KJP

A "value" thesis typically relies on regression to the mean. It goes wrong when there is no regression to the mean, just continued progression toward zero (the "value trap"). A "growth" thesis typically relies on the business being able to stave off regression to the mean for some amount of time. It goes wrong when the progression from the mean stalls out too early (or never materializes to begin with).

As a connoisseur of children's programming, I was shocked to learn how many brands and titles these guys own. I'm in WLDBF too, was gonna see if there was a thread and if not start one when I get time. They own 80% of Peanuts among others and have a really interesting vertical integration from content development through consumer products sales. Yep .. a really compelling monetisation story backed by strong execution (former Marvel executive), solid cash flows, really attractive multiple and lots of great kids content that is in demand by Netflix, DreamWorks and AppleTV+ besides one of the largest presence on YT. And a tight float to boot. I like the runway here for sure. Kids content much better for product sales. Their YouTube channels do insane numbers. I like the CEO's focus on quality over quantity for new content creation. Do you guys know where I can find a write-up or can you start a thread on the company? Always interested in Canadian small-caps. Thanks! Not a writeup, but Andrew Walker's podcast with Joe Boskovich on Wildbrain may be useful: https://yetanothervalueblog.com/podcast

I also was underwhelmed by the letter, given the raw material that the events of 2020 gave him. The passage about BHE's $18 billion grid transmission work was interesting. I don't follow the company closely enough to even know what he's referring to. And he didn't expressly compare it to a pipeline, but if you change a few words in the following three paragraphs, he could be describing Transco, which has worked out fairly well for its owners: "Let me tell you about one of BHE’s endeavors – its $18 billion commitment to rework and expand a substantial portion of the outdated grid that now transmits electricity throughout the West. BHE began this project in 2006 and expects it to be completed by 2030 – yes, 2030. The advent of renewable energy made our project a societal necessity. Historically, the coal-based generation of electricity that long prevailed was located close to huge centers of population. The best sites for the new world of wind and solar generation, however, are often in remote areas. When BHE assessed the situation in 2006, it was no secret that a huge investment in western transmission lines had to be made. Very few companies or governmental entities, however, were in a financial position to raise their hand after they tallied the project’s cost. BHE’s decision to proceed, it should be noted, was based upon its trust in America’s political, economic and judicial systems. Billions of dollars needed to be invested before meaningful revenue would flow. Transmission lines had to cross the borders of states and other jurisdictions, each with its own rules and constituencies. BHE would also need to deal with hundreds of landowners and execute complicated contracts with both the suppliers that generated renewable power and the far-away utilities that would distribute the electricity to their customers. Competing interests and defenders of the old order, along with unrealistic visionaries desiring an instantly-new world, had to be brought onboard."

I originally posted this in the Roku thread, but decided to move it here as my ramblings got more and more untethered to Roku. Malone talks briefly about Roku in that podcast. As he explains, Roku is trying to be a middleman aggregator. Elsewhere in the interview he mentions that TCI once went to pre-Jobs-second-act Apple and asked them to design a UI for a hardware device they were trying to build because TCI didn't have the design expertise to do it themselves. I think this is one of the issues Rk was getting at earlier [in the Roku thread] -- any device built by Comcast may be junk compared to what Roku builds. I'm neither long nor short Roku, but I keep posting here [the Roku thread] because I'm baffled by the business, and thus fascinated by it because my bafflement suggests I don't know how this part of the world (among many others!) really works. If I understand Roku's business correctly, it has managed to put a soft lock on consumer screens manufactured by third parties (i.e., TVs) and then charge content companies for access to those screens. Having used a Roku device for many years, it appears to me to be a very basic "thin" layer of technology between the essential hardware (my TV) and the output from that hardware that I actually care about (video content). How is there a $50 billion business -- and if you believe the bulls, a business going to be worth much more in the future -- in doing that? Why are other people in the ecosystem not taking that business for themselves? Microsoft and Windows seems like an obvious analogy. But a general compute OS seems like a more complicated endeavor than a TV OS. And, to my knowledge, Microsoft charged the computer manufacturers; they didn't also charge the third-party software developers for the privilege of writing Windows compatible software. There's also an interesting net neutrality-like issue floating around here. In theory, broadband providers could try to charge third-parties for access to the pipes they have into your house. But the general consensus appears to be that that is wrong and the broadband "platform" into your house should be open to third party content providers for free (or, rather, you as the broadband customer should pay all the cost). But then we also accept that just a bit further downstream it's OK for someone to charge for access to the physical device we use to access that broadband service, e.g., Roku charging content providers for access to your TV or Apple's app store vig for third party content providers to access your iPhone. I wonder if this is one of the reasons Malone "missed" Roku. He obviously knows about the business model of charging third-party content providers for access to his hardware; that's what he did for years by, for example, extracting equity stakes in cable channels in return for being included in the cable packages he offered to his subscribers. That's very similar to what Roku does. He must have seen that. So, what happened? Did he fear that it would be too dangerous from a regulatory perspective for the broadband company itself to do this? It also points out a limit to the Bill Gates observation that Malone quotes early in the interview. According to Malone, Gates once told him to not worry about hardware because any piece of hardware can be emulated by software, and Malone suggests he should have listened to that advice. But what if you can not only charge customers for your hardware, but also charge third party content providers to access that hardware as well? In that world, the hardware would be the distribution bottleneck to be exploited by its designer/manufacturer. That concept seems silly in the world of general computing, the internet, and broadband net neutrality. Yet it seems to be working for Apple. Finally, do these business models also work in part because they extract value in ways that are invisible to the consumer. Consumers understand what they pay for an iPhone; I doubt they understand the cost they indirectly bear as a result of the app store. Likewise, people understand the cost of a Roku device; do they understand the indirect costs of allowing Roku to siphon off profits? Buy-now-pay-later companies like Affirm and Klarna are another one. On the surface, it looks great from the consumer perspective. But as BNPL grows, aren't prices going to rise for everyone to account for the higher merchant discounts BNPL providers charge relative to other payment methods? OK. That's quite enough rambling from me.

Technip Energies (h/t Clark Street) SNC-Lavalin Here and there over the last month: Altria, Berry Global, Lockheed Martin

Here's a short, high-level overview of the last 60 years of defense company performance: https://fortunefinancialadvisors.com/blog/exploring-the-surprising-resilience-of-the-defense-industry/ It doesn't seem like an industry that ought to trade at below market multiples.

Interesting disclosure about the effect of the TCJA's mandatory five-year amortization period of R&D for tax purposes on slide 10 of Lockheed's earnings presentation today: https://investors.lockheedmartin.com/static-files/64e5aa03-9023-423a-8908-2aae8c7015ac My understanding is that for tax purposes starting in 2022, companies must capitalize and then amortize R&D over five years, rather than taking a full deduction for all R&D in the year the R&D expense is incurred. Here's one explanation of this tax law change: https://taxfoundation.org/research-development-expensing-tcja/ For example, if you're spending $10 billion per year in R&D, you've historically been able to get an annual $10 billion deduction. But starting in 2022, your initial annual deduction would only be $2 billion (1 year of a 5-year amortization of $10 billion), resulting in an additional $8 billion of taxable profits in that year relative to prior tax years. I believe this is the source of the additional $2.1 billion and $1.8 billion in 2022 and 2023 taxes referred to in the footnote to slide 10 of the Lockheed presentation. That tax deduction will normalize over five years, though likely always create a bit of a drag relative to 100% immediate expensing due to inflation. As the LMT slide shows, it also could cause some significant near-term declines in FCF.

McKinsey's Valuation treatise may work for you. It does a good job of, among other things, walking you step-by-step on how to rearrange GAAP financial statements to look at underlying returns on capital.

LICT may interest you. Very conservatively capitalized (particularly for its industry), decent current free cash flow yield and Gabelli controls capital allocation (buybacks).

2020: 14% Historical 2020: 14% 2019: 31% 2018: 11% 2017: 10% 2016: 22% Largest positive 2020 impact on portfolio: Griffin Industrial, Charter, IES Holdings, Rosetta Stone, Parkit, Williams, IAC Largest negative 2020 impact on portfolio: Black Stone Minerals, Wells Fargo, Hill International After a good 2019, I was fat, lazy, and unprepared in March, which led to some poor investment decisions, poor portfolio management, and missed opportunities. Hopefully I've learned a few lessons. The distribution of returns in the voting is interesting. If the S&P is down, say, 15% next year, will we have the opposite negative skew to returns (a fat tail with -50% returns), or have board members mastered catching big upside while avoiding big downside?

Huntington Ingalls

Congratulations! I will take the money and run. It's nice to get bailed out by something that didn't have anything to do with why I invested.

Parkit (PKTEF)

Excluding cash: US Cable/Broadband: 23% Charter: 15% Altice USA: 5.5% LICT: 2.5% US Real Estate: 22% Griffin Industrial Realty: 9% [This was 17+% until sold half recently] FRP Holdings: 7% Paramount Group: 3% PCYO: 3% US Energy Midstream: 8.5% Williams: 5.75% Enterprise Products: 3% Others Huntington Ingalls: 8% [Growing increasingly uncertain about this; likely will go] IAC: 7% IES Holdings: 6.5% Hill International: 5.75% Black Stone Minerals: 5% Quorum Information Technologies: 4% Wells Fargo: 4% Advant-E: 4% IDW Media Holdings: 1% General Dynamics: 0.5% Glancing over this, it appears that the biggest decision here is one I didn't consciously make: Massive overweight to the United States (I am a US resident).

50% of Griffin Industrial Realty

Vornado a bit of Paramount Group

An "asset-light" home builder typically is one that does not have a large, on-balance-sheet land bank. Instead, they, for example, will use option contracts to control large amounts of land. NVR is an example of this asset-light model. The other area where home builders and sink alot of assets is inventory, i.e., homes that are built or in the process of being built. That is a reason some home builders produce no free cash flow despite substantial earnings. In theory, this working capital drag should ease as growth slows (or even goes negative), but that is the same point in the cycle at which you start to get inventory writedowns (and either land-bank writedowns or write-offs of land options).

Correct.

Alexander's Equity Residential [if history is any guide, these are good buy signals.]

Sold Comcast, bought Altice USA.

See, e.g., https://www.theatlantic.com/magazine/archive/2020/11/squash-lacrosse-niche-sports-ivy-league-admissions/616474/

There's some of those here too. We're likely not in too different of an environment. You have the Del Barton, Lawrenceville, Peck, Morristown-Beards of the world which are $40-60k a year but for mere mortals the Bergen Catholic, St. Joe, Don Bosco Preps are all reasonable at $15-20k a year, IMO. Yes, I think the difference between Bergen Catholic and, say, Hackensack High School is very significant. You also have a good pipeline into schools like Fordham and Georgetown. It's just tough to pay NJ property taxes and then also private school tuition, though I suspect many to private only for high school.

I'm surprised at the relatively low costs being cited here. Where I live (Philadelphia area), the higher end private schools are $30,000 - $40,000 per year. Here are some examples: Germantown Friends: https://www.germantownfriends.org/admissions/tuition-fees Springside: https://www.sch.org/admissions/tuition-financial-aid Germantown Academy: https://www.germantownacademy.net/admission/tuition-and-fees Haverford: https://www.haverford.org/admissions/tuition-and-value Shipley: https://www.shipleyschool.org/admissions/affording-shipley Abington Friends: https://www.abingtonfriends.net/admission/tuition/ Baldwin: https://www.baldwinschool.org/admissions/affording-baldwin Friends Select: https://www.friends-select.org/admission/tuition So, what types of schools are charging $10k/year? Is it the neighborhood Catholic school? Moreover, it's not clear to me that even the high cost schools produce big advantages in college admissions relative to good public schools. Here are the college matriculation lists from two of them: https://resources.finalsite.net/images/v1591801606/schorg/cejrwfxfqpopzdichsmf/MatriculationList2016-2020.pdf https://www.friends-select.org/educational-program/college-planning-and-placement/college-list

The demand to relocate out of expensive cities seems to be high according a survey by Blind, which verifies employees by asking them to provide their company email address. Roughly third are willing to relocate even with a pay cut. In addition, 40-45% will relocate without a paycut, depending on city/company. Here are results broken down by company and by city: https://www.teamblind.com/blog/index.php/2020/09/14/44-of-professionals-are-happy-to-take-a-pay-cut/ https://usblog.teamblind.com/wp-content/uploads/2020/05/PayCut.pdf https://docs.google.com/spreadsheets/d/1zF_jxowBZYkiJIeatZAm3soelVBpoFf1TbjEZVwxBpA/edit#gid=171959972 I don't think that's the demand curve Bizaro was referring to. You appear to be trying to identify the number of people currently living in cities who would move elsewhere if they believed they could. I believe he's asking about the demand from people who would like to live in cities (or different cities) but currently do not because it is not practical for them (cost, location) to do so. Is it possible that widespread WFH actually increases demand for certain cities, because people who historically had to work in say, Omaha, Des Moines, Little Rock or Tulsa can now live in NYC, Boston or LA? Likewise, is it possible that housing in Minneapolis becomes more in demand because WFH frees people from living in, for example, Duluth? Put another way, your comments seem to assume that people are in cities because that's traditionally where good jobs have been. But what if it's the other way around: Goods jobs are traditionally in cities because that's where people want to be? If it's primarily the latter -- and if the desire to live in cities going forward has not changed -- when how would widspread WFH affect demand for urban housing? Applying this framework to the Detroit example, vacancies were high and housing prices low, not just because people left but also because other people did not want to move in.

Demographics appear to be another SFH tailwind: https://www.calculatedriskblog.com/2020/10/demographics-renting-vs-owning.html