ValueArb

My calculation is that the 15% withholding tax will work out to $7, so really only $300 gain for odd-lotters.

Is it still growing mid-teens? 2022 revenues only grew 10% over 2021, and 2023 revenues are only up 7% over same periods in 2022. Operating profits have been flat from 2021 to TTM 2023. This is what makes GOOG hard for me, I don't know any easy way of filtering out COVID effects. 2020 +13%, 2021 +41%, then it's been slow ever since. GOOG crushed 2010 decade averaging 21% revenue growth but growing $300B in revenues is way harder than growing $30B. The way I try to estimate to growth cap-ex is extremely simplistic, and probably wrong. I take the revenue growth and assume the percentage of cap-ex used for growth cap-ex is the same as the percentage of new revenue. So in 2022 I use roughly 10% for growth cap-ex and the remaining 90% for maintenance cap-ex. So my owner earnings for 2022 is $60B net income + $16B depreciation - $28B cap-ex = $48B in real free cash flow. Trailing 12 months works out to $55B in RFCF, a 3.5% yield on enterprise value or 3.3% on market cap. To get 4.5% yield on EV requires that 65% of all cap-ex is growth capex. I don't think paying 28x owner earnings is unreasonable for 15% growth the next decade when you have a moat this strong. But it does not have a margin of safety, and if growth rate is closer to 10% returns are likely to be disappointing. Lastly, I doubt there are many opportunities to run it more efficiently. I've worked at large silicon valley companies before, and if they cut back their option plans they are going to have trouble attracting the best candidates. Apple may only offer RSUs to a smaller proportion of employees but it also tends to make it up with cash comp and other benefits. There are no free lunches, if Google wanted to end the option plans, they pretty much have to replace them with something close to $22B in annual cash comp/bonuses. Beyond options there is also a ton of dead-wood, but that's true of any tech company with thousands of employees. It's hard to weed out without causing lots of collateral damage. Look at it this way. What are the odds that the board cans Sundar Pichai, and more importantly, replaces him with an operational whiz tasked to make the company far more efficient? My guess is that Pichai has a 10% chance of being fired in any year, but the odds of him being fired and replaced with someone with permission to upend the culture the founders created and still prize is maybe 100-1. So even if I'm wrong about it how hard it is to run more efficiently, odds are thin that it ever will be. This isn't Zuckerberg turning on a dime and not giving a crap about employee unrest. Google is fat and happy and even if it wasn't it's controlled by fat and happy founders.

https://www.wsj.com/world/europe/russian-pows-describe-nightmare-of-combat-in-ukraine-4dd492b5?mod=russia_trendingnow_article_pos1 https://www.nytimes.com/2023/12/01/world/europe/russian-soldier-burial-war.html

I am sorry, but I can't figure this one out. As of 2022 sales had only compounded by 4% a year over the previous decade, and this year revenues are down 10%. Earnings only compounded by 5.3% over the decade. Looking at 5 year periods, EPS annualized growth has been well under 10% since 2018, and last time over 11% was 2011. I like the business and love the balance sheet, but my other problem is the quality of its reported earnings. Over the last 5 years it's reported $171M in after tax earnings, but my measure of real (owner) earnings/cash flow (earnings+depreciation-capex to ignore working capital changes and SBC) was only $120M, 30% less. That's a pretty big discrepancy. Even the standard FCF measure is worse, it's $83M over the last 5 years, less than half reported earnings. Looking back from 2008 to 2017 real cash flow almost matches reported earnings exactly. But since 2018 real cash flow has been substantially less than reported earnings, and the cause appears to be cap-ex costs accelerating much faster than depreciation. Based on TTM "real" cash flow of $8M, it made around $4.50/share. In 2022 it was roughly $8.50. That would mean its trading today between 36 and 68 times two measures of current/normalized earnings. Again seems like a good solid business, but its valuation seems extreme unless this turnaround is really going to massively accelerate earnings and revenue growth.

My ticket broker buddy got us tickets to Brit Floyd, which I'd never seen before but is supposedly the best Pink Floyd cover band. I love the Aussie Pink Floyd, seen them multiple times, but now have to admit Brit Floyd is even better. Top notch musicianship, vocals, song selection, visuals, and they even had a fairly impressive roster of guest musicians including Roger Water's son Harry on keyboards (which he played on his dads gigs for a couple decades), Durga McBroom and Scott Page from David Gilmours Floyd edition, and PJ Olsson from Alan Parsons project. The weirdest part is I told my ex-wfe I was going to it and she said already had a ticket. She loves Brit Floyd so much she got a solo ticket up in the rafters. So we agreed to drive together and last second my buddy cancels because he wasn't feeling well. So I end up giving his ticket to my ex so she could join me up front in the second row. Since she let me off without alimony I think it was the least I could do;)

https://arxiv.org/pdf/2311.07590.pdf

(1) is a tacit admission we are going to let Ukraine bleed for years in order to bleed Russia for years. That's an realpolitik type choice that I find as awful and short sighted as most realpolitik decisions. The risk is if Ukraine collapses now you have Russia on the border with Poland, Romania, Hungary, etc. As they rebuild their military in part by using Ukrainian resources and draftees, the FSB will be in all of the border countries working to foment corruption and elect Putin approved puppets. Eventually there will be a mess large enough that people will look back and say, yea, we probably should have stopped Russia in the Ukraine. (2) is the only morally acceptable choice in my mind. It has virtually uncapped positive benefits as a beaten Russia loses influence not only in Ukraine but in Georgia and other border republics who see it can be defeated and that western support can be trusted.

R.I.P. Charlie. My condolences to Warren, I know this must hit him very hard.

Securing the southern border could be done with a stroke of a pen. Simply start giving work visas so we can vet those workers and ensure they return home after done with their job. People forget we never had a problem with border security until we tried to secure the border. In the 70s it was almost all "circular migration". Migrant workers came up to make more money working US farms during the harvest season, then took their money back home to their villages and families every winter to raise their standard of living. Then we made it a lot harder to cross the border, so they moved into the US with their families permanently. The war on drugs is also a big contributor, but that's a whole nother problem.

Just that I expect Europe to continue to provide Ukraine with the weapons and support they need to keep fighting?

Yes, with enough support from the US, EU and Great Britain. They need more long range weapons, more modern fighter bombers and SEAD, and more modern armor. If they can better suppress Russian SAM coverage of the front lines they can actually implement a combined arms approach to a break-through, using air delivered precision bombs to clear the way for armor penetration. The aborted offensive did get roughly 50 miles from Mariupol, once they reach within 25 miles Crimea becomes undefendable. Without rail lines for resupply their front line troops in southern Ukraine are trapped and soon starved of ammunition. As soon as the Kerch bridge gets taken out again Russian forces likely panic trying to get out via the only remaining escape hatch, the ferry system. Ukraine forces likely sweep through pretty quickly at that point. Once Crimea is retaken it frees up a lot of Ukrainian troops to reinforce the Donbas front lines. That's a tougher nut given the long border and fewer clear points like Crimea that allow for envelopment of Russian positions. At this point the war might just devolve in a decade long slog where Ukraine has recovered most of its territory and just can't eject Russia from the last few miles. But they can entrench heavily so that it will no longer require a massive national effort to defend and just go back to the cross border shelling that the Donbas endured for the first eight years. Eventually Putin is gone and a new Russian government might want to end the bleeding and being international pariahs. The main point is this is and always has been destined to be a long war ever since Russia failed to take Kyiv. There is no reason to become excessively pessimistic just because one offensive failed, or that we are two years in without victory. Russians at the front are fighting because they have guns in their backs, Ukrainians are fighting to defend their families and homeland. Ukrainians aren't going to quit, they will find every way possible to win this war even if takes another decade, while Russian troops will be working on every possible way to get back home.

By end of 1916 the French had taken nearly 4 million casualties with around 900,000 dead from a total population of only 39M. The germans had tried to turn it into a war of attrition by attacking Verdun which they knew the French would never surrender, hoping to "bleed the french white". The allies counterattack at the Somme failed miserably. The Russian front had collapsed in 2015, Brusilov's brilliant surprise offensive in 2016 bogged down, and the Romanian entry on the Allied side was quickly crushed, doing little to rebuild hopes that Germany would have to divert more troops to the east. We keep seeing things through the mirror of the recent past. A country unified in a fight for its very freedom is a powerful thing, and the citizenry is willing to tolerate a huge amount of sacrifice for a long period. I don't see Ukrainians ready to compromise for at least a couple more years. Europe doesn't want Russia on Poland's border, or to have access to all of Ukraines resources. It just spells bigger problems in the future. I have confidence that the EU and Great Britain won't flag in their support of the Ukraine. And I have hopes that we will finally get off the pot and start providing full support from our massive supply of retired armor and air assets from storage as the administration stops trying to walk a tight rope between helping and not enraging Putin, realizing that the status quo is just grinding down the Ukrainians and leading to a longer and more disastrous war.

it’s funny that Putin okayed Ukraine joining NATO early in his tenure. At the time rebuilding the USSR was way down the list compared to cementing his control over Russia. It’s only after he was more secure in his power that Ukraine became “existential” to Russian “security”, ie rebuilding the Russian empire. There is no way Ukraine could ever negotiate any peace deal with Russia until it’s ejected from their territory. No promise from Putin can ever be trusted, any cease-fire or peace will just be used to restart FSB corruption of Ukrainian politicians and institutions, while rebuilding the Russian military for another final assault. People who think Ukraine is in trouble should read their WW1 history. France took far more casualties in less time from a smaller population but kept at it for five years until the Germans were expelled. I’ve said it since the beginning is a 3-5 year war. We have contributed to lengthening it by being so slow to supply key weapons. Our military storage overflows with retired Abrams, Bradleys and F-16s we will never use that could have been supplied in large volumes well over a year ago. Instead we dribble out handfuls of weapons, just enough to keep Ukraine from being overwhelmed, ever enough to win.

There are three major definitions of efficient markets, weak, semi-strong and strong forms. Most economists today have given up on trying to justify the strong and semi-strong forms and it appears the weak form is the prevalent hypothesis. What that essentially means is that the market incorporates all historical data, such as price trends, so that you can't predict future price movements using technical analysis. But it allows for generating alpha using fundamental analysis. Essentially in the real world markets Buffett or Munger will tell you they believe the market is usually efficient, but occasionally they can find things that are clearly mispriced. Clearly there are factors (illiquidity is a big one) that lead to more mispricings, which is why Buffett's returns were a lot better when his portfolio was a lot smaller. In general, the vast majority of large caps are probably fairly valued, they are heavily researched and covered by lots of liquid funds, unlike small and micro caps. But that doesn't mean they are always fairly valued, there are opportunities like AAPL at an 11 PE where the market clearly doesn't understand it correctly yet. Facebook's huge swing is another example. But it's pretty unlikely that the average popular big tech stock is undervalued significantly more than the average other stock. Maybe if you find a huge new opportunity the market is undervaluing, like the current fervor over pattern matching, er "AI" algorithms. But often, like in that case, the actually value of the technology ain't quite what the hype would have you believe and there are lot of problems to solve before it can be.

I always recommended owning a total stock market index, even before the magnificent 7 took over the SP 500. Smaller less liquid stocks tend to offer higher returns over long periods. Of course you have to go back to 2000 before you get a significant benefit to owning VTSAX over the SP 500, and the last 5 years or so its trailed. But it just think it offers more diversification, esp as the SP 500 gets more concentrated.

Historically the cheapest stocks are the ones with the least liquidity, and they tend to offer the highest long term returns according to academic studies. But when picking individual stocks, catalysts matter. What you've described as your catalyst is buybacks, if they continue to buy back shares you almost hope the price doesn't increase. The cheaper they buyback shares, the more equity your shares gain in the value of the company. Eventually one day the market will wake up and you'll see it reflected in price, it happens a lot faster if they are growing faster. But to also echo @Malmqky, governership matters too. If management/founder/single shareholder controls the company you want to make sure they'll continue to treat other shareholders well.

No idea, to be honest I'm not really clear on the mechanism behind it.

Buffett doesn't "buy" expert advice. He's only going to invest if he feels he truly understands the business himself, and doesn't have to rely on anyone else's judgement. Basic economics tells you that investments are priced on their likely returns.. If tech has higher expected earnings growth then it will be priced higher, making its returns to investors similar to other investments. And we can see that in real life from the very high multiples favored tech companies trade at. Buffett has been the most successful investor in history looking for one foot hurdles. Not only is he unlikely to change at 93 years of age, but his results are a pretty compelling example that his preference is optimal. Thinking you can pick outperforming sectors in anything but hindsight is hubris that Buffett doesn't share. Valuation is everything, overpaying for something because it's growing faster is as big a mistake as overpaying for any other reason. The idea you can just pick a sector and pile in thinking it will outperform has a lot of problems, first being risk and diversification. In tech the other problems are most clearly illustrated by Cathie Woods, who is the high priestess of expounding on the glittering future for tech companies. What has it gotten her investors? Even after this "good year" for her, since ARKK was founded it's trailed the Nasdaq by nearly 100% and the SP500 by 24%. In the last two years she's lost 57% while the indexes are only down 8% and 1%. And most of her investors piled in after her lucky 2021, meaning in terms of dollars invested in ARKK, almost all of it is down by huge amounts. There are tech companies worth owning. But use reason, not hope, to value them. He's never switched from value investing principles, even if he's looked for value in different places. He refused to pay a 20 PE for Coke for gawds sake. The market doesn't tell you anything about value, and neither does a short swing in prices. The market was telling everyone tech was attractive in 1998-1999, and in 2020-2021. Losing 35% in the next year apparently was the market telling us they were actually overvalued. This is exactly how Buffett thinks about market prices. Lastly, note the one big tech he's bought, Apple. When he first started buying in 2016 was trading around an 11 PE. Revenues had actually declined that year, and have only grown about 9% a year since. Hardly a tech high flyer. But what he identified was an extremely strong moat, and leadership willing to pursue extremely shareholder friendly capital allocation policies. Those policies have increased earnings per share by 17% per year since he first bought Apple, a track record that is easily worth a PE in the 25-30 range. That's all he did, identify the market's mispricing of earnings growth in a very shareholder oriented business with a strong moat. GOOG grew revenues from 2013-2022 at a 20% clip, and per share earnings at a 19% clip, barely more than Apple. But it was never available nearly as cheap as Apple, in 2022 it bottomed near a 20 PE for a few months before shooting back up closer to 30. That 20 PE probably didn't offer the Margin of Safety he wanted, but even if it was close GOOG had some outstanding issues that maybe he didn't like. First is a question of how much COVID pumped up those earnings and what true long term earnings would look like. Second, was its massive amounts of SBC that caused its free cash flow to be over-reported. Its pretty clear why he wasn't as eager to hop on Google as he was Apple.

I'm just saying it looks like a glut of space for both commercial and residential property leasing. I'm looking in Arizona, so your mileage may vary. I've also noticed that used car pricing seems to have dropped significantly in the last couple months, I'm looking at some cars that are down 20% since they were put on the market and have been on the lots over 2 months. Not sure if that's just seasonal for cars and whether pricing will recover when tax refunds arrive.

This is mostly a myth. Xerox did try to go to market with the Xerox Star, but it was way too expensive at $16,000 for a work-station let alone tens of thousands more for servers and printers. It was in many ways too complex and in other ways incomplete (still relied on command driven terminal for a lot of functions). Apple tried something similar with a more mainstream processor to make the Lisa for about half the price, but failed utterly too for many of the same reasons. It wasn't until Jobs got booted off the Lisa project and raised the pirate flag commandeering the Macintosh project from Jeff Raskin that a reasonable cost graphical computer was created. The team compressed the GUI into 64k of ROM, able to run applications in 128k of RAM, fit on a 9 inch screen and use a $5 mouse that Jobs helped design, all which enabled Apple to release a useful $2,500 graphical computer with a full graphical user interface, no more command line, GUI applications for everything. Microsoft released Windows mobile devices in the mid-90s, more than a decade before the iPhone started development. They had phones nearly 5 years before the iPhone was released. When the iPhone was released, Balmer famously laughed at it and took it years to pivot to build something similar with Windows 7 and Windows 8. It wasn't Antitrust, Microsoft (Balmer) fumbled this from the beginning, all their mobile devices and phones were terrible.

I'm looking at rental properties and it seems like they are all being discounted over rents they were asking just a couple months ago. Gonna be a tough couple years for the entire industry from commercial to residential.

Who said anything about incompetent? I'm just pointing out they aren't likely to have any specific insights that many other investors have about big tech, and are likely at a disadvantage to tech experts. Buffett and Munger grew up before fax machines or mobile phones were a thing. They were both in their 70s before the internet became a thing. Buffett hasn't invested Berkshire in cigar butts since the 70s because its portfolio grew too large. Money today isn't "in tech". Tech is just one aspect of the economy, money is being made in all parts of the economy. We get to pick from over 6,000 US stocks, Buffett probably can pick from less than 10% of those, and many are outside of tech, and there are winners in both tech and outside of it. Odds are a lot lower on the 7 foot bar than the 1 foot bar. Whats your point? If you don't have a unique insight/edge in picking individual stocks you shouldn't do it. Buying an index is fine, but there is no reason to think a tech index will do any better in the future than a more broadly based index. He's doing the same exact thing that made him the most successful investor of all time. He missed out on the Nifty Fifty too, yet somehow averaged 30% annual returns for a couple decades during and after. He missed out on the internet bubble and losing 95% when it burst. He missed out on cheap Amazon in early 2000s when it wasn't making any money. And whether valuations were attractive for "Tech" last year is in the eye of the beholder. My guess is you never factor in Stock Based Compensation when you look at them, or you'd think they weren't quite so attractive.

Nope. Everyone has a circle of competence and someone who was 50 years old during the rise of the personal computer can be at a huge disadvantage to someone who grew up during that era. I spent the first two decades of my working life thinking about nothing other than software and computers. Investing is game that's not won by "playing" it on whats hot now, it's won by ignoring Mr Market when he's throwing out ludicrous numbers. Go back to the internet bubble and ask yourself if Buffett missed out not playing the game where the returns were in 1998-1999. If you were fortunate enough to identify Amazon's moat but be unfortunate enough to ignore its reasonable intrinsic value, you lost 95% of your investment over the next three years. You need to read this. https://fs.blog/mr-market/ Investing in something you don't fully understand on the off chance you can hurdle a 7 foot bar is a losers trait. Admitting you don't know the moat or value of something and moving on to a 1 foot hurdle you can step over is a winners trait. "its hard" isn't a reason not to investigate an investment, "its too hard" is a reason not to buy it. If you are giving up any insight or advantage that you have and the market lacks, why wouldn't you just buy an index fund? You essentially would have zero edge. Buffett doesn't believe he has any timing skills. and his position sizes are forced upon him by a massive portfolio, and they are huge handcuffs. He can't just go out and buy random microcaps for 0.01% of his portfolio, it would be an immense waste of his time.

34 years ago? Sounds like they are due for a new one!

If thats all true then its really bad for crypto in the short run. Sounds like a lot of liquidation to pay back taxes, fines, or to get criminal wealth off the blockchain before it can be seized. But so far BTC and ETH has mostly shrugged off the news. BNB is down 8% the last week but probably because of the fines. XRP and Solana are down as much as 10% but I don't know how we could connect that, there are a lot of coins trading slightly up or near even too. Probably a headwind for the next few months though.