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53 minutes ago, DooDiligence said:

BRK, EW, NVO

You mentioned EW before - a stellar Long term performer, but how do you square the valuation? A 12x P/S is hard to swallow for a med tech. Even over a 15 year holding period, the starting valuation matters quite a bit, imo.

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On 4/6/2021 at 8:33 AM, Spekulatius said:

You mentioned EW before - a stellar Long term performer, but how do you square the valuation? A 12x P/S is hard to swallow for a med tech. Even over a 15 year holding period, the starting valuation matters quite a bit, imo.

I don't consider EW cheap ATM. I bought in 2013 & my cost basis is a bit north of $10/sh. I really like their TAM & industry leadership. The valuation seems perpetually high since they prevailed in the infringement suit with Medtronic.

They spent significantly less than Medtronic to get into TAVR when they bought Percutaneous Valve Technologies for $125m back in 2003. They've subsequently added CardiAQ Valve Technologies in 2015 and then Valtech Cardio in 2016, to add mitral and firm up their position in the space.

Plenty of cash flow to support operations and a clean balance sheet. Basically, I like what Mussallem has done since separating from Baxter.

www.mddionline.com/business/medtronic-and-edwards-duel-tavr-space

They are also the global leader in tissue heart valves & have a significant presence in monitoring equipment.

As you well know, I am subject to various whims when it comes to investing. I got lucky with this one and plan on riding it into the next decade.

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On another note, thanks Sanjeev! The new WYSIWYG editing tools make it significantly easier to add links for citations. Watch out for vulnerability to SQL injection attacks. I was once a victim & regular site / database backups were a life saver.

Edited by DooDiligence
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7 hours ago, DooDiligence said:

I don't consider EW cheap ATM. I bought in 2013 & my cost basis is a bit north of $10/sh. I really like their TAM & industry leadership. The valuation seems perpetually high since they prevailed in the infringement suit with Medtronic.

They spent significantly less than Medtronic to get into TAVR when they bought Percutaneous Valve Technologies for $125m back in 2003. They've subsequently added CardiAQ Valve Technologies in 2015 and then Valtech Cardio in 2016, to add mitral and firm up their position in the space.

Plenty of cash flow to support operations and a clean balance sheet. Basically, I like what Mussallem has done since separating from Baxter.

https://www.mddionline.com/business/medtronic-and-edwards-duel-tavr-space

They are also the global leader in tissue heart valves & have a significant presence in monitoring equipment.

As you well know, I am subject to various whims when it comes to investing. I got lucky with this one and plan on riding it into the next decade.

---

On another note, thanks Sanjeev! The new WYSIWYG editing tools make it significantly easier to add links for citations. Watch out for vulnerability to SQL injection attacks. I was once a victim & regular site / database backups were a life saver.

Thanks for writing down your rationale. I have looked at EW only casually after you mentioned it. It seems too expensive to buy but I think you are correct in holding it.

Along the same line, I bought a bit of GMED last year. It is not cheap either , but I qualitatively liked it after the MF’s recommended it, and the valuation seemed reasonable.

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The thing is, businesses may be a reflection to some degree of their future earnings. But assets are not necessarily. What was the PE or FCF yield on the Dallas Cowboys when Jerry Jones bought them, or the NY Yankees when Steinbrenner picked them up? How does that compare to today? To me, it is much easier to forecast safety in the long term, of an asset, vs durability, let alone ability to appreciate, of a business. There will only be one NY Yankees 15-20 years from now. There will be more billionaires. Meanwhile someone can come along and displace Costco, or the government can break up Google or Berkshire. So far, my only level of comfort in predicting long term oriented events, would be with things they cant replace.  

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19 hours ago, Gregmal said:

The thing is, businesses may be a reflection to some degree of their future earnings. But assets are not necessarily. What was the PE or FCF yield on the Dallas Cowboys when Jerry Jones bought them, or the NY Yankees when Steinbrenner picked them up? How does that compare to today? To me, it is much easier to forecast safety in the long term, of an asset, vs durability, let alone ability to appreciate, of a business. There will only be one NY Yankees 15-20 years from now. There will be more billionaires. Meanwhile someone can come along and displace Costco, or the government can break up Google or Berkshire. So far, my only level of comfort in predicting long term oriented events, would be with things they cant replace.  

While I get the broader point, to your specific example, Will there be more or less fans to watch the MLB 15-20 yrs from now? Nothing guarantees that baseball will be around in its same capacity 15-20 years from now. Historically speaking, baseball has only been big business for the last 3 decades, and Steinbrenner happened to buy right before a huge watershed moment in the history of the sport because of the advent of free agency. 

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A much higher probability MLB will still exist in 20 years vs a consumer retailer.

Same bet I have on cigarettes. In 20 years I think people will still be smoking tobacco. Have for thousands of years, I’m guessing the trend will last another 20 years.

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23 hours ago, Gregmal said:

The thing is, businesses may be a reflection to some degree of their future earnings. But assets are not necessarily. What was the PE or FCF yield on the Dallas Cowboys when Jerry Jones bought them, or the NY Yankees when Steinbrenner picked them up? How does that compare to today? To me, it is much easier to forecast safety in the long term, of an asset, vs durability, let alone ability to appreciate, of a business. There will only be one NY Yankees 15-20 years from now. There will be more billionaires. Meanwhile someone can come along and displace Costco, or the government can break up Google or Berkshire. So far, my only level of comfort in predicting long term oriented events, would be with things they cant replace.  

I would feel much more comfortable holding Costco for 15 years than an MLB baseball team, just my opinion. Surviving is only half the battle, thriving is the other half. I don't know the economics of a MLB franchise, but would be impressed if they produced more earnings growth than Costco over 15 years. 

 

The logic of buying things that can't be replaced could easily lead someone to think that commodities, land and hard assets would be the only thing worth owning over the long term and history hasn't supported that thesis yet. 

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IDK, but I can point to a number of high profile homes, land(Mark Hughes BH acreage), sports teams(Steinbrenner bought the Yankees 50 years ago) and other things that have provided an adequate return over a very long period of time. An acre of land in South FL in the 1930s was $10. Can anyone name a public company, let alone many, that you could have bought then and still owned today with something similar to show for it? You have so much more risk and variables owning a business. Not to say it cant work, but its definitely harder IMO. 

I mean we use Costco as an example...how many people currently and in the past several years refuse to own it because they bitch and moan about valuation and its improbability to produce long term returns? You want to test long term with 15 years from a 38x PE? I'll totally take the other side and wager the Knicks are worth way more than the currently implied $3.5B(or even $5B in you want to use Forbes).

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All investments, including assets & businesses, involve purchasing "rights" protected by law:

  • Real estate in law is defined as the "right" to legally exclude others from a well-defined boundary, and certain other rights, e.g. right to build a certain amount, right to use for something specific, etc.
  • Sports team investment is the "right" to legally prevent others from having another team for a defined area and certain other rights.
  • Railroad is the "right" to use a physical pathway and exclude others from using it.
  • Spectrum is the "right" to use a frequency band and exclude others from using it.
  • Pipeline owns the "right" to easement
  • Trademark is the "right" to exclude others from using your name that stands for something.

For some of the "rights" above, there is an alternative option, e.g. for Trademark or "sports team" or even real estate or pipeline.  For some rights, there is no alternative or alternative is very suboptimal.   If a "right" has no alternative, you can make it cashflow higher and higher.  How much you can make a right cashflow depends on the alternatives. 

Ideal investment would be directly owning a "right" that has no alternative and that can cashflow unleveraged at 20+% per year, where there is no other alternative to that "right" for those that need to use it, and where you can take the cash and buy more such "rights" at a price that cashflows unleveraged at 20+%  per year. 

Such an investment is really hard to find.  

Usually, buying "rights" directly is expensive because other neural nets can easily comprehend what they are buying and are willing to pay a high price for it.  So, you cannot buy it at 20% unleveraged cashflow. 

The next best alternative is buying shares of an entity that owns such "rights".  Now, as soon as you put an entity between yourself and the "rights", you take several risks, e.g. agency risk from those employed by the entity taking a big chunk of the cashflows before they let it pass it on to you, leverage risk created by those employed by the entity while not caring about taking the risk for the shareholders, etc. 

Another option is directly buying rights that might have an alternative also.   However, if you are paying a high price for those rights (because other neural nets comprehend the right as an investment also) and those rights have an alternative also, it might not be as good an investment. 

Edited by LearningMachine
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17 hours ago, Gregmal said:

IDK, but I can point to a number of high profile homes, land(Mark Hughes BH acreage), sports teams(Steinbrenner bought the Yankees 50 years ago) and other things that have provided an adequate return over a very long period of time. An acre of land in South FL in the 1930s was $10. Can anyone name a public company, let alone many, that you could have bought then and still owned today with something similar to show for it? You have so much more risk and variables owning a business. Not to say it cant work, but its definitely harder IMO. 

I mean we use Costco as an example...how many people currently and in the past several years refuse to own it because they bitch and moan about valuation and its improbability to produce long term returns? You want to test long term with 15 years from a 38x PE? I'll totally take the other side and wager the Knicks are worth way more than the currently implied $3.5B(or even $5B in you want to use Forbes).

What I don’t like about sports teams is that there are basically zero owners earnings and the employees (players) can capture the majority of economic returns. They are basically a billionaires collectible.

 

I guess gladiator teams (romans) and jostling teams (medieval) in the past served the same purpose , except the participants back then didn’t do too well.

Edited by Spekulatius
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They are basically a billionaires collectible.

But the billionaire gets to deduct almost the entire purchase price (since there's few tangible assets in a sports franchise) over 15 years in the form of annual tax deduction against his/her personal income from other sources.

I bet Steve Ballmer pays close to zero income taxes on his Microsoft dividends thanks to his Clippers purchase.   That's why billionaires line up to buy the best/most valuable franchises.

I do agree with you though that they are generally poor investments as public companies and really should be privately held by rich individuals.

wabuffo

Edited by wabuffo
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