Spekulatius

AJG in one presentation from 2022 had a slide that showed that they plan to do transaction at a 10-11x EBITDA multiple. I do think they are paying more now. Its is remarkable how much BRO has slowed down they acquisition spree - they went pretty big in 2021 and 2022.

Generics won’t happen for a while, but cheaper competitors eventually will emerge. the market is just too big for a late entrant not to try to get share through pricing.

Another battle of Kursk: Goal is probably to cut the Russian rail supply lines. I don’t think Ukraine attempts to cut the entire salient, seems too ambitious.

The Republican Party equals Trump now and Trump definitely does not want to reduce spending. Dems and Reps will just spent on different things but they both will spend.

Totally agree here. This micromanagement from the Biden administration is totally counterproductive. Worst was probably to tell Ukraine not to bombard energy infrastructure in Russia, even those that has been used by the Russian army to supply themselves for the war. At the same time , Russia can sent drones at will into Ukraine and hit any target they can reach, as some will always make it through the air defenses.

Added to Evolution, Pluxee and Edenred in my European basket case portfolio.

Erie seems promising. I got a quote for my car since I am in the process of moving and they were cheaper than my current insurance even with the discounts I get from bundling. They do have a good reputation for service and claim as well. I do agree you need to shop is insurance every couple of years, as rate creep kicks in. Some brokers will do it for you but other tend to be happy to sit on their ass too and claim that they can’t get a better rate, so from time to time, you need check in with different brokers as well.

What is most surprising to me is that BRK can sell 5% of a Megacap in a quarter and nobody noticed it, until the filing came out.

I think the organic growth of insurance brokers is more or less directly linked with how hard the insurance market is. Thats because insurance brokers make a cut on every transition that goes through and a higher renewal is like extra money for them. So I fully expect organic growth to slow down when the insurance market softens , but I think they may also be able to acquire more brokerage business for lower multiples because the owners might be more compelled to sell. it is interesting that BRO and to a lesser extend AJG have done way less acquisitions in 2023 than in the year before which is probably due to elevated sales multiples and unwillingness to sell. This will likely change when organic growth of these small business is harder to come by.

So Andrew Left picks created huge Alpha:

Maybe he just creates a clean slate for his successor. He is making quite a few changes to his donations already, so I think this could be another estate planning move.

I bet he sells down his entire Apple stake. Once he starts selling a significant part of his holding, he rarely stops. This wasn’t a permanent position after all or he thinks it just got too rich or maybe he is bothered by China risk.

Not sure it belongs here, but there is a massive Yen USD carry trade unwinding:

@gfp Yes, there are certain niches where capitalism seems broken. these products are not difficult to produce, so I don’t think it’s capacity restraints. Transportation costs have not changed that much either. ATKR is mentioned, which has been discussed here. I think posted their margin evolution before - they went from 25% gross margins to 35%+ gross margins in 6 month during the pandemic. Don’t tell me those were operational improvements. I think the DOJ and Linda should look at those market dislocations rather than airlines which are almost broke , but what do I know.

They should call the Sahm rule Sahm heuristic. I do think we are likely looking at very choppy markets near term with a likely downward bias. I think some of thrnAI spending reminds me of the 1997-2000 Telecom boom as well and it could end up in a bust. I am fairly sure it will end up in bust, but I don’t know what year we are 1998, 1999 or 2000? Wide areas of the manufacturing world wide is already in a recession which includes auto, semiconductors, housing, chemical industry and others, The consumer is feeling pinched (investors in retail stocks know this) so my guess is that we get to see the first consumer led recession since 2007

This is an interesting substack article about pricing collusion on PVC pipes and conduits: https://manbearchicken.substack.com/p/pipe-price-fixing?subscribe_prompt=free

Some of these factors are confounded. For example, I bet it will be much easier to find a great internship if you study at MIT or Stanford than from a state folge. The colleges also have stats about the income of the alumni and they show that the Ivy League alumni have much higher income than students from lesser ranked schools. I do agree that engagement is what really matters but I think that’s partly what those top schools are about - they offer more ways for student to be engaged in ways that are harder to accomplish then for students from other schools. FWIW, my son is going to a state college (Umass) and fairly happy there. He did not get in one of the top schools and we decided that other schools especially out of state schools are not worth the much higher tuition and cost relative to a pretty decent state college. We are also in an income bracket where we would have to pay full tuition.

The top schools are not about the education, it’s about the prestige and the connections. you get that you won’t get at a state college. The problem is when the family income $200-300K and don’t get a good ride. Then the cost of the top schools can be daunting.

I think @KJP explanation is correct generally. However, there are cases where a business requiring Capex to scale have very high return on assets. examples are some widget makers like SSD or some medical equipment companies.. Very few will grow 20% though. Wr would not define them as Cpex heavy either, but they do require Capex to grow. On the other hand, we have a lotmof Capex light business that have all that high Returns on Capital. The most common reasons are that thy keep cash on the balance sheet or do acquisition and acquire intangibles. @ratiman mentioned same growth rate and if it is organic, then I agree the capital light business should see thru ROE go to infinity theoretically over time. In practise, that's not the case and growth will almost always be a mix of organic and inorganic growth where the latter puts intangible on the balance sheet that reduces ROE. I think we are seeing an interesting case of a shift with tech companies playing out where traditional capital light software cos become much more Capex heavy due to a mix change towards cloud and AI which require expensive data centers to run.

That’s true for a business that requires Capex too, that’s the feature of exponential growth not capital light or Capex heavy. if a Capex heavy business can keep the incremental return on invested capital high, it should do just as well.

But these hedge funds don’t advise you. You are not their client. They have fiduciary duty to their client, not you. We have brokerage reports that get distributed to clients before they hit the newswire and that in some cases clearly move stocks coming out pretty much every day. We have Cathy Woods with their whacky forecasts and even return targets, Elon Musk pumping Tesla stocks and otherwise talking his book. The list goes on and on.

I think the day people realize that the mighty 6 or seven have become Capex heavy companies, with substantially worse FCF conversion than they used to have, will be interesting. Right now, everyone seems to believe that they will generate great returns on their AI investments. Even if this were the case, the returns will most likely take quite a few years to materialize and there will be winners and losers. So far nobody seems to consider the fact that there will be losers. This looks very much like the telecom boom from 1997-2000.

While it is mathematically correct that if both business have the same growth rate, they should have the same returns, the more Capex heavy business will have to constantly make decisions on Capex and some of those probably won’t work out, Then there could be lumpiness in Capex, which also increases risk as FCF would ebb and flow. All this means that a Capex heavy business in practice has higher variability and higher risk which over time means it is probably not going to perform well. A significant part of the Capex decision I have seen at work had issues with cost overruns, delays or the business changed in a way that the initial assumptions at the start were not correct any more, leading to suboptimal outcomes. A Capex light business does not have these issues so the math being equal means it’s likely a better investment. I think the other issue is that a lot of stocks still traded more on earnings then FCF, so focusing more on FCF (which is harder to determine ) is actually a way to outperform as an investor.

Trimmed a bit TPB. It is probably going to the moon now.

Yes, there is: EVO looks cheap, but there is some concern that the high margins may not be sustainable. They also saw some margin deterioration this quartet.