dwy000

But what's the value of the comparison? Looking backwards for charts that beat Berkshire is pretty easy. Are you saying these stocks will do well going forward? If so why? As Buffett says, the rearview mirror is always clearer than the windscreen.

that's 2 days in a row. You must have quite the position at this point.

After 14 years of stop/start/stop/start in the fiber business it looks like Google is throwing in the towel and seeking external funding for Google Fiber. https://www.reuters.com/business/media-telecom/alphabet-is-seeking-outside-investment-its-gfiber-internet-business-2024-02-06/

I was just back-of-the-enveloping it so you're probably right on some of these. The 60% gross margin is what they're currently reporting (3Q23) and gibes with the low end of the slide deck (p 26). Like you, I also struggle to reconcile their numbers. They literally state in their quarterly KPI page (footnote 2) that they have spent $329m in capex and acquisitions (net of writeoffs) to date and yet they only have 114.5k passings. That's $2900 per passing and yet their investor deck says their cost to build is $1650 per address. It's a huge difference. Likewise, where they get $1000 annual gross margin per subscriber is beyond me - especially when the same page says they're charging $89/mo. Even at 75% margin that implies they're charging $111/mo for every single sub which seems ridiculously high, especially if you need to get to 50% uptake. These business plans always look like they were drawn up by an investment banker trying to sell the deal. The reality never comes close to the plan and the only number that is higher than expected is the spend. But mgmt can't now say they were wrong so they keep expanding and say it's not wrong, just delayed.

Other than BOC's numbers the other one you can use to measure is Tucows (Ting Fiber). They're pretty similar in that they go into very small, newer communities (often new builds). The actual returns are still TBD because they generally assume a very strong level of uptake and pricing that takes years to normalize. They often also don't take into account the response from incumbents (if there are any) with promo pricing and retention offers that were never factored into the planning models. I haven't seen any that have hit their projections or have turned cash flow positive to the level where you can judge long term capital returns. Edit - I took a quick look at Tucows. Thru 3Q they state they have invested $329m of capex in the biz since 2015 (this includes a couple small acqns). For just the past 3 yrs they will have EBITDA losses of another $80m or so. Haven't looked further back. So all in, they're about $425-450m of spend. Right now they have 41k subs. Let's say they can get that up to 60k on the current builds. They seem to charge about $100/mo with 60% gross margins. $450m of spend for 60k subs is about $7100/subscriber. At 20% op margin that's $240/yr which is a 3.4% ROIC.

Does this even work anymore? It seems the value was there because very few were willing to put in the effort to page through S&P manuals or go through the balance sheets of 1000 microchips. But now that anyone can run a NCAV screener or sign up to a dozen services that filter and recommend this stuff a lot of the juice is gone. Especially when you have to find 25 of them at a time to make it work out on a portfolio basis over the longer term.

Wow, that's a lot of positions!! How do you find time to keep track of 40 positions plus do research for new ones?

How do you put a calculated or intrinsic value on it? If you have no basis for why it will go up or down or whether it's overpriced or undervalued, how is it anything other than gambling?

thanks for all the feedback on this. I do a weekly calculation which for me is a compromise between accuracy and effort. I started monthly originally but I found it to actually be a meaningful difference if you got a really strong market movement that month. In an extreme month (like a March 2020 say) the difference between using the start of the month value vs. end of the month value when adding/subtracting to the portfolio can move the needle quite a bit. But it's a lot of work to do more and it doesn't really matter much at the end of the day.

There's a decent discussion about the company, the product and the stock itself in the Investment Ideas section.

Oracle is similar. From 2011 to 2022 they retired almost half their shares (5.15b shares OS down to 2.7b shares). Over the same period LTD went from $13.5bn to $86.4bn (although that includes buying Cerner for $30bn and NetSuite for $9bn).

Thanks John. I'm pretty comfortable with each of the methods I was more curious as to which one others used to ensure it was apples to apples.

just out of curiosity, how is everyone calculating returns? I contribute and take cash out of my investing account on a regular basis during the year so it's not just a clean "end of yr compared to beginning of year". If you add cash in December the dilutive effect should be substantially lower than adding that same amount in February. Conversely, if you add cash and buy a stock in December and it immediately goes up 20% it should have an outsized impact vs buying some stock and having it immediately go up in February. Do you just use the IRR or XIRR function, have the broker do it or something else? I've always done it like a mutual fund where there's a "unit price" and then I add or subtract cash at the previous week's unit price. But it's a lot of work and I'm not sure if it's the same calculation method that others use.

The value of teams is driven by ego not cash flow. But that's why they are generally poor stock investments when the stub is public. You don't get the ego boost that the majority owner does but you suffer the cash flows. If your holding period is shorter than the majority owner's you will never be able to realize on whatever discount the market decides is applicable.

I agree they won't have that much FCF. But if they can still delever to 4x by end of 2025, even after paying out that $330m (from FCF and/or add'l debt), it's hard to see the market cap worth less than $1.1bn with that much organic growth.

It would be interesting to see what the broker value % is of the entire market as a whole. How much of the growth was due to consolidation of smaller players on the broker side as opposed to multiple expansion in excess of the insurers.

I'm assuming most of the deleveraging will be from earnings growth as opposed to large debt paydown. Still, if they can repay $330m in cash earnouts while simultaneously delevering, that's pretty impressive for a $1.1bn market cap.

While state based wealth is out, what is most interesting is that, probably for the first time, every one of them is self made and there isn't an oil baron or real estate person on the list. Usually the list is filled with family dynasty wealth or the kids of oil/real estate barons. When people freak out about wealth concentration I like to look at these lists and remember that dissipation happens pretty quickly and it is still possible to come from nothing and make a fortune.

Well said. That country has so many long-ingrained issues that no single person can solve them, let alone in a single term. He's also got to work with existing parties which means he won't be able to actually do a tenth of the things he claims or wants.

MSFT looking like accidental geniuses here. They get Altman, Brockman and now virtually the entire team. They just bought OpenAI for next to nothing. And given their original investment in OpenAI appears to have been mostly in cloud credits not cash they can even save on that spend. I can't fathom what the Board meetings must have been like and how they saw this as the best outcome.

There's kind of 2 levels to the pricing. The bookrunner will give the salesperson the price for the derivative. That price includes his/her cost to hedge and often a little juice for the book. Keep in mind the bookrunner generally has thousands of trades in their book and their pricing will reflect where the book is positioned at time of quote. Often, if their book is heavily weighted in the other direction they will price the trade low because its a natural offsetting position for them anyways. The salesperson will then tell them to add on the desired P&L and the bookrunner will give them a final price for the client. Rarely is that P&L under $10k, especially for a corporate. The more complex or custom a product and the more unsophisticated the corporate, the higher that goes. The risk to the bank is with the bookrunner. It's their job to hedge out the excess risk. Note, excess risk, because the bookrunner is running a large, active book with risk as their job on a day to day basis. The quants, the bookrunner's boss(es), the risk manager all maintain a high degree of oversight over the book as a whole and it is managed for a whole host of risks (most commonly referenced as daily VaR). Risks are managed real time based upon 100 underlying variables and reported out constantly. That way you know of 2 bookunners are each within their risk limits but combined might exceed the banks' desired limit. I used to hear salespeople batching at the bookrunners's price and his response is like "I'm way long vega in the 4 year and need to add gamma in the 5 so that's the price. Take it out of your P&L if the client is complaining." If the client has inside knowledge on something and the bookrunner doesn't there really isn't much impact because he/she will hedge it out with other counterparts who have the same info he/she does. There's a lot more to it but it's definitely not as susceptible to accidental risk as people think. Absolutely nobody at the bank wants to risk a blow up because that ends their bonus, their job and likely their career.

The new Michael Lewis book on Sam Bankman Fried is out this week. Not a better writer out there to tackle a more interesting topic. I can't wait for this one. Great 60 Minutes interview hyping the book.

Well it appears you're not a big fan!!! While obviously I don't hold a candle to your knowledge of the business, I was surprised at the level of dislike your note seemed to imply. I was curious however in some of the points you made on financial engineering: . - on add backs, other than stock based comp, all of the add backs seem to be the exact same ones that BRO uses (other than the lovely catch all "other" for BRP). What are you seeing that's excessive or unusual? - for the tax agreement, upon first read it appears to reflect only the actual cash savings at the consolidated parent they get solely because of the LLP structure, gets passes back 85% to the founders. The 85% is excessive since the LLP member share is only about 42%. But given the group is not a tax payer I don't think any amounts would have been paid to date. When future tax are due it could be more inequitable - I'm not sure the EBITDA metric would be affected by the tax agreement because it's a pre-tax metric. It would impact cash flow when they become a tax payer down the road but I don't get how it impacts using EBITDA as a performance metric. - the interest rate caps may be pricey but it appears they've made over $22m in gains by owning them. With the amount of debt they've got (all floating rate) it seems pretty prudent to hedge that. This also wouldn't impact EBITDA since it's added back (or subtracted because it's gains) with interest expense. - on Lowry Baldwin walking away - the proxy shows him owning over 25m shares which is over $625m of value. Other than the A share/B share confusion, he actually seems pretty aligned with shareholders. Your points on the cost of acquisitions being excessive and what proportion of organic revenue is actually just pricing, are both very valid and give me more reasons to pause. Plus, the stock based comp is getting WAY out of hand. Not to mention the amount of leverage and earnouts due over the next 9 months.

Take a deep breath - this is normal. I can't remember a time when various indicators weren't out of whack or pointing to problems. The minute you feel certainty and lack of worry is the time to be very, very afraid. If things are going great you worry about the inevitable downturn. If things are going poorly you worry it will continue indefinitely. There's always a doomsayer predicting (very rationally) that it's all going to crash down and the next depression is almost upon us. There's a reason Buffett and Munger and most legendary investors ignore what the markets and economy are doing and focus on individual companies.

Odd this got posted recently because for the first time ever I saw them in my local Costco last week. Got some for the kids to try. Naturally they love them (sugar, fake creme, cake - what's not to love for kids). They're already asking to buy more.