Spekulatius

A bond guy will always tell you that equities suck. Nothing new here.

BRKR would be hard to replicate. They are the leaders in many specialized analytical fields where it takes decades to build up competence. They do have competitors in most, but those tend to be smaller. Also, my understanding is that Bruker is mostly a rollup, starting from analytical solutions like Nuclear magnetic resonance. They have been acquiring niche companies for a long time. Similar companies are A (Agilent) and PKR (Perkin Elmer), but they are more in life sciences. All those companies have a high margin service business as well. I would think that all those would be very hard to replicate, as there are many different niche products that each require specialized know how to build in addition to having a customer base that used these products for a long time and isn’t likely to switch. I personally use Agilent and to a lesser degree Perkin Elmer products. I have used Bruker products a few years ago. Users tend to stick with a product family for a long time, often spanning decades.

So revenue run rate in Q3 is $168.7 M or roughly $676M/ year. I guess it would be interfering for me at < 10x EV/EBITDA or ~$7B Market cap. Now WORK’s revenue is growing quickly so if the shares stagnate or fall and revenue continue to rise, it could get here pretty quickly one way or another. I also wonder what the moat is. Communication within the company isn’t really a moat. A moat with SAAS begins when a product is going to be integrated in business processes (tie in with ERP etc). It would be really cool and powerful, if one could use Slack as a hub to do all sorts of things with an DRP system, but due to the diversity and complexity of these systems, that wouldn’t be easy to do. Just being a better replacement for email won’t cut it, imo. I haven’t used Slack and my trailing edge company (in terms of IT) probably won’t use it either. We have got skype, but it’s doesn’t have the same sort of functionality. Slack seems more like Discord which is mostly used within gaming communities.

Just out of curiously , since you apparently work in IT, which SAAS companies do you think have a moaty product offerings? I thought this applies to NOW and WDAY, since they are somewhat integrated in ERP system and those thing are harder to detangle, once they are used for business processes.

Added some CMCSA.

Facebook has already a corporate Facebook version. Work looks more like Discord to me. I actually heard that some upstarts use Discord.

That is correct, but does the WACC ( more precisely the debt component cost) adequately reflect the risk? I would argue no, because bond markets itself are in a bubble ( due to record low risk free rates and record low risk spreads ) Still , this is a highly useful way of thinking and proves again that ROIC is the one metric to rule them all.

I felt the signaling from Trump that deal may have to wait until after the election is a clear indication that nothing appears to be forthcoming short term. I believe that a new round of chaos is going to be forthcoming after the holidays.

Yes, I believe that low interest rates favor hard assets, especially those where cash flows keep increasing with inflation (real estate) or those that tend to their buying power (gold). For real estate, low interest rates atemlos, because you can lever them up cheaper and generate FCF. For gold, the opportunity cost to forgo interest payments on financial assets is lower. Assets similar to real estate with stable cash flow like utility stocks, airports, pipelines . These arenas business that borrow a lot, should benefit twice with lower borrowing cost and increased multiples.

Pretty good article about Boris Johnson: http://nymag.com/intelligencer/2019/12/boris-johnson-brexit.html

10% on $100M invested capital is only better than 1% on $1B in invested capital if you can reinvest the earnings and increase the invested capital at hopefully the same return. If you can’t grow your invested capital, I would argue that 1% on $1B in invested capital is equal or better than 10% on 100MBIT, because there is a chance that you can liquidate $1B for face value or even a bit less and come out way ahead.

Advisor fees, if you pick their advisory services. It’s hard not to recommend Fidelity and if you don’t want to dive into foreign stock markets, I would argue it’s better than Interactive Brokers.

Same here. I also got another lot of CVTA.

Just break your order in small little limit orders at slightly price points. That’s what I am doing, especially now with zero commission trades. FWIW, I don’t think Fidelity gets paid for order flows and In did an analysis for myself that the commission savings far outweighs the rebates I am getting (price improvement). That’s for small order of maybe 50-300 shares or so, which I how I like to go about this now. if you do orders > 1000 shares, then the rebates become more noticeable.

Thanks for reminding me that TAST has year end tax loss selling dynamics. I agree that TAST looks tasty. I have put it on my watch list a few days ago, but haven’t dug into the stock yet. It looks like a perfect candidate though and the business should be resilient.

It’s probably good for a bounce. It looked at the Q3 earnings and what really surprised me is that they can sell thermal coal for $60/ ton. Isn’t that more than 6x what the operators in Powder River get? I think Met coal may go down to $100/Ton - a lot of operators have a cost of $90/ ton so further drops will lead to idling of capacity. I do like ARCH here (don’t own it, but out it on my watch list) as they seem to execute well and seem to have low production cost assets.

Also adding to CCU. Why CCU? or why add now? Because it’s down 3.5% and it’s cheap. Even protesters like beer and get thirsty.

Also adding to CCU.

Spek, can you talk about what’s the reasoning for buying DD? 3) reasons: 1) products with pricing power 2) cheaper than peers (MMM) 3) strong management (Breen with Tyco pedigree) willing to optimize shareholder value That said, it’s held back by weakish economy in the business it operates and tariff concerns.

Timely post: https://berkshirebuffettandbeyond.com/2019/12/03/has-buffett-lost-it/

Well, there is switching cost. The more folks work with the company and the more embedded it is in business processes, the higher the switching cost and risk. I do wonder though they with the virtually zero unit cost models, like SAAS, that when times get tougher, the price may become a tool to acquire or retain customers at some point, especially if there are equivalent competing products around. After all, why wouldn’t a SAAS company not use price as a tool if they have to, since the incremental unit cost is zero. So it’s just a question if the product has substitutes or not. The company I work for just introduced WDAY. I think it replaces an SAP module that was awful. I will see how this goes. So far it looks like the conversion has been botched, the go live is at least one month late and counting.

Added to DD and CTVA.

I think lousy POS IPO’s always existed, but they tended to be smaller issues they were placed by 2nd or 3 rate investment shops. What is new now is that some business with questionable models were growing in tens of billion $ valuation before the IPO. They were sponsored by deep pocketed investors like Softbanks, it also mutual fund investors like Fidelity or the first Tier investment banks (GS, Morgan Stanley). Softbank seems to believe they can create their own moat by outspending anybody else out there, which has some logical underpinning if you believe their investment can become dominant platform companies. While this might be true, it’s also a recipe to fund companies that blow through a lot of money and in some cases don’t even show great economies of scale.

It’s not just companies disappearing, it’s public companies slowly eating themselves via share buybacks. The latter is a larger factor than companies disappearing. Also accompany disappearing doesn’t mean that the capital has left the market, if it happens via a stock merger for example. As for the stock market, while it may not be a general bubble, the valuations overall is certainly stretched. There seems to be a particular with a narrow set of “quality” stock going on, while the tiers below in quality aren’t really that expensive. While the downturn in late 2018 was certainly considerable, it wasn’t really a severe bear market. It felt more like a correction, similar to 2011 ( European crisis), late 2015 (energy bear) or 1998 (Asian crisis) a short term correction of 29% or so that quickly reverses. Nothing like 1990/91 or 2001/2002 or even 2008/2009. The latter were certainly severe events, but there is certainly a garden variety of scenarios that can play out between the former and the latter event, especially one, where we take a decline and then an extended market where the market sort of just bounced around, instead of climbing right back up. As for what could cause this, I see multiple things they could cause a decline like, negative interest rates blowing up banks, political changes (election), recession, trade war and most likely a combination of these factors. Of course there are always reasons why the market may go down, or why the market may go up. Staying flexible and have a bit of cash in hand, should bargains represent themselves , is how I intend to play this.

I a guess it’s trapped because they can’t get out at unreasonable prices. I am certain they could get out at reasonable prices with the last rounds going into a loss.