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What's your favorite business?


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Hi folks, if you could buy any business on the stock exchange today at around intrinsic value (per your calculation), what would be your first pick?

 

This is probably not the answer you're looking for, but to my mind it doesn't matter what business you own if you're choice is to pay the intrinsic value. By definition, you will get the same return out of each one.

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If all businesses sold at intrinsic value? The safest one.

 

Buying at intrinsic value doesn't mean you will get a good return. The company still might go bankrupt and you get nothing.

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The one with the highest discount rate applied. If discount rate is all the same, then the safest one (risk/reward should be considered but we're already in hypothetical territory). You are basically asking about DCF inputs with IV. LC is basically saying they want the company with the lowest standard deviation of cash flows, assuming the final value and discount rate are identical. Same.

 

If the question was meant to be about great businesses, the answer always ends up including V/MA, MCO/SPGI, FICO, FB/GOOG, AMZN (/WMT, sometimes not included but it should be), and KO. There are others, but these businesses earn the highest returns on the largest amounts of capital or have the safest growing cash flows with the highest returns. It would be interesting to see the evolution of the "great businesses"/"moats" threads over the years on this forum. I wonder when GOOG and FB first started being mentioned.

 

My favorite business (as an investor) is FB. GOOG, V, MCO, and MA are probably the next tier but I might change my mind tomorrow. No one's really close to FB at #1 though imo. If FB sold unrestricted access to their back-end systems, countries would license it to outsource their intelligence work. FB is unlike anything before in profiling people. I think FB will make a lot of money before people realize precisely how powerful they are.

 

You may say "I don't use FB". Doesn't matter. Your friends talk about you online (publicly and privately), photograph you, record your voice near their phone (I guess this is still controversial, but we'll see how this assertion ages), you visit articles with FB buttons, your friends use Instagram (and all the prior stuff is again true), they buy a TON of data from 3P data brokers, you have fake FB accounts (maybe for logins or other purposes), your friend logs on to any FB or FB adjacent site/article/ect from your IP address, and I'm sure ways that I can't think of and/or haven't been discovered. They know about most everyone at a basic to intimate level.

 

To test, if you've never had an account, create one with only the minimum inputs and see the suggested friends. From IP address and basic info, FB can guess your true identity and who you interact with (or have) in the real world.

 

Similar to how AMZN learning to sell used books (which amounts to millions of SKUs in various conditions and with various features [e.g. hardcover/softcover, cd/no cd, and so on]) led to them moving in to many adjacent retail markets, FB has learned how to index, store, and retrieve a tremendous amount of personal information in an accurate and efficient manner. That database technology alone could be worth $100's of billions because of the number of high-value solutions it can provide. The number of problems it introduces to FB to solve before anyone else (future business deal flow, if you will) is a nice kicker in the deal.

 

I vastly underestimated how much money FB could generate from all this technology for a long time. I probably still do, but at least now I'm an owner.

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