Buying Unwanted Assets

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To kick off the beginning of 2023, there continues to be a bias we see in equity investor portfolios. These portfolios have many of the traits investors see at the endpoints of the economy like software, consumer products and computer chips. What they often don’t own or under-own are the building blocks of the economies of the world. These tangible products drive construction, power transportation or enhance production. We believe this is particularly true in producers of oil, for the movement of goods, and the production of commodities that create most of the electricity like natural gas and coal. We get excited for the prospects surrounding this phenomenon because there is nothing better than a lack of competition in the ownership of economically-needed products. Our investors are buying unwanted assets.

Charlie Munger explains that ignorance avoidance is one of the easiest ways to have success in life. We agree with Munger and try not to do stupid things. Some investors practice this in reverse. In today’s market, there are some attractive simple risks. Below is the first picture providing information that we care deeply about.

The chart below shows the share of coal as a percentage of energy consumption in the respective countries. This explains something that we all know. The US, Germany and China have reduced their use of coal as a primary consumer. What’s no one saying? India, South Africa, Vietnam, Indonesia and Japan are at the same place or higher than they were 30 years ago. Remember that each of these countries consumes more total energy today than thirty years ago. So, coal demand has grown despite its declining use as a percentage of total energy consumption.

Don’t pay attention to the developed world’s energy consumption. They are rich. They have the means to pick and choose their energy sources, but where the world’s population is likely to grow the most, coal is “el hefe.”

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