ScottHall

Yes. Here is something I sent Liberty via PM almost a year ago, when he asked for my thoughts. The numbers are dated by this point, but the core idea remains. My most recent valuation was more like $120 but I haven't run any numbers in a while. -------- The thesis is fundamentally very simple; I think the network effects associated with websites will end up resulting in most of the world's online ad spend congregating at just a handful of companies, creating a power law dynamic where a handful of sites account for the vast majority of the advertising spending while everyone else is going to fight for scraps. If that is true, and you accept the premise that Facebook's network is solid, then the stock is cheap at current levels. Today, the largest website in the world is Google. Facebook is #2. Google accounts for approximately 33% of worldwide digital ad spending today, and around 10% of worldwide ad spending. Facebook, on the other hand, accounted for just 5.8% of worldwide digital ad spending in 2013 and 1.3% of total worldwide ad spending. What's really interesting is Facebook's position in mobile ads in particular. When Facebook went public, mobile ad revenue was a negligible part of its business, but since the third quarter of 2012, mobile advertising has gone from 14% of the company's advertising revenue to 62% today. Although the company doesn't directly break out mobile advertising revenue for you in its press releases, it gives you enough information to do so by giving you the percentages. I went back and sussed out mobile ads from traditional digital ads for every quarter since Facebook started reporting it. In the third quarter of 2012, Facebook generated $152.6 million in mobile ad revenue and $937.4 million in traditional ad revenue. Last quarter? Mobile ad revenue was $1.66 billion and traditional was barely over $1 billion. That means that mobile ad revenue increased nearly 1,000% in eight quarters, while traditional digital advertising was up just 9%. In the past three quarters, Facebook's mobile ad revenue has increased 305%, 225%, and 153% year-over-year. The growth rate is very high, and I expect it will remain very high for quite some time for a few very simple reasons. The first is that mobile advertising is very underrepresented when compared to a consumer's time spend on mobile devices. In 2013, 4% of advertising spend went to mobile, despite consumers spending 20% of their media-focused time (defined as time spent watching TV, listening to radio, reading print, time spent consuming media online on traditional devices and time spent consuming media on mobile devices) on mobile devices. There's a huge gap to be filled just for ad spending to reflect where consumer habits are today, so I expect mobile will continue to take share from the other sources of media to better reflect those habits. The second big driver is that I think the trend towards mobile will continue; we'll keep seeing people moving away from traditional media consumption channels and towards mobile, as has been the trend for some time. So not only will we see ad spending increase to try to more accurately reflect the time consumers are spending on these devices, we're likely to see the time consumers are spending on these devices continue to grow as well. The third big driver is that, as one of the dominant mobile sites, Facebook will be one of handful of players that will capture the lion's share of these ad dollars. We're already seeing that happen; Facebook accounted for about 18% of all mobile ad spend in 2013, but the amount of money advertisers have been spending on mobile ads on Facebook has been growing faster than mobile ad spending has as a whole. For example, eMarketer projects worldwide mobile ad spending to grow about 83% in 2014, but after the first two quarters, Facebook's own mobile ad revenue grew at about 180% year-over-year. So not only are they growing, they're taking huge share here. So now you have the combination of a market that is growing very quickly, that is starting from a revenue base that is well below its fair share as measured by consumer time spent, and a company benefiting from unreal network effects that is substantially outgrowing that market, and that I'd say is very likely to be one of only a handful of winners here. In my model, I assumed Facebook would reach about 11% of worldwide ad spend by 2028. Assuming some operating leverage, that gave me a valuation of a bit over $100 using a 10% cost of equity. That's a pretty big share of worldwide ad spend, but it's only about 10% more than what Google reached in 2013, so it's not unheard of for a dominant digital franchise to hit that mark. If it happens more quickly, obviously the stock is worth much more. In any case, it's up for everyone to decide for themselves whether or not Facebook is sustainable. I think it is. It is also up to everyone else to determine whether they think the stock is expensive or not. By the superficial valuation metrics, it certainly looks it. I am of the opinion that the business is actually so dominant that today's price will prove to be relatively cheap in hindsight. I may be wrong. That is a pretty straightforward version of how I look at the business. It is a dominant franchise in an insanely fast growing market where it's likely to be one of a few companies that reaps most of the rewards. Sure, though that may not be terribly helpful. I'll do you one better and give you all of them in order. Most of my positions are sized pretty evenly, so the difference could be appreciation or, otherwise, just a couple percent of the portfolio. 1. The Motley Fool 2. Facebook & Google (counted as one b/c the thesis is pretty similar for each) 3. Optimal Payments 4. Wayfair 5. Valeant Pharmaecuticals 6. Pardee Resources 7. Markel 8. Constellation Software 9. Amazon (was a small position when I started it but has grown a lot) 10. Softbank 11. Wells Fargo Warrants 12. Lions Gate Entertainment 13. Kraft Heinz All others are small work-related 1-share positions.

I've never been the biggest fan of Damodaran's work, but he has done quite a bit for the field.

Don't you all think you're going a bit overboard here? Maybe politics isn't polite conversation for an investing forum.

Was there dynastic wealth before the gift and estate taxes were created? Or did they solve a problem that only exists in the imagination? http://www.forbes.com/sites/phildemuth/2014/07/07/the-family-is-a-machine-for-destroying-wealth/ I think about this a lot. I'm in a position that, although not obscenely wealthy at this point, I will be so with even a high single digit compounding rate. I suspect it's possible to instill the sort of mindset to ensure wealth transcends generations. The odds are against me in the same sense that the odds are against most investors for beating the market. It's not impossible, just difficult. My current thoughts are to create a sort of intrafamily educational program. Basically, educate any heirs I eventually have myself from kindergarten through highschool, focusing on wealth creation and preservation. It may not work, but it's my best idea so far.

It depends. Individual investors can more-or-less buy distressed bonds, but essentially have no access to bank loans like institutional investors do. In practice that more often means that you'd probably be playing a bit on the riskier side of things, both because bank loans are usually senior to bonds contractually and in the sense that bank debt will pretty often be at the operating company level, whereas the bonds available to individual investors could be at the holding company level. So you'll often find yourself on the wrong side of structural subordination as well. It's definitely doable but you won't have access to a big part of the market... the part that is usually less risky.

You could create a Skype group, or something. There's no reason meetups from this board have to happen exclusively IRL.

I wonder who the mark is for that. I don't think I'd buy a bathing suit that expensive, given I'd use it maybe twice a year.

It depends, to me. I used to own Loews, but ultimately ended up selling it because of a combination of its businesses being lousy and management refusing to do anything ever. It's much easier to hold on to underperforming companies if management is proactively creating value and the underlying business is performing pretty well. Pardee has trailed badly since I bought it, but I continue to hold it because I like most of the moves management makes and the economics of the business have remained pretty attractive despite the weak energy markets.

This is one of the big benefits of Buffett style. You can sit in Hawaii Omaha and sip mai tais Crappy Cola instead of spending days and nights researching yet another company. 8) I'm trying to get there too. I still have a portion of portfolio in theme cheapo stocks (oil and MU) and lottery tickets (Fannie+). I'll see if I will keep doing these or whether I'll get out of these totally at some point. Research: - CoBF - Silicon Investor - Barron's - Some blogs I think international screeners are worthwhile since markets internationally are less efficient than US (IMO). But even after screening international research takes a lot of time, so I never did thorough DD on international screens. My biggest question now is sizing of the long-term holds. As theoretical example, I don't want to sell some BRK to buy some FFH - if I do, that's no longer long-term holding. On the other hand, if I don't, I might have not very good ratio of the two... :/ Ideas how to deal with this? This will depend on your situation and thoughts on the return potential, of course. If you think the two will earn roughly comparable returns going forward and most of your money is taxable, it probably wouldn't make sense to sell one to buy the other, because if you've turned a profit your after-tax return will be lower than if you had just maintained your positions. This is even true if you think one will modestly outperform the other. If your money is not taxable, then that is not an issue. The other alternative is, if you have a source of income, to balance it by selectively adding to the one you view as more palatable at the time, or the one you have less exposure to if the ratio is important to you. Once your portfolio size grows too large, unless you're broadly diversified, this becomes much harder to sustain, of course. Just a few thoughts on how I'd handle it; not "the one way" to handle it, or necessarily what makes sense for you.

This would be very hard to find. First you must determine what makes a good business. Is it steady/high margins, high returns on capital, companies that consistently generate more FCF than net income? Much of what makes a business good is quantitative, but cannot be easily measured quantitatively by an outsider. You have to have a broader view than what GAAP presents, because it is extremely conservative for some of the most compelling businesses out there. But then you get into a realm of cherry picking, if you don't have some rules to go by. Challenging situation.

I don't really have one. I used to research quite a bit when I was into making massive bets on just one or two companies, but these days I'll just occasionally see something on Twitter I like, or something mentioned by a friend or coworker. I have a longer term style now; buy and hold quality operations run by smart people. Less taxes, less work, and less need for new ideas all the time.

As a follow up to my previous comment, I have yet to buy any of these. It has been interesting watching the gaming revenue statistics come in each month; they're bleeding customers, and the declines, at least so far, are barely decelerating. It'll be interesting to see what happens here. You have to assume the operating leverage on these companies will be significant, so the multiples probably aren't near as low as they look. Still watching. Still interested.

That's great. Thanks for sharing!

I knew someone was going to bring this up. A: It doesn't matter. Is it overpriced at its current valuation? Maybe it is, maybe it isn't. Assume it's worth even 1/10th as much, and she's still created wealth for herself of >$400 million. I don't see how that's not impressive in any world. She is clearly very bright, and debating over what her net worth "should be" is really not the point here.

https://en.wikipedia.org/wiki/Elizabeth_Holmes Here's a tedMED talk by her: http://www.tedmed.com/talks/show?id=309114 Thanks. The reaction of the Quest employee was amusing, but not surprising. I suspect she'll be very successful at this, although it appears to still be in its early stages.

It's amazing how little there is about her that's out there; secretive is right. She's incredibly impressive; reminds me of Elon Musk in a way, focusing on the biggest problems she thinks she can solve. Pretty cool.

For some companies, GAAP earnings is a relevant metric. For others, it's next to useless. I don't see any problem with management doing a spin job if they want... it's ultimately up to investors to determine how they value a company, and the GAAP numbers are there if that's what they prefer.

+1

I read this when Plan posted about it on Twitter. There's actually quite a bit of good information on these on running a business, if you look past the example. Also, the returns on capital were huge. My understanding is that this place is still open today.

x1,000,000 yes

Nothing is wrong with value investing. Broadly defined, all good investing is value investing; as far as I know, not many people aim to overpay for a security. Where value investors frequently go wrong, in my experience, is that they often mismeasure value and value creation. I've talked about this multiple times in the past, so I won't get into it here, but all my previous diatribes on the subject here & on Twitter are relevant.

Just be careful that you don't look too pushy cause that's a big turnoff. ;) Not true. I am looking for 15% a year. FoF is a piece of garbage. Luckily they are sold to people who can afford garbage. :) Jurgis, there's a difference between you and most people. You're clearly very interested in this field personally, so you're not really the same type of mark. What works on selling to laymen doesn't necessarily work when selling to people who have some knowledge about the field or product in question; you have to use different tactics. It's somewhat akin to getting a new customer in the door vs. upselling or cross-selling to an existing customer. The new customer doesn't know what you have to offer, so you have to present that to them. Once you have them, and if they're happy with your service, it's easier to sell them something else because you've built the relationship. It does depend what you're going for, how aggressively you'll advertise yourself. If you're fine being a minor league sole proprietor - and there's really nothing wrong with that - you can get away with doing less than if you want to build a $100 million business. But understanding the concept is important in any field.

I bought the wall print on Amazon. Looks pretty cool. My coworker bought one at the annual meeting.

Do you guys think it's worthwhile to debate politics here? I very much doubt you'll change anyone's mind. Anyway, as for Silk Road. Cool service, guy seems like sort of a jerk though. Locked up for life? That seems a little ridiculous.

It depends for me. A lot of things, I won't bother with. But if I'm learning a new skill, I'll test myself at it. When I was learning copywriting, I wrote a few messages using the techniques I understood to be the industry standard. One generated my company a decent amount of cash. As with all things, the more you practice, the more likely you are to get better at whatever you're trying to achieve. With business models and concepts, think about them and try to apply them to the broader world than the one you're used to. It works pretty well for me.