dpetrescu

I was just reading an old chapter from Greenblatt’s You Can Be A Stock Market Genius - the one about spin-offs. I still haven’t forgiven myself for selling Ferrari (the spinoff not the car:). Anyone have any recommendations for upcoming spin-offs? I haven’t heard much about this recently, especially as the focus is on new public companies coming on the market. I figure it might be a while before YouTube/Google.

I think 2020 and 2021 has reinforced a key concept of investing. The most important thing in investing is how much certainty you can have that a company will be around and will be successful for a very long time. SSD -Simpson Strongtie Keeps announcing impressive earnings and revenue growth year after year. This is an old school Buffet type company that has not yet been disrupted by new technology. It has maintained a strong moat for decades. Just last week they announced very impressive growth and it fell 10% - yes please! It maintains a great moat because it has established a competitive advantage in a very specific niche industry - a collection of thousands of tiny connectors along with code compliance testing and engineering support. If another company were to sell a product twice as good for half the cost I wouldn’t switch - is it worth spending 2 hours of research to save $1 on 1 of 500 connectors - the total of which is a small tiny fraction of the cost of a house? Risks - 50% correlated with housing market. And on the watch to see if it could somehow be disrupted in the future. I’ll “likely hear about it from my engineer:) Discovery and Disney Discovery copied and executed the way Disney executed and copied Netflix. Others tried to copy Netflix. But they missed Thiel’s concept - don’t try to do it all, establish a competitive advantage in a small focused and distinct market market. (The way most food carts fail - when they have a large menu. The best food arts are usually the ones with 1 or 3 things in the menu that they do well). All three streaming services are not exactly competing - but have/are capturing very distinct streaming market. Disney is for family content, Discovery (Malone) is for reality tv. Just imagine how much more valuable the large content is for both with their streaming plans. ADSK - Autodesk Valuable software subscription with a strong moat. Autodesk copied what Adobe did. Yes this is extremely expensive - but it was extremely expensive 5 years ago, and 10 years ago, and 30 years ago. It takes years for a firm to train employees to use this program, takes a few more years for a firm to set up templates/standards for their documents for this program. That’s for the engineers and architects. Then consider the network effect with contractors and owners. And for public agencies, it takes them decades to adopt and establish their own standards - For example Ports, federal, state, libraries, transportation depts - they’re still using 2-d CAD standards!! (Autocad 2-d is also owned by Autodesk). After 3-d BIM has been around since about 2006. They’re in the process of switching to 3D BIM standards - they’ll stick with Autodesk but use Revit(3D). They won’t switch programs after a few years - the whole benefit is they have one model for the building so that every 5 or 10 years when they renovate they update the same model. Sure the company is very! Expensive. The test I like to use - if another company has a product that’s twice as good and half the cost would firms switch? Small firms would but most wouldn’t and no way would public agencies ever switch.

Saw that interview. I’m surprised he didn’t mention that he is running a SPAC - EQD.

I’m no expert on shorting. But I think that shorting as a general concept doesn’t cause fundamental damage. It could create a lot of opportunities when it’s overdone or not warranted. However, if not regulated properly it definitely can. Just with velocity - it could leave a struggling company with insufficient time to make a turnaround plan or to get access to loans. If the velocity is too high it can also have a reflexive effect.

Saying something is expensive has no meaning in a vacuum. What we really mean is that it is expensive relative to something else. If the us dollar goes down - I think it’s implied that it goes down relative to the average of all the other currencies. But when all the other currencies are also going down, now we can say the dollar is going down relative to hard assets like real estate or solid companies that have a track record for high and growing earnings. So when we say equities are overvalued. What does that really mean, overvalued relative to what? With this everything is relative lens, I’m interpreting others to say: 1. Stocks are Expensive relative to potential future opportunities. So stocks now could be more expensive relative to stocks in 1 or 2 or 3 or more years. And to get that opportunity, I’m ok to have the certainty of losing no more than 1 or 2 % of value until then holding cash or bonds. 2. Stocks are expensive relative NOT to today’s actual real or nominal 10-year yields. But they’re expensive relative to an absolute discount that we can use now and always - to account for the fact that there’s just no way to predict future nominal or real yields. 3. Stocks are not expensive relative to anything else that has a long term track record. (I don’t think anyone else has said this yet) Personally, I don’t feel great about either of the 3 above. The PE IN 1997 was the same but the y 10-year was 7%. And how can stocks not be expensive when we see AMC, BB and others double every day. Although By default I’m taking the #3 interpretation because I’m fully invested. Which Warren Buffet and team do we listen to: Use the same interest rate regardless if yields are 7% or 3% or 1% Stocks “could be ridiculously cheap” assuming rates stay low for extended periods And this is if 30 year rates are at 3 for a long time Normally we would just say - who cares. But this is an era of all time rates, I think in this extreme case it warrants the question.

My first reaction was to post this: However, after watching part of his videos (7 hour streams!), there’s definitely a lot to learn. He really goes in depth in his research and makes concentrated bets on very long term ideas. Also, it’s a wake up call to set up smarter and better excel spreadsheets.

Can’t believe I missed this end of November 2020 article from Robert Schiller on Project Syndicate (mental note to read PS more frequently). https://www.project-syndicate.org/commentary/making-sense-of-soaring-stock-prices-by-robert-j-shiller-et-al-2020-11 (Can read with free registration) For the last year or so I haven’t been able to reconcile the market exuberance with the unprecedented low interest rates. The way Munger said in a recent interview that future stock returns will be lower in the next 10 years - and then abruptly corrected himself emphasizing “real” returns. The way Buffet always talks about the discount rate as gravity. Schiller wrote the book Irrational Exuberance in 2000 right before the dot com crash. He then Created the Schiller index for real estate and wrote an updated version of the book - this time about the exuberance in real estate...right before the 2008 Great Recession. (His recent book is Narrative Economics.) In his article he proposes a new measure (over the cape ratio) - the ICY inverted cape yield. Essential inverse of cape ratio - 10 year real interest rate. This would indicate (interpretation in my words) 1. This makes the exuberance in US stocks rational 2. Japanese and UKequities could be very significantly cheap right now What does everyone think?

Do you mean after a deal is announced after the merger? With the current frenzy, that’s very likely to play out. But after the merger you no longer have a floor. There’s still some arbitrage possible, one could still buy the no name lower quality units right at ipo close to $10, split them, and sell as they get close to 11, not even waiting for any Bloomberg rumors or announcements. You still have the $10 floor and could sell the warrants also or keep them as complementary lottery tickets. Worst case they stay at the purchase price. Its playing out like how you envisioned it to be! The pre-announcement SPACs start to trade at their expected value post-announcement. It's very hard to buy into promising pre-announcement SPACs under $11 now, even the unknown ones starts from $10.5. Chamath's IPOD is one of the most ridiculous SPAC that is currently on the market right now, trading close to 80% above cash value! This seems like a much profitable play than waiting for the SPAC's announcement. 1. Buy into promising SPACs at IPO 2. Wait for Robinhood gang to pile in 3. ??? 4. Profit

Thought it was interesting Grantham still sees electrification investments as lucrative. He also talked about how The SPAC craze is a sign of the top. But at the same time he is investing a large amount in Quantumscape which is both a battery maker and went public via a SPAC. It seems tough to imagine a ~50% correction this year, with 2T in stimulus likely to come in the next few months and promises of low rates for years, and as we’re about to exit the pandemic and see a rush to concerts, restaurants, etc that might be like the reincarnation of the booming 1920s after being locked up for more than a year. But at the same time, when I read through the craziness of WSB, large inflow of Robin Hood accounts, people I know that suddenly are interested in Bitcoin and investing in tech, and buying without any regard of value. Trading (not investing) is gambling which is addictive. It tough to imagine all the new Robin Hood accounts no longer interested after the reopening. Imagine someone getting into investing and seeing 200% gains a year not realizing that 10% would be a good year. I can’t reconcile those two things. My hunch would be this could overhear into something much bigger, then something like a taper tantrum could trigger a rush to the exits. I hope he's right. Things are getting crazy. Not just Hertz in bankruptcy anymore. It's everywhere you look. Thanks for posting. i saw it last night and was thinking about posting as well on this very thread. Highly relevant. I loved his description of the Dot.com burst and how it was in slow motion. First the junk got shot down, then the less junk, then better quality ... then the whole thing start rolling like an iceberg for the next 2 years. I liked his comment that he is not saying you should sell everything, but to re-allocate to value and outside the U.S. And that best time to sell/trim, is when you can sell but you dont want to sell as oppose to you want to sell but you cannot sell because its prices has come down. I also recommend his letter released in Jan 2021. https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/ I think they key point is that most of Grantham's interview was focused on technology names so that is why he was bearish. Fun facts: he drives a Tesla. If he were to the an interview on his views on cyclical/value names, i am sure he would sound far more bullish overall. I also highly recommend reading/viewing views from Mike Wilson from Morgan Stanley (not fully on bubble territory for him). Somehow he seems to get it right. His latest interview with Bloomberg, he describe how the overall market is broadening compared to how narrow (i.e. FANG) it was in Q2 and Q3 and how that is a good thing. So saying that while S&P500 might not move a lot in 2021, underneath the hood, the other 495 companies, will have good things happening to them. I recall back in March-April, in the midst of the mayhem, he was saying this is the foundation of a new bull market (i hope i remember correctly and that i am not misquoting). Now he sees a new economic cycle, which naturally lags the bull market, which started in March-April 2020. no disagreement there.

Anyone have any recommendations for hypervalued stocks with very low implied volatility? I was thinking of setting up a basket of 1 year puts for insurance. Most are pretty high. For example Tesla is at IV of 70something.

I’ve been waiting for today for 1 month in daily anticipation. Sadly disappointed. I had very large limit orders to buy the Liberty Media/ Malone SPAC. It kicked off at 13 this morning and pretty much stayed there the whole time. So much for my 10.5 limit orders haha. There’s no way I’m paying 30% premium. I guess January is a very different time than December.

What happens when Chamath gets to Z by next Tuesday?

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

Didn’t Tesla just pass Facebook in market cap? Meanwhile Bury recently built a short position. But after all that is what defines speculative frenzy - buying something only for the story. It is true the world will be transformed with electrification of everything and it will be remarkable. But you can tell that story when Tesla is at 30b and when Tesla is at 1T, but there’s a difference between the two:) Take a look at what is happening with GME. WSB is pumping the stock for a short squeeze that might rival what happened with VW. I was looking at buying puts but the implied volatility is 200%!

Haha yes. I like to think of Berkshire as a consultant. Four times a year they pitch me ideas and every once in a while I swing. I guess you can call your portfolio "50% clone of BRK?" haha, JK

Excluding SPACS which I think of as a cash account: 35% - Simpson This has been my majority position for almost a decade. This is the only position I’ll keep regardless of pandemics or word wars. 29% - BYD Followed Munger with this. Wasn’t expecting the EV frenzy. What does everyone think about their 92B valuation? Rest: ADSK - I know very expensive but they have a such a strong competitive advantage. I’ve been complaining they’re too expensive for a decade DEO - strong brand in the one industry that can’t be disrupted (can it?) DIS - this is a bet that parents will continue to spend money and will care about their kids in the future DISCA - Malone convinced me. They have a competitive advantage and are now following the example of Disney. Reminds me of Autodesk following the example of Adobe. STNE - following the Berkshire duo with this TYL - Tyler, Daily Journal competitor. Learned about it from a Munger video. Smallest of my positions. Keep meaning to learn more about it to see if it’s promising

Sounds like we might want to rename this or start a SPAC thread. Over the last few weeks I’ve transferred quite a lot of idle cash into SPACs, not as an investment, more as a special situation given the limited downside if you do get in close to NAV. Surprised how fast Peter Thiel’s SPAC was announced (although it might or might not move forward). Even in the last weeks a lot of the high high profile ones have moved above 11. I guess that answers my original question - how does this unique opportunity end? They start trading like IPOs and start out at a high premium above NAV on day 1, to the point where the average potential/likely upside gets averaged into the pre-announcement SPAC premium. With that said, as of now, today there are still quite a lot of SPACs out there with great managers near NAV. It would be great to compile a list with a short description. I’ll add mine once I get my sketchpad back.

That is a good point about confirmation bias. I personally have the feeling we could be at extreme overvaluation and the market could crash. I probably am looking for stories to support that. Some interesting links: The recent Munger interview, thinks that market returns in the future will be much lower. Interesting that after saying that, he quickly corrected himself and clarified that “real” returns will be a lot lower https://youtu.be/btdqC1V8cgg See the chart at 1:10. It could be that this will continue on for 7 or so more years (average duration between recessions) of course with a few 10% corrections, until the next recession before we get 30% to 40% crash https://youtu.be/9M2TG-https://youtu.be/9M2TG-yVrzw It’s not worth any mental effort to try to make predictions but I think it is important to see when things get really irrational.

Has anyone been reading through the Wall Street Bets forum on Reddit? It has almost 2M subscribers and almost every post is about more and more extreme gambling - putting everything on one stock based on random recommendations, meme stocks, Buying large short term options with most not fully understanding how options work and trading on maximum leverage. There are a lot of survivorship stories of 100x and 1000x and 10000x returns - think going all in on OTM Tesla call options. There are also some stories of losing up to 100% but then it’s save more money and keep gambling. The average age of Robin Hood users is about 28. There is no memory of a dot com or real estate bubble - got on board on the COVID massive rising tide. A lot of stories of people quitting jobs (in a time of high unemployment) to trade full time. How does this end? With the fed committed to low rates for years its tough to imagine a crash in the near future. But high margin gambling like this makes the market less stable. How could a 30%+ crash take place (even with low rates) in the next 1-3 years?

The 2019 inverted yield curve was an interesting one. I remember seeing all the interviews with Harvey in which he shows the amazing track record over decades, the whole time thinking, could this be the most predicted recession in modern history? Would it have been a case of remarkable inevitability, a Mandelbrot illusion of a pattern, or maybe because of the fast it was so predictable - because everyone was familiar within it would play out in a different way? And then Coronavirus happened. I guess we will never know. At least until the next time it inverts. Maybe by then everyone will have doubled their investments enough times they won’t want to believe it.

Also - how does this end? Or what are potential long term risks: 1. Funds just won’t find good deals. There are almost 200 funds right now looking for deals. And I heard in an interview at end of this year there are about 2 new SPACs per day. Can they really all find deals? And if they do are there that many great companies out there? 2. SPACs will start to behave more like IPOs. They’ll start trading 10% or more over NAV/cash 3. Regulatory challenges. If more of them turn out to be like NIO, there will be more regulations for more due diligence and more disclosure about compensation to SPAC managers 4. More opportunity for fraud, either with managers looking for the quick 20% pay without care for quality or long term investment (looks like Chamath is going for A-Z). or for private companies to misrepresent finances. Maybe that a worry for the future and not worth worrying about as long as it works now.

From all the near-$10 SPAC options, what is the best way to select investments - assuming about 10 of them. This is from perspective of selling shortly after announcement. What I’ve been doing: 1. Go with the reputable people. Go with the Zillow founder and Peter Thiel and others. But then you pay a premium. 2. By industry - like was previously mentioned. But how do we know if the group will find a good deal. Maybe it doesn’t matter? 3. By region. Asia? Other approaches: 1. Fundamental analysis - impossible 2. Random? Doesn’t matter. As was mentioned you can’t predict the best deals 3. Go with the lowest cost.

Crypocurrenies I think are most interesting as a human psychology experiment. They have the potential to be one of the biggest bubbles to date. Everyone is counting on the network effect of one coin when the supply is infinite will all the coins - everyone here could start one. The next generation will think this was the most obvious bubble. 1. Critical definition of a bubble is that it is something that will have a benefit and allow an evolution on the whole. Everyone in 1999 thought that the internet was going to change the world in a revolutionary way. They were right, it was actually a lot more more revolutionary than the crowds could ever imagine in 1999. The internet bubble left behind such an amazing infrastructure and it did change the world. And 21 years later today it’s still a main theme. 2. Another definition, related to above is that it is a great story. When you have something evolutionary paired with a great story, that’s when you start hearing the water in the kettle. 3. From Soros’ old book on bubbles, they tend to follow a 2 stage up cycle. Usually a big rise a fall then the grad finale. I think in 2040 we will be here trying to convince others how the big fad of the day resembles the Bitcoin bubble. We will also be talking about valuable blockchain companies to invest in. I do have a third of a Bitcoin, waiting to see $100,000 and $1 shortly after.

There’s an interesting interview with Howard Marks on Bloomberg and he talks about this. His theory is the markets are a plastic ball hovering over a jet of water held by the Fed. Once the Fed turns off the jet, it’s pretty obvious what will happen to the plastic ball.

This is a great topic. Look forward to seeing more insights from people in their unique field! So here’s my input. I should warn everyone, I don’t have any new ideas, these are the same companies I’ve mentioned on here for the last 5 or 10? years :) with maybe one exception. I’m an architect so these are all insights in the design and construction field. My approach is finding companies that will be around in 50 years from now with a similar strong moat and not susceptible to being disrupted by new technologies. And be ok to pay for the quality today. Simpson SSD I feel like a broken record talking about this, It’s been anywhere between 50-75% of my entire portfolio. Residential builders and structural engineers use the name like one uses the word Kleenex and google. When we build a house, it’s just a given that all the connectors and anchors will be Simpson clips - just ask any structural engineer. New wave: Current increased concern about carbon (wood is the perfect material), and resilience for earthquake and hurricane preparedness at the forefront. I think I’ll still see Simpson clips in house construction in 2070. Risk: very correlated (50%) to housing starts! Maybe disruption by future custom printing of hardware by AI? Autodesk For architects in US this is another given. It used to be with Autodesk Autocad for many decades, now no one uses Autocad (2D) but uses Autodesk Revit (BIM) which is 3D modeling as of 2008~. Architects have learned the program over a decade so for a new software to be adopted it would have to be 50% or 100% better, it wouldn’t be worth switching for something only 10% or 20% better. Contractors and owners have incentive to use it because the design drawings are in Revit. Public agencies take a very long time to change, most are still using CAD 2D for standards. New 3D Revit standards for public agencies could take another decade or a lot longer. I think I’ll still be using Autodesk in 2040 (unless Adobe buys out Autodesk:)) Risk: ADSK just always seems so very expensive! For me, I’m not as sure how to value this. I held it for a few years, sold out last year - big mistake. Adobe Similar to Autodesk, I’ve been using the Autodesk suite of software religiously for more than 20 years and in school before that. But for the architecture field it’s not as essential as Autodesk so not as high conviction. Adobe paved the way and showed how amazingly profitable the subscription model is. Autodesk pretty much copied what Adobe did, so it was like seeing the future before it happened. If I ran Adobe I’d buy Autodesk, they have great overlap. If that happened, it would increase competitive advantage of both names - sum of the parts greater value than each alone. Risk (for me): this is more graphic design so again not as essential for architecture. Not as sure if another program could overtake it. Tyler TYL They digitize public agencies (permit centers, courts, etc). Similar to what Munger/Daily Journal is trying to do. We submit drawings for review by the City to get permits. Where I live, in February 2020 we had to print thousands!!! of 30”x42” sheets of paper to submit permit application in person. When we have comments, we visit the permit center and use a pen to update by hand each copy of a sheet in person. The City has been working on digitizing the agency for more than 10 years. Now, just 2 months later the City is accepting PDF applications digitally in a makeshift temporary way. Perfect story of how Coronavirus is ending up accelerating big changes that were inevitable. I don’t know much about TYL. I just know that it’s inevitable that all agencies will need to be digitized. And once they are the company that does it will maintain the software for decades. Public agencies have a many decades long timeline. Digitizing agencies will cut costs for everyone in the long term. The way it was inevitable that people watch movies online instead of renting from Blockbuster. Value of TYL: don’t really know Risk: Even though profitable long term, municipalities will have much reduced budgets and many could go bankrupt in the near term. What I don’t get - why doesn’t the house set up a large public investment now to digitize all agencies. That would increase efficiency for everyone in the long term.