Saturday, February 15, 2025

Patterns

Munger's 3 ideas for fishing: spinoffs, 13fs, andshare cannibals Huber's three sources of returns 1. Revenue Increase Consolidation in industry leading to rational supply. This happened to semi-conductors as I once viewed it as simply too cyclical and a commodity. Pricing Power 2. Capital Allocation Asset-light Share buybacks leading to cannibalization 3. Rerating of Multiples Story stock Sentiment 3 Types of Investments: Stable, recurring cash-flowing companies that have high ROIC; turnarounds that may seldom turn around, and cyclicals. Invariant perception is what is the market missing and what I think about the value. It has to be bridged. I can be good at identifying it, but luck will be the arbiter in the short-term until the thesis plays out.

Saturday, February 8, 2025

Heuristics

Is P/E a good short-cut? It measures the price of a stock as compared to its earnings, but it the metric could be very flawed. It measures the past year's earnings and there could be a lot of cyclicality in the industry so a low P/E is buying at the peak of the cycle. What has been true in the past will not necessarily be true in the future. And GAAP earnings is not cash flow. Is cashflow a better measure? It's better, but not perfect. What is the duration of the cashflow. What is the quality of the cash flow. How is the cashflow allocated. Is Return on Capital or its subsets of Return on Invested Capital or Return on Incremental Invested Captial a better measure? The returns should all trend towards that in the long-run, but it's more important to understand the why. Why are all these measures a good heuristic. They also don't exist in a vacuum and it has to be compared against opportunity cost and its risks taken. Rules are the guidance for the wise and the obediecne of the fool.

Saturday, February 1, 2025

Profitable Companies and Where to Look



I am not sure what industries I want to concentrate on fishing as I am a generalist and still learning. The top profitable companies shown above are energy, technology, finance, healthcare, auto, retail, telecoms, and household products. The map is not the territory. That is just one year and gives no thought to the capital employed to achieve those profits and like Malone says:
“It’s not about earnings, it’s about wealth creation and levered cash-flow growth. Tell them you don’t care about earnings..” “The first thing you do is make sure you have enough juice to survive and you don’t have any credit issues that are going to bite you in the near term, and that you’ve thought about how you manage your way through those issues.” “I used to go to shareholder meetings and someone would ask about earnings, and I’d say, ‘I think you’re in the wrong meeting.’ That’s the wrong metric. In fact, in the cable industry, if you start generating earnings that means you’ve stopped growing and the government is now participating in what otherwise should be your growth metric.”
Like Malone, the masters that have influenced me most are Buffett and Munger, Lynch, Greenblatt, Pabrai, Berkowitz, Schloss, Bill Miller, Einhorn, Ackman, Klarman, Burry, Prem Watsa, Francis Chou, Li Liu, Zell, Howard Marks, Rochon, Chuck Akre, Tom Gayner, Nick Sleep and Qais Zakaria, Spier, Terry Smith. I will do well to reread and contemplate their ideas. And always there are many more beyond what I know and want to know. The things I don't know that I don't know.