Housing

All investing is based upon suriving and the cash flow generated. It seems that the Holy Grail is uncorrelated returns that outpace risk taken. In order to do that, you have to bet big when the few good opportunity arises and cap your downside. Real estate can be concentrated and the tangible quality has people at least thinking of the downside. 

Some people are obsessed with real estate which certainly has its charms with the tax code and leverage, but the latter cuts both ways. Maybe one day I get an opportunity to invest in real estate, but the best I can think of now to get exposure to that market that makes sense would be homebuilders. REITs don't appeal to me and the cap rates everywhere seems to be bloated; especially if rates stay high to combat inflation. With a homebuilder business, the constraint of inventory on the market due to some homeowners having locked in lower rates a few years ago preventing them from moving, will be a tailwind to provide more supply by building. Below is a list and the NVR reminder that is one of the best investing thesis to have hit imo.

DHI 51b

LEN 43b

NVR 23b Norbert Lou, Punchcard, on June 20, 2001, made a VIC post on it. It was succinct and vcut down to why it would generate value. The stock has 50x in 23 years or 18.5%. Last 5 years it has done 22.5% and in the last 10 years it has compounded at 21.7% for 7x. The thesis was NVR used options to control land and they presold their homes before building. This efficient use of capital helped them develop a moat. This separated it from its competition that would be at the mercy of the cyclical nature of their business.

PHM 22b

TOL 10.7b

KBH 5b

BZH 1b

LGIH 3b

MTH 6b

HOV 924mm

TPH 4b

TMHC 5.6b

Healthcare

Healthcare is fascinating and is a big pie in America's GDP at $4.5 trillion or close to 20%. It was not always this way. In 1960, it was 5%. In 1980, it was 8.9%. In 1990, it was 12.1%. In 2000, it was 13.3%. In 2010, the first year that the ACA was enacted, it was 17.2%. The costs don't seem to be sustainable, but here we are. Since the beginning of 2010, the SPX has returned 12.8% a year assumming all dividends were reinvested. Healthcare in general has outperformed despite the big techs emerging in the 2010s. The breakdown below does not do service to how complicated and complex the industry is as the PBMs are inside UNH, CVS and CI.

Insurance Companies: UNH (up 17x since 2010 at 22.4% a year), CVS, ELV, CI

Hospitals: HCA (9.87x since 2011 at 19.3%)

Drug-Makers: PFE, MRK, AZN, ABBV (15.27x since its spinoff in 2012 14.9%), AMGN (5.2x since 2010 at 12.6%), GILD, BMY, LLY (20.5x since 2010 at 24%), NOVO (17x since 2010 at 22.4%)

Drug Distributors: MCK (7.8x since 2010 at 15.8%), CAH, COR (formerly Amerisource Bergen)

Device Manufacturers/Equipments: SYK (6x since 2010 at 13.7%), BSX, 

Service Providers: ABT, DVA (3.5x since 2010 at 9.4%)

Everyone is getting a cut and the pie that divides is interesting beyond the science of health.

Quick Hits

Risk is permanent loss of capital. Rule #1 and Rule #2. To win, you must first survive. (WEB)

Untapped Pricing Power (WEB)

Royalties with asset-light/low capex businesses. (WEB/CM)

Below Replacement Cost (Sam Zell)

"Listen, business is easy. If you've got a low downside and a big upside, you go do it. If you've got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and a big upside.”(Sam Zell)

In any deal, locate the weakness in it. The rest don't matter as much. (Jay Pritzker)

Margin of safety. (Seth Klarman)

Free cash flow (John Malone)

Big bubbles get bigger, small bubbles disappear — it’s surface tension, the law of physics; and in business it’s scale economics." (John Malone)

Scaled Economics Shared (Nick Sleep)

Buy what you know (Peter Lynch)

Don't cut your flowers and water your weeds (Peter Lynch)

Turn-arounds seldom turn around (Peter Lynch)

Yield on company and roic. (Joel Greenblatt)

Buy good companies. Buy at low costs. Wait. (Terry Smith)

Three legs are extraordinary business, good management, and great reinvestment opportunities and history. (Chuck Akre)

Heads I win, tails I don't lose much. (Monish Pabrai)

Recurring and predictable revenues. (Bill Ackman)

Three engines of returns: earnings growth, change in P/E, change in shares outstanding. (John Huber)

Buffett's Japan/Apple investment: cheap valuations, rising ROIC, and significant capital allocation policy changes. (John Huber)

Rising ROIC is increasing the capital invested, increasing the productivity, or shrinking the denominator. (John Huber)

If you have won the game, stop playing. (William Bernstein)