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The Hunt for Small Spawners


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In Mohnish Pabrai's latest talk at Peking University, he laid out his new investment framework largely inspired by Nick Sleep... buy Spawners when they are still small (ideally less than $500m market cap).

 

Here is the talk:

 

The only company in his portfolio that fits this bucket appears to be Shinoken out of Japan.

 

I'm starting this thread so the community can share other small/micro cap ideas that have spawner DNA.

 

Cheers!

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In Mohnish Pabrai's latest talk at Peking University, he laid out his new investment framework largely inspired by Nick Sleep... buy Spawners when they are still small (ideally less than $500m market cap).

 

Here is the talk:

 

The only company in his portfolio that fits this bucket appears to be Shinoken out of Japan.

 

I'm starting this thread so the community can share other small/micro cap ideas that have spawner DNA.

 

Cheers!

Hi Brad,

Loved the talk from Monish -  hope to hear your perspective very soon.

I found two but I would argue that they have appreciated in price quite a bit.

Games Workshop Group PLC (GAW.L): Creates miniatures for board games, most known for Warhammer 40k, think it will grow especially with the video games they let develop.

Endor AG (E2N.MU): Sells racing wheels for PC and consoles, should pick up steam with racing games becoming more popular . 

Helios Towers: Cellular Towers in Africa.

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A potential opportunity that I am looking into with respect to spawners is Mobruk (Warsaw: MBR), the dominant waste management company in Poland with a market cap of around $370 (1370 PLN). 

 

The value in this spawner lies within its strong moat which is reflected in its valuation (I still think it has a 30%ish margin of safety, depending on how you value it). However, with all the environmental issues going on in Poland (lots of hazardous dumping) and the strong reaction from the government with increased fines and taxes, it seems that this may be an interesting opportunity.

 

What makes this opportunity worth studying more are the strong numbers in ROE, ROC, and low debt levels. Over the past ten years, the company hasn't performed quite well in the above metrics. However, because the government has been heightening regulations and is taxing landfills up the wazoo via the Marshall's Fee, the numbers in the past couple of years are astounding and I don't see any reason for this to change in the near term.

 

Of course, as competitors recognize the returns being generated by MBR, many will flock to compete. However, what may stop them is the large barriers to entry: hazardous waste treatment remains a highly-regulated and specialized business, and new facilities need at least 4 different permits to operate (in addition to local council approval, where ‘nimbyism’ often rules) – resulting in an approvals process that can take ‘2.5-3 years’ according to the company (and construction another 1-2 years).

 

As a value investor, I would normally require a higher margin of safety based on both a DCF and current earnings power valuation. However, the strong moat that MBR has may ease my conscience.

 

Is this a "spawner?" Well maybe. The high ROE and ROE definitely fit the prerequisites. However, a spawner is something we can hold forever. While you may not want to hold this forever, there is most certainly a long runway as Poland will need to catch up to EU standards in its treatment of waste by 2030. Additionally, Poland has over 130 "ecological time bombs" – illegally-dumped hazardous landfill sites – that will require as little as 20 years to clean up. MBR has secured contracts to assist in these cleanup projects.

 

MBR may not be a textbook "spawner" but definitely worth looking into as a potential compounder.

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This is super interesting. I listened to Mohnish's talk and your video analysis.

 

To me Pabrai's new model is an iteration of Peter Lynch's stock classification method, but without the same caveats. Lynch warns about companies engaging in "diworsification" (not to be read as "diversification") and some spawners may potentially fall into this category. Lynch's model considers expansion into other areas as speculative for any company. He blames poor diversification as the main reason behind poor future prospects of major companies.

 

I still have a very limited understanding of the whole concept, but am grateful to Pabrai and yourself for introducing me to the topic. I will be on the look out for potential spawners and post my findings.

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It looks like Shinoken is taking a bit of a dip. It is now selling just under tangible book value! I am almost ready to pull the trigger on this. The only thing that is holding me back is that it appears as though Shinkoken continues to deleverage its balance sheet by selling off inventory. Not sure what to make of this at the moment.

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It looks like Shinoken is taking a bit of a dip. It is now selling just under tangible book value! I am almost ready to pull the trigger on this. The only thing that is holding me back is that it appears as though Shinkoken continues to deleverage its balance sheet by selling off inventory. Not sure what to make of this at the moment.

 

I think (but could be wrong) Shinoken is transitioning from larger project condos to smaller project apartment buildings on it’s balance sheet especially looking over the long term.  Much of their debt is construction loans backed by the inventory building in progress.  As the rate they turn inventory increases (as they work more and more with smaller construction projects) they need less debt.  That’s at least management’s explanation for this I think. 

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I love the philosophy espoused here -- similar to Chuck Akre, whose fund I am invested in -- but this is a very tough time to be hunting high growth, small cap companies given the valuation of such stocks.  It has seemed to me that we need a market shakeout where growth goes from being highly prizes to perhaps a bit hated (like it was after 2000) to pursue this strategy in a fertile environment.

 

 

 

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Finding companies to invest in for growth is more of a "it comes to you" kind of thing in my experience, because of its more abstract qualitative requirements. Setting out to find new, more obscure companies is tough business.

 

If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

I want the investing app that locks me out for a decade after I buy! The equivalent of the stock market closing for 10 years. I'd be thinking very hard about a company before buying.

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

Easier said than done. When an investment becomes a huge, huge part of your net worth, it's very hard to just "forget" about it for 30 years. It's much more common to say "wow, this is crazy, I should sell it" or "a great depression is coming and I don't want to lose" or "I should sell this thing and take a tax right off since I'm down 90%".

 

I mean, Prime didn't even start until 2005. So how could you forecast what it would have been in 2000? What if 2008 never happened and interest rates were at 7%? What if the Fed didn't drop interest rates down after the dot com bust? What if something happened to Bezos? All of these,  I would imagine, dramatically reduced the outcome.

 

Since it's intuitive, care to share with the rest of us the next 12,000% returner over 20/30 years?

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

Easier said than done. When an investment becomes a huge, huge part of your net worth, it's very hard to just "forget" about it for 30 years. It's much more common to say "wow, this is crazy, I should sell it" or "a great depression is coming and I don't want to lose" or "I should sell this thing and take a tax right off since I'm down 90%".

 

I mean, Prime didn't even start until 2005. So how could you forecast what it would have been in 2000? What if 2008 never happened and interest rates were at 7%? What if the Fed didn't drop interest rates down after the dot com bust? What if something happened to Bezos? All of these,  I would imagine, dramatically reduced the outcome.

 

Since it's intuitive, care to share with the rest of us the next 12,000% returner over 20/30 years?

 

 

Auch!

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

Easier said than done. When an investment becomes a huge, huge part of your net worth, it's very hard to just "forget" about it for 30 years. It's much more common to say "wow, this is crazy, I should sell it" or "a great depression is coming and I don't want to lose" or "I should sell this thing and take a tax right off since I'm down 90%".

 

I mean, Prime didn't even start until 2005. So how could you forecast what it would have been in 2000? What if 2008 never happened and interest rates were at 7%? What if the Fed didn't drop interest rates down after the dot com bust? What if something happened to Bezos? All of these,  I would imagine, dramatically reduced the outcome.

 

Since it's intuitive, care to share with the rest of us the next 12,000% returner over 20/30 years?

 

Not sure why so defensive but I guess I'll play along. In the meanwhile I'd be curious if you could substantiate in what ways you think your alternative is better because all you've been saying is how what I'm proposing is bad, and your arguments so far leave me wanting. For now, here is a response to some of your arguments:

 

Everything in investing is easier said than done. Long term future earnings forecasts as accurate as the weather forecast. You just know the broad direction it'll go in. You, I, nobody can know it's going to be a 12000% returner in 20 years. Not for any business, not with any process. Would you have been dissatisfied with "just" 600%?

 

I shall let you know when (or I guess, if) the next yuge thing hits me in the face. I can tell you if I was forced to back the truck up and forget for 30 years today, I'd put every penny I have on Google, no hesitation. Like I said above, I don't know what kind of returns I'd get, but I know the business and investment both'll be leaps ahead of today. You know that too, even if you maybe wouldn't admit it right now. No need to forecast what this and that subsidiary is going to spring out of their bums in Q3 2026. It's just going to turn out that way. Feel free to call me up in 30 years and let me know by how much your book beat it.

 

Have you ever bought into a company without any what-ifs? Literally waking up in the morning is a what-if. What if a drunk driver rammed his truck into your bedroom? What if your wife poisoned your coffee? What if you got margin called? What if? What if? This argument makes no sense in and of itself, speculative trading around the news is only valuable in so far as to convince yourself you're in more control of the outcome than you are. The entire senior mgt team could die tomorrow, bombs dropped on silicon valley, it wouldn't change a thing in my assessment above, I'd still buy Google. Hell, why not throw in a little Amazon for good measure?

 

Look, let's forget the trees and look at the forest. You don't have to buy into one company all in and suffer its variance in entirety. You don't have to buy into it at the height of a mania. You don't have to buy any business running at net loss at the time of investment. You don't have to buy stocks right now at all. You certainly don't have to buy amazon specifically. Forget getting 12000% returns in 20 years. None of these things are required to succeed in what I propose. You do however need that kind of time horizon if you want to enjoy the end results of a growing high quality business. It's plainly a required feature of disciplined growth investing, including the "spawning" strategy outlined in the OP. Or, are you telling me you're going to buy these "spawners" and exit in 18 months when one of the "spawnees"' first 6 months of existence doesn't live up to your model? WHAT IF it subsequently crushes your model?

 

My entire point is, why force the issue by trying to uncover random obscure businesses when bets with much better odds will sooner or later fall right into your lap? I guess you have no choice if you're running OPM and have various incentives against practicing patience and forcing you to document support for every little decision, but at that point you wouldn't waste your afternoon getting defensive over some random guy of questionable reputation arguing against your currently favored investing practices on the internet, would you?

 

Sorry to all for derailing the thread a little, I was just opining randomly.

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If you had asked me around the year 2000 what company I'd invest in, it'd be Amazon. In fact I tried to learn how to invest so I could do just that. I was but a toddler and I knew the answer intuitively. That's the kind of growth you pay up for, the kind that is so self evident that you don't need to find it, categorize it or value it. It jumps at you in your everyday life. Wait for it to come to you, back the truck up when it happens and forget about it for 30 years.

 

The best advice is most difficult to implement. Well said!

 

Amazon had almost a 95% drawdown from its high in 2000 and there was a high chance they would have gone out of business if not for Fed intervention. Sure, it's easy to look back now but very (very) few people could outlast a 90%+  drawdown.

 

The person who won't outlive a 90% drawdown will also not outlive a 3 bagger, they wouldn't have seen the investment through to 2020 if they bought at $6 in 2001 either. They forgot the part where they had toforget about it for 30 years

 

Easier said than done. When an investment becomes a huge, huge part of your net worth, it's very hard to just "forget" about it for 30 years. It's much more common to say "wow, this is crazy, I should sell it" or "a great depression is coming and I don't want to lose" or "I should sell this thing and take a tax right off since I'm down 90%".

 

I mean, Prime didn't even start until 2005. So how could you forecast what it would have been in 2000? What if 2008 never happened and interest rates were at 7%? What if the Fed didn't drop interest rates down after the dot com bust? What if something happened to Bezos? All of these,  I would imagine, dramatically reduced the outcome.

 

Since it's intuitive, care to share with the rest of us the next 12,000% returner over 20/30 years?

 

Not sure why so defensive but I guess I'll play along. In the meanwhile I'd be curious if you could substantiate in what ways you think your alternative is better because all you've been saying is how what I'm proposing is bad, and your arguments so far leave me wanting. For now, here is a response to some of your arguments:

 

Everything in investing is easier said than done. Long term future earnings forecasts as accurate as the weather forecast. You just know the broad direction it'll go in. You, I, nobody can know it's going to be a 12000% returner in 20 years. Not for any business, not with any process. Would you have been dissatisfied with "just" 600%?

 

I shall let you know when (or I guess, if) the next yuge thing hits me in the face. I can tell you if I was forced to back the truck up and forget for 30 years today, I'd put every penny I have on Google, no hesitation. Like I said above, I don't know what kind of returns I'd get, but I know the business and investment both'll be leaps ahead of today. You know that too, even if you maybe wouldn't admit it right now. No need to forecast what this and that subsidiary is going to spring out of their bums in Q3 2026. It's just going to turn out that way. Feel free to call me up in 30 years and let me know by how much your book beat it.

 

Have you ever bought into a company without any what-ifs? Literally waking up in the morning is a what-if. What if a drunk driver rammed his truck into your bedroom? What if your wife poisoned your coffee? What if you got margin called? What if? What if? This argument makes no sense in and of itself, speculative trading around the news is only valuable in so far as to convince yourself you're in more control of the outcome than you are. The entire senior mgt team could die tomorrow, bombs dropped on silicon valley, it wouldn't change a thing in my assessment above, I'd still buy Google. Hell, why not throw in a little Amazon for good measure?

 

Look, let's forget the trees and look at the forest. You don't have to buy into one company all in and suffer its variance in entirety. You don't have to buy into it at the height of a mania. You don't have to buy any business running at net loss at the time of investment. You don't have to buy stocks right now at all. You certainly don't have to buy amazon specifically. Forget getting 12000% returns in 20 years. None of these things are required to succeed in what I propose. You do however need that kind of time horizon if you want to enjoy the end results of a growing high quality business. It's plainly a required feature of disciplined growth investing, including the "spawning" strategy outlined in the OP. Or, are you telling me you're going to buy these "spawners" and exit in 18 months when one of the "spawnees"' first 6 months of existence doesn't live up to your model? WHAT IF it subsequently crushes your model?

 

My entire point is, why force the issue by trying to uncover random obscure businesses when bets with much better odds will sooner or later fall right into your lap? I guess you have no choice if you're running OPM and have various incentives against practicing patience and forcing you to document support for every little decision, but at that point you wouldn't waste your afternoon getting defensive over some random guy of questionable reputation arguing against your currently favored investing practices on the internet, would you?

 

Sorry to all for derailing the thread a little, I was just opining randomly.

 

I don't think buying and holding something for 30 years is a bad strategy. If anything, that's a very good one . With that said, it wasn't clear at all that Amazon was going to return 12,000% in 2000 within 20 years. I would equate it to something like Blackberry. It wasn't even clear if Amazon would even be profitable at that time.

 

For some people it was quite clear that Blackberry would be a huge winner back in say, 2005. They were the leading manufacturer of smartphones, huge industry tailwinds, best technology, etc. We see how that turned out.

 

A 600% return over 20 years is very solid but it's not breathtaking. You might be right about Google. I wouldn't even bet on Amazon beating the S&P 500 over the next 10 years (since you mentioned 30 years originally). It certainly might but I wouldn't bet on it. It's trading at a very high multiple, Bezos has stepped down, competitors are becoming better, drawing regulatory scrutiny, etc.

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I don't think buying and holding something for 30 years is a bad strategy. If anything, that's a very good one . With that said, it wasn't clear at all that Amazon was going to return 12,000% in 2000 within 20 years. I would equate it to something like Blackberry. It wasn't even clear if Amazon would even be profitable at that time.

 

For some people it was quite clear that Blackberry would be a huge winner back in say, 2005. They were the leading manufacturer of smartphones, huge industry tailwinds, best technology, etc. We see how that turned out.

 

A 600% return over 20 years is very solid but it's not breathtaking. You might be right about Google. I wouldn't even bet on Amazon beating the S&P 500 over the next 10 years (since you mentioned 30 years originally). It certainly might but I wouldn't bet on it. It's trading at a very high multiple, Bezos has stepped down, competitors are becoming better, drawing regulatory scrutiny, etc.

 

Just for reference a 600% return over 20 years is a 10.2% annualized return. The US stock market over the last 20 years generated a CAGR of 7.9%.

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In Mohnish Pabrai's latest talk at Peking University, he laid out his new investment framework largely inspired by Nick Sleep... buy Spawners when they are still small (ideally less than $500m market cap).

 

Here is the talk:

 

The only company in his portfolio that fits this bucket appears to be Shinoken out of Japan.

 

I'm starting this thread so the community can share other small/micro cap ideas that have spawner DNA.

 

Cheers!

Hi Brad,

Loved the talk from Monish -  hope to hear your perspective very soon.

I found two but I would argue that they have appreciated in price quite a bit.

Games Workshop Group PLC (GAW.L): Creates miniatures for board games, most known for Warhammer 40k, think it will grow especially with the video games they let develop.

Endor AG (E2N.MU): Sells racing wheels for PC and consoles, should pick up steam with racing games becoming more popular . 

Helios Towers: Cellular Towers in Africa.

 

Why do you think any of the above qualify as spawners? If so, which new business lines have they created?

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Hamilton Thorne - HTL

 

Small healthcare business with a very long runway.

 

Thanks for sharing!

 

HTL is selling at 22% premium with P/E ratio of 126.49. Interestingly, the shares for its closest competitor, Lexagene Holdings Inc, are selling at a 32% discount.

 

I am curious, in your opinion, what would be HTL's moat?

 

P.S., no gurus on this, and fidelity small caps dumped 280kish shares back in oct 2020.

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So, I listened to Monish talk and it feel to me like he found a hammer and now everything looks like a nail. just to repeat it, a spawner is a company who’s management is able to create new business lines that aren’t just a continuation of existing ones. They are different than rollups, conglomerates or just companies that wokr one vertical really well (like McDonalds).

 

The examples are already lacking - how is Facebook a spawner? First of all, all the business are very closely related and second, none of the new business like Instagram, Whatsup, Ocolus were purchased and developed in house. now perhaps one can say it doesn’t matter, but I think the distinction is important because FB right now doesn’t seem to be able to purchase competing or adjacent business any more so they can’t be a spawner.

 

Similarity, how is Google a spawner? Youtube wasn’t invented in house either and the Google bets seem more like throwing a lot of stuff on the wall and hoping that something sticks? I don’t see a spawner DNA here either.

 

I also think spawner as defined above are extremely rare and hard to find at a l scale because how do you know if they are good at this or just waste money? it boils down to finding very good managment early on, if they pursue a spawner approach, rollup or grow just one vertical doesn’t really matter as long as they are good at what they do.

 

Spawner that fit the definition are probably Alibaba, Tencent and Amazon in tech and in a way Nestle in consumer goods.

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You can't really use P/E as a measure right now. They are in growth mode so GAAP earnings are not there yet. ART (assisted reproductive tech) has tailwinds. Falling birthrates, Rising age of mothers, government funding for IVF treatments. Just have a look at their competitor Vitrolife, they have 150m in sales and a 2billion market cap.

 

Long runway of 5-10 growth.

 

 

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In Mohnish Pabrai's latest talk at Peking University, he laid out his new investment framework largely inspired by Nick Sleep... buy Spawners when they are still small (ideally less than $500m market cap).

 

Here is the talk:

 

The only company in his portfolio that fits this bucket appears to be Shinoken out of Japan.

 

I'm starting this thread so the community can share other small/micro cap ideas that have spawner DNA.

 

Cheers!

 

If you are a pure value investor, buying spawners doesn't work.  Because generally spawners at some point in their early life will have inexplainable valuations that are generally too high for a value investor to justify.  This is really more along the lines of thinking of Phil Fisher or Munger...buy disruptive or good businesses and hold them for long periods of time like BYD, COST, Geico, etc.  I'm not sure the average investor who bases decisions around fundamentals could adhere to this...for example if I had something valued at 80 times earnings or 10-15 times cash flow, there is no way I would hold on. 

 

Mohnish is a constant learning machine and he tries to incorporate every great, new idea that he reads about...checklist, portfolio sizing, spawners, etc...but I find it's a hard and inconsistent way to invest.  The sane intellectual framework of value investing fits me just fine and it doesn't change year to year...regardless of what the world is doing, what algorithms they are using, or what new fangled idea they may have!  Cheers!

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In Mohnish Pabrai's latest talk at Peking University, he laid out his new investment framework largely inspired by Nick Sleep... buy Spawners when they are still small (ideally less than $500m market cap).

 

Here is the talk:

 

The only company in his portfolio that fits this bucket appears to be Shinoken out of Japan.

 

I'm starting this thread so the community can share other small/micro cap ideas that have spawner DNA.

 

Cheers!

 

If you are a pure value investor, buying spawners doesn't work.  Because generally spawners at some point in their early life will have inexplainable valuations that are generally too high for a value investor to justify.  This is really more along the lines of thinking of Phil Fisher or Munger...buy disruptive or good businesses and hold them for long periods of time like BYD, COST, Geico, etc.  I'm not sure the average investor who bases decisions around fundamentals could adhere to this...for example if I had something valued at 80 times earnings or 10-15 times cash flow, there is no way I would hold on. 

 

Mohnish is a constant learning machine and he tries to incorporate every great, new idea that he reads about...checklist, portfolio sizing, spawners, etc...but I find it's a hard and inconsistent way to invest.  The sane intellectual framework of value investing fits me just fine and it doesn't change year to year...regardless of what the world is doing, what algorithms they are using, or what new fangled idea they may have!  Cheers!

 

He is clearly putting Shinoken in the spawner bucket. Perhaps they need to be "below the radar" spawners to have a price justified by fundamentals.

 

Shinoken P/E 6.5

3.5x Cash Flow

 

To say that he's changing his framework from year to year doesn't seem accurate. But it's certainly possible that this whole spawner thing won't work out.

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