120
46
48. Sequencing Technology
1993:
One researcher could read 500
letters of the human genome per
day
2016:
Computers can read more than 3
billion genome letters per day at a cost
of $5,000. This is the equivalent of 6
million researchers in 1993
Dr. Francis Collins
Leader of the Human Genome Project
48
50. CRISPR / CAS9
• Young technology but has fundamentally changed gene editing
and medicine
• Part of immune system of bacteria used to fight viruses
• Simple, versatile and reproducible results
• Can target multiple genes at once
• Applications from basic research, drug development, agriculture
and genetic diseases
50
51. Longevity
• Key pathways implicated in ageing beginning to be
understood – nicotinamide, MTOR, AMPK, SIRT1 & other
Sirtunis
• Understanding a result of rapid sequencing and study of:
– Yeast Saccharomyces cerevisiae
– Mice Mus musculus
– Fruit flies Drosophila melanogaster
– Earth worms Caenorhabditis elegans
51
52. Single Stock Ideas
• Sony Corporation
• FANUC Corporation
• Gilead Sciences Inc
• Galapagos NV
• Arrowhead
Pharmaceuticals Inc
• Synergy Pharmaceuticals
Inc
• Regent Pacific Group
• Condor Gold Plc
• SalvaRx Group Plc
52
53. Reading List
1. NEJM
2. BMA Journal
3. Spectator
4. Gavekal
5. Bioworld
6. Techcrunch
7. Economist
8. New Statesman
9. The Atlantic
10. National Review
11. NYT
12. FT
13. WSJ
14. Telegraph
15. Guardian
16. Times
17. Prospect
18. Country Life
19. Vanity Fair
20. The New Yorker
21. New Scientist
22. Scientific American
23. National Geographic
24. Wired
25. The Week
26. Money Week
27. Master Investor Magazine
28. Foreign Affairs
29. Rolling Stone
30. PC Advisor
31. How It Works
32. Berliner Zeitung
33. Le Monde
34. Investors Chronicle
35. Private Eye
36. Which
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