Market Talk, April 10th 2022
Market Talk is a bi-weekly Sunday issue, where I curate the best things I have consumed during the last two weeks.
Every second Sunday I will share:
• The greatest articles I have read during the last two weeks
• A few stellar podcasts or interviews
Comments from Me
As remarked in the last Market Talk, I have discovered a rejuvenated sense of energy for writing. I am finding that blocking out time to write each morning has been massively impactful.
In the coming weeks, I plan to share more equity write-ups, one being a summation of Kura Sushi’s second quarter, as well as a new guest interview that revisits the topic of special situations investing.
Here is a shortlist of a few interesting pieces that I have read over the course of the last two weeks, to feed your mind.
Note, that these articles are not listed in order of perceived value.
To access the suggested article, click the purple link after the source subheading.
1) Great Companies are Forged During Crisis
Length: Light Read
Source: (Ensemble Capital)
Opening with prose about how the mighty redwood (that’s a tree, for all y’all non-arborists) is able to survive woodland fires via a fire-resistant chemical within its bark, this piece by Ensemble Capital hones in on businesses that have the resistance to survive the stock market equivalent of a woodland fire; a crisis.
Attributes of discussion are moats, relevance, and stakeholder value.
“Whether in nature or in business, growth breeds complexity and complexity dampens growth. At some point, the complexity becomes tinder for an external shock – or crisis – that fuels destruction which in turn is the genesis of the ecosystem’s next phase of growth.
A crisis is indiscriminate in wielding damage. All parts of the ecosystem are impacted. Those parts that survive the crisis, however, are in a better place to capitalize on the next phase of growth.”
2) Sources of Enduring Business Success
Length: Light Read
Source: (Saber Capital Management)
From resistance in crisis to attributes that ensure long-term endurance. I found this memo from Saber Capital to complement the one I just shared from Ensemble. Us humans (more specifically, us investors) love to progress a long-time mindset but we seldom walk our own talk; oft making decisions based on the near-term outlook of a business at the expense of the bigger picture. If a 1-year time horizon was a box, then many fail to think outside of it.
“Being patient and thinking long-term is widely discussed as a positive attribute. It’s not debatable. I’ve never heard an investor say they are impatient and short-term focused. But the fact that this is widely talked about does not mean it is widely practiced. Much like the principle of “hard work”, it’s easier said than done. The vast majority of people in business would say they are a hard worker, but the reality is only 10% of those people are in the top 10% on the spectrum of work ethic. The same goes for behavioral advantages in investing. The vast majority of people say they have this edge, but the facts suggest that few actually implement it.”
3) Willis Cap: 2021 Annual Letter
Length: Moderate Read
Source: (Willis Cap)
There were a lot of ‘quotable’ quotes that I wanted to stick in the purple-lined box below, but I went for a simple one. An excellently-well written annual letter; transparent, candid, insightful, and worth your time.
“We are not trying to maximize returns. We are trying to invest our money in such a way that we survive and thrive over time. The future is unknowable. We are likely to have terrible investing environments due to unforeseen risks over our investing lifetimes. By owning a more diversified group of higher quality businesses, we increase our chances of achieving those goals.”
4) Real Estate as Inflation Hedge
Length: Light Read
Source: (Woodlock House)
A cunningly deceptive title, Chris Mayer takes a stint at explaining how real estate can provide a hedge against inflation. This is no real estate security guide, however; instead focussing on the idea that businesses that own the real estate necessary for their operations are set to provide a natural hedge against those who do not. The takeaway can be summarised from the below quote, but the article is worth reading, as Mayer covers three distinct examples of this effect in action.
“Finally, to summarize the theme of this post: Companies that own their own real estate have a natural inflation hedge over competitors that do not. And this real estate, accumulated over decades, also makes it extremely difficult for competitors to replicate it today – if it is possible at all.”
5) The Walking Dead - An Update on Ultrafast Grocery Delivery
Length: Light Read
Source: (Below the Line)
After opening the memo with a discussion of Getir, the Turkish-ride-hailing platform that has made its inroads into Europe, Kevin LaBuz (author) curtails into a broader conversation about the industry on a more global scale. With whacky valuations, poor unit economics, excessive advertising, and enough consolidation to make you consider founding your own delivery start-up with the hopes of being acquired for some ludicrous sum, this article is a vibrant, and fun catch-up on how ride-hailers are doing in 2022.
“Profitability is notoriously difficult to attain in delivery. Ultrafast delivery is even harder as the atomic unit of demand is the neighborhood. Whereas Uber and Lyft expanded city by city, ultrafast grocery delivery providers battle it out block by block. Perhaps that’s why Salur is coy about discussing profitability. While he notes that it takes six months for a MFC to mature and that Getir could be profitable today if it wasn’t focused on growth, financial disclosures are scant.”
Other Items I Read
Note: ($) indicates there is a paywall on this content.
• Kyla’s Newsletter: The Distortion and Disruption of Narratives
• Citigroup: Metaverse and Money - Decrypting the Future
• Doomberg: A Spot of Bother for Bitcoin
• Doomberg: Crouching Tiger, Hidden Problems
• Trading Engineered: How to Read a Stock Chart for Beginners
• Bill Brewster: Mo’ Confusion, Slightly Less Money
• Michael Mauboussin: Information as a Basis for Improvement
• Best Anchor Stocks: What Makes Quality Undervalued
🕵️ Company Specific 🕵️
• Insecurity Analysis (TWTR): Fintwit's Tipping Point?
• Stratechery (NVDA): CEO Jensen Huang about Manufacturing Intelligence
• Stratechery (NFLX): Why Netflix Should Sell Ads
• TSOH Research (DG): Dollar General Write-up ($)
• Shadowridge Value (RDFN): Redfin Write-up / Investor Letter
• SemiAnalysis (NVDA): How Nvidia’s Empire Could Be Eroded
• Value Stock Geek (UL): Unilever Write-up
• Jamie Dimon (JPM): Letters to Shareholders
• MarketplacePulse (AMZN): Amazon Is Adding Thousands of New Sellers Daily
There is a huge range of Podcasts to listen to, and the choice can feel quite saturated at times. Here, I will share three podcasts I listened to during the last two weeks, that I feel are worth your time.
(1) Zero, By Way of a Hundred
Risk of Ruin
One of the most captivating podcast episodes I have listened to this year. This discussion with John Hempton, Bronte Capital, is a fascinating tale of how Bronte capitalised on the downfall of the former pharma-giant, and fraud, Valeant. The episode also includes Hempton walking through his process of identifying short positions, their fund is famous for shorting fraudulent companies, and explaining how they find them, how they size them, and some unique insight into the process.
For those interested in learning more about Valeant, I would highly reccomend the Netflix Documentary series ‘Dirty Money’ and the episode titled ‘Drug Short’.
Guest: John Hempton
(2) Adam Neumann in His First Public Interview Since Leaving WeWork
New York Times Events
This interview was from back in November 2021, and I am not sure how I only came across it recently, but it was a fascinating watch if you have ever followed WeWork’s story, or seen the Hulu documentary that aired last year. The original concept of WeWork, in my opinion, was a good one. No surprise we have seen the current WeWork slink back into that model. But it was Adam Neumann’s increasingly ambitious dreaming, fueled by billions of Masa Son’s capital, that led to their eventual downfall.
After staying silent for years, this interview was the first time Neumann addressed the public and commented on that notorious Hulu documentary. From watching this interview, it’s easy to see how so many were suckered by Adam’s… ’charm’ … but of course, he has something new to sell these days.
Guest: Adam Neumann
(3) How Quest Became a Billion-Dollar Ecosystem
Meta, Game Developers Conference
Hosted by Meta’s Director of Content Ecosystem, Chris Pruett, this presentation provides a glimpse into Meta’s Quest ecosystem. Chris starts out by highlighting the wealth distribution amongst developers on the platform, which recently surpassed $1B in software revenues, as well as granting context on the debates that occurred internally regarding how the platform should function (open or closed doorway) following the release of Quest 2.
Particularly interesting to me was the conversation on Meta’s decision to follow a ‘curated’ app store environment during the initial adoption curve, ensuring that new users are met with quality games titles. This would be somewhat of a ‘closed’ economy, with Oculus having 400+ titles thus far. To keep the community of early experimental developers alive (who were unlikely to get accepted into Oculus), App Lab was created. App Lab acts almost as a secondary app store without the curation filter and has 1.4K titles after just one year of launch.
A quick, highly engaging, presentation that would be useful for anyone interested in Meta, or the broader VR ecosystem.
A neat little graphic shared by Leandro from Best Anchors outlining a high-level summary of the semiconductor industry.
Author of Investment Talk