pricingpower

Seemed cheeky that when BRO presents their organic revenues they excluded from the calculation the 31mm of revenue lost from the 275 employees group that quit to form a competitor across the street. keeping that in the calculation shifts them from flat organic to shrinking a touch? Did like how they called out the opex savings of no longer paying those folks but expectation compensation costs will come back as they replace. Do wonder how much stock can drop before some goodwill impairments can start kicking in across the sector, they are currently showing non-cash GAAP gains on the stock dropping because of the escrow shares (think it was 64mm this quarter).

Level 2 is pretty helpful if you're often trying to execute larger sizes relative to market depth, even if trading infrequently. I find the sweet spot to be the level2 Fidelity gives you for free above some account size hurdle in Active Trader Pro (the classic version, new beta version they are doing is much worse). You don't get the good free level2 if you work for a bank/fund that makes you a professional for their licenses though. I typically use Fidelity to see pricing even when entering orders on IBKR as the level 2 is useful enough.

No idea what situation is with this one but it can be most rational for very small public companies to do odd lot tenders at an attractive price to try to reduce their number of shareholders below the threshold were they are allowed to go dark (200 registered shareholders if I recall). Overhead costs of maintaining a public company can be too high for it to make sense if there's not an objective to staying public (need to raise capital etc). As enough people pile into the odd lot tender to take advantage it makes the economics self defeating though so high odds of them getting pulled/modified if no longer beneficial to continuing shareholders.

Bloomberg is a step function better than alternatives but Interactive Brokers has a bond screener which is decent and shows live bid ask quotes for a good amount of corporate cusips, if I recall there was some nominal data fee involved like $1/mo that gets waived with enough account activity

Any books on the insurance broker industry / corporate profiles anyone has liked? The Gallagher Way seems the most broker focused but isn't recent.

Anecdotally the failure rate on these has been pretty high last couple years, particularly with the multiple accounts submissions changing the cost profile. ANEB just a tender with an odd lot provision where their original tender anything below 2500 shares was treated as an odd lot (to get down to few enough shareholders to go dark to reduce G&A) but they had an influx of odd lot buyers that killed that ability. they ended up running an odd lot tender with a 99 threshold, even in that 300k share tender 134k went to odd lots. A buyer for the orig odd lot provision still holding is now -70%, there is risk to these even if they can be a profitable hobby

AI is getting startlingly better quickly (gemini-cli is a neat free tool if you haven't played with it), any view which broker gets the least impacted over next 10y? I think consensus is personal lines most disrupted, mid-market next (broker is mostly a shopping around service?) but the highest complexity cross border stuff is where human activity in the loop remains stickiest? So BRO/AJG are most exposed to change while MMC/AON/WTW least? They all seems to have enough scale to spend as needed so is there much to think about beyond flavor of insurance they focus on and how aggressive the insurance co's can be to displace their intermediation economics?

Thought this was a well done article on how TRA / Up-C structures like in RYAN are becoming way more common (8% of recent IPO's?) with a few examples of unintended consequences. Personally I've viewed these structures as a signal that the company is not being managed as vigorously as it could be toward prioritizing external shareholders https://www.undervalued-shares.com/weekly-dispatches/tax-receivable-agreements-an-emerging-asset-class/

Trades at ~16.43 currently and after a sale of bulk of their assets closes in Q4 they'll pay a distribution of 14.50-14.82/shr per management projections and then when selling rest of multifamily buildings + 1 office building they project distributing another 2.9-3.5. Quick capital return boosts the IRR even though $ returns are modest, they project sales can be done in only 6 months. they actually lay this out nicely in a table in their merger announcement press release. special meeting for shareholder vote is tomorrow. https://ir.elmecommunities.com/news-events/press-releases/detail/372/elme-communities-concludes-strategic-alternatives-review Source(s) Estimated Amount Initial Special Distribution Net proceeds from Portfolio Sale Transaction and a portion of the proceeds from the new debt on Elme’s remaining assets (1) Between $14.50 and $14.82 per share to be paid following closing of the Portfolio Sale Transaction (2) Next Regular Quarterly Distribution Separate from Initial Special Distribution $0.18 per share to be paid on October 3, 2025, to shareholders of record as of September 17, 2025 Total Upfront Distributions Initial Special Distribution and Next Regular Quarterly Distribution Between $14.68 and $15.00 per share Additional Potential Special Distributions Net proceeds of the sale of Elme’s nine remaining multifamily assets and Watergate 600 Between $2.90 and $3.50 per share (3) Total Between $17.58 and $18.50 per share

ELME (formerly Washington reit) is pretty interesting here, they are under contract for an asset sale and plan to liquidate the remaining properties pretty quickly. Middle of management's liquidation assumption range works out to a low 20's IRR now. Some of their multifamily buildings are ~15% federal employee/contractors so there's maybe some idiosyncratic government shutdown / DOGE risk getting priced in.

BRO's $9.8bn Accession deal that closed in August was done at like ~21x trailing EBITDA (9.8bn/476mm) or ~12x under their adjustments (mainly 130mm cost cuts + 20mm additional revs and adjusting price for 600mm DTA's)? Arguably they paid a bit less as they funded part of the deal by issuing $4bn of stock in June at 102 which is trading at 80 now... so maybe 10-11x? That was a large acquisition relative to their size, at a glance looks like it equals all their cash acquisitions over 2004-2024.

I thought this was a nice informed take highlighting financial assumptions where debt is creeping into some of the heavy capex AI buildout happening, like most rapidly changing tech stuff the gaap accounting regime is probably not capturing intrinsic value changes as well as other industries https://www.uncoveralpha.com/p/too-much-ai-too-soon?hide_intro_popup=true

Funny enough I view PGR as going forward the most anti-AI thing I own, they have an existential risk in the form of self driving cars which will eventually significantly reduce losses needing insurance, AI capex mania brings that long tail forward. The growth of PGR's direct underwriting is a kind of double whammy for the insurance brokers as along with that premium decline there is less need for an intermediary agent. The stickiness behind retained premium as kind of the engine of the brokers automatic GDP growth also becomes at risk as AI gets good enough to do your risk adjusted price comparison insurance buying for you in more commoditized products like car and home insurance, the barriers to price shopping renewals decrease significantly and advertising should get less powerful. I'm pretty unclear whether AI is net good for broker profitability, it seems clear there will be stronger scale advantages and an SGA opex benefit but the topline impact seems less knowable?

Any views on the upcoming Neptune Insurance IPO? Ticker NP. They're a MGA "managing general agent" business model focused on resi flood insurance, pretty similar profile as insurance brokers although don't think there are any other public in the US... they take a % fee for underwriting and arranging while a capacity provider writes the actual insurance and handles claims. Unit economics are a policy costs the consumer $1151 of which $695 goes to the provider (think Lloyds), $135 commission to a typically third party insurance agent and Neptune keeps $321 with pretty small incremental expenses as using AI based underwriting. The lifetime loss ratio on what they've bound has run only ~25% so providers have built large cumulative underwriting gains to date. Main competitor is the very political and subsidized NFIP government program with 90% of market where there's been some reform circa 2012 that makes private insurance more viable (meeting requirements for conforming mortgages in flood zones). There's a deep uninsured market (FEMA calls it out of ~100mm buildings in US ~9mm buildings are a 1%+ odds of flooding where NFIP insures only 3.7mm and Neptune covers 245k). Policies have been about 85% renewed but because prices are increasing premium retention has been ~98% so very predictable earning stream much like the brokers. Probably going to IPO at a nosebleed valuation around a 30x EBITDA multiple as one of the rare AI infused companies that's been profitable since early days.

The Magic of Reality is a great nonfiction book for a curious 10yo. For a 7yo would recommend the Wild Robot (had a recent movie adaptation which changes the plot vs the book) and The World According to Humphrey. For a 4yo the Step Into Reading presidents books were good. The Great Illustrated Classics series abridges older classics into a like 2-4 grade level.

Interesting there was a VIC writeup but it didn't mention EPIX is a PFIC which comes with tax filing complications / worse treatment if done outside a retirement account for US investors, harder than some of the other biotech liquidations. SIOX took a surprisingly long time to distribute cash (think it was ~8mo after special meeting?) presumably because of resolving foreign subs.

This substack post by Adu Subramanian is the best primer I've seen for bottom up biotech investing particularly for the non-specialist in the chatGPT era https://adus.substack.com/p/some-tacit-knowledge-in-biotech

Included in Kindle Unlimited and also an Audible audiobook version which is free with my subscription but "This title uses virtual voice narration", first time I've seen that in the wild

Interesting missed that thx just bought a copy. Will pair well with the Becoming Katharine Graham documentary I've been meaning to watch

"The Zen of Thrift Conversions: How To Turn Hidden Bank Stocks Into Big Gains" by James Royal is a nice modern take on the strategy. Think there's a risk/reward sweet spot where you have to be someone that wants to maintain a cash balance in your portfolio, it helps to live somewhere not a big finance city and can't be deploying too much as there are usually participation size limits. Peter Lynch talked about it in a few places as well if I recall.

It’s fascinating how active Munger stayed, refreshing article: https://www.afr.com/wealth/investing/charlie-munger-s-australian-friend-says-he-was-a-great-capitalist-20231129-p5enul

I do think one place that analogy breaks is a key change in railroads was the realization that double stacking (and maybe computer controls) would be pretty transformative for their economics. Outside of higher barriers to competing pipes is there a similar argument for them recently? Munger articulated it like this in the 2007 Wesco meeting Berkshire’s investment in railroads Railroads – now that’s an example of changing our minds. Warren and I have hated railroads our entire life. They’re capital-intensive, heavily unionized, with some makework rules, heavily regulated, and long competed with a comparative disadvantage vs. the trucking industry, which has a very efficient method of propulsion (diesel engines) and uses free public roads. Railroads have long been a terrible business and have been lousy for investors. We did finally change our minds and invested. We threw out our paradigms, but did it too late. We should have done it two years ago, but we were too stupid to do it at the most ideal time. There’s a German saying: Man is too soon old and too late smart. We were too late smart. We finally realized that railroads now have a huge competitive advantage, with double stacked railcars, guided by computers, moving more and more production from China, etc. They have a big advantage over truckers in huge classes of business. Bill Gates figured this out years before us – he invested in a Canadian railroad and made eight hundred percent. Maybe Gates should manage Berkshire’s money. [Laughter] This is a good example of how hard it is to change one’s mind and change entrenched thinking, but at last we did change. https://worldlypartners.com/charlie-munger-archive/

The Readout Loud by Stat is a nice industry podcast. There was a Stifel industry outlook posted in another thread somewhat recently. Even going into this year the new effectively price controls on top drugs potentially making new research uneconomic was already an issue. Then the cost, timeline and uncertainty around drug approvals looks scarier as a meaningful chunk of the FDA brainpower behind doing approvals was just fired with some pretty anti-science rumblings from the new folks in charge. The tariffs situation getting steadily scarier as pharma is something the US exports so easily targeted by retaliatory tariffs along with chaos in supply chains for a while (drug components are mostly made in China/India).

$RGNX is an interesting one at recent values, gene therapy seems pretty inevitable for at least some uses although maybe it's not this generation of companies that figures it out. Eye focused gene therapies are simpler in some ways (stays segregated from rest of body, lower dosing to manufacture, runaway immune issues maybe less likely etc). A large portion of biotech is deep in net net valuations territory, particularly the smaller ones that are not in any indices.

UNP had 24.3bn of revenues in fy24 while spending only 4.9bn on compensation, would have to imagine that improvements in automation will net help trucking competitors more than the rails. The natural advantage that rails have on fuel efficiency (metal wheels have much less rolling resistance than tires) probably also gets eroded as hybrid/battery trucks become the norm eventually, 50% superior rail energy efficiency on a smaller absolute cost is a smaller moat. Seems like most of the technology benefits will accrue to making trucking a hard competitor over the next generation although not strongly enough that rails get displaced the way the canal companies were before them. Maybe more toll roads popping up will maintain the competitive balance vs trucking which otherwise gets free publicly subsidized road use. One nice side effect from the debt fueled buybacks of the last decade is NSC economically now has $1.5bn less fair value of fixed rate debt with each 100bp rates increase, pretty meaningful functional bond short for a company that made 2.6bn last year.