1 Fundamental analysis that doesn’t respect the reflexive nature of reality is kind of dumb.Reality is only kind of “real” and can be altered, for example, with the strength of belief.
2. Warren Buffett is a master propagandist and you shouldn’t take his folksy mannerisms earnestly.He’s trying to trick you into coming to Omaha so he can impoverish you at his annual carnival. $BRK
3. The “present value” of real estate operating lease liabilities is not equivalent to debt in the United States, no matter how many times people say otherwise.
4. When a biz has a layered claim on another, such as $MCD and its franchisees or $MAR and its hoteliers, it’s critical to think about the economics of the sharecropper business.If the sharecropper doesn’t have good economics, eventually the parasitic parent won’t either.
5. Changes in a business’s growth trajectory often swamp the merits of valuation, to both the upside and the downside.Favorable inflections can sometimes make you a killing. $TGT
6. Consolidated financials are BS when looking at a company’s leverage.Companies are legally distinct entities and this can result in situations where debt is held at a subsidiary that has no claim on a parent co’s other assets.Important to see which companies guarantee what.
7. Henry Singleton built and dissembled Teledyne so profitably by using the dark arts.Soros gets credit for reflexivity but Singleton understood it intuitively AND knew how to manage narrative to bend it to his own will.Look at how trouble at Argonaut influenced his buybacks.
8. Jeff Bezos is the John Malone of operating expenses.
9. Good and underappreciated sources of information are PACER and state regulatory filings.Discovered $CAOX corporate existence was supposed to be terminated decades ago and the company never got around to updating its Articles of Incorporation.
10. Humans are on the brink of achieving functional immortality and time is about to become much less valuable.Interest rates are already reflecting this.
11. Using history beyond the past twenty years as your understanding of the limits of what sort of corporate growth rates are possible is like using a dowsing rod to start your own water utility.The world really is different now and what didn’t used to be possible now is.
12. The $TSLA and $TSLAQ communities are both rational responses to a situation that is almost nothing but high stakes reflexivity.The two forces are in a game of tug-o-war to shape Tesla’s intrinsic value by influencing its stock price. Lots to learn from watching their duel.
13. Value investing and growth/momentum investing both work and it’s important to respect and try to integrate the best ideas from each investing style into your own.Don’t be a cultist to one style. You’re only harming yourself and your family by drinking the Kool-Aid.
14. Financial statements are usually the outputs of a company’s value drivers, not the value drivers themselves.Learning adjacent skill sets, such as direct response marketing, can open up opportunities to you that others can’t yet see.I recommend Tested Advertising Methods.
15. Knowledge is abundant and by itself is only rarely a competitive advantage.But you can create an edge by synthesizing knowledge to create an understanding that is unique to you.
Taking a break now that I’ve worked through my backlog. Will do more later if more likes come, though.
16. The strength of the crypto and pot stock bubbles were influenced in part by how aggressively they were hyped by investment newsletters.The size of the industry would surprise most people. The largest co. has a subscriber base in the seven figures.
17. Company narrative metagame management is one of the primary roles of a good CEO and most do a poor job of it.Managing your narrative is a big aspect of capital allocation and can create or destroy fortunes for your shareholders.
18. This is why Elon Musk may be one of the greatest CEOs of all time, ESPECIALLY if you think Tesla is worthless.Narrative management + capital allocation alters intrinsic value.
19. Some of the most basic setups are basically just capital structure arbitrage. Have doubled my money on $MAR from the company replacing higher cost equity with lower cost debt.Doesn’t always work out but when it does it’s like putting biz performance on steroids.
20. Dispassionate analysis will always have its place but emotion can add a ton of value to an investor’s skill set.Putting yourself in the customer’s shoes can help you share empathy with them, which can tell you a lot about WHY they use the products and services they do.
21. Distressed situations are fascinating because they’re just as much about game theory as they are about legal protections and rights.The Vulture Investors by Hilary Rosenberg is a fun book on the subject, for those of us (mostly) locked out of this game.
22. Markel’s culture is overrated. The company’s predecessor was literally formed to take advantage of regulatory capture its founder created.Here’s $MKL co-CEO Richie Whitt talking about the scheme.“It was pretty brilliant.”I’ll say.
Wells Fargo Lesson: Culture Work Hard for Growing Cos., Says Markel CEO - Carrier ManagementIt’s not uncommon for one of the leaders of Markel Corp. to be greeted by an employee intent on giving him “what for” about something going on at the company as he exits his car in the morning. Richi…https://www.carriermanagement.com/news/2016/09/19/158932.htm
23. Alternatively, $MKL culture is underrated because the company has a history of being kinda clever and sneaky.Choose your own adventure.I own $MO. I’m not beyond making money from regulatory capture. 😂
24. Economic moats are cool but aren’t the only thing.Commoditized businesses can be great investments despite low AVERAGE returns if the range of possible outcomes is wide enough.
25. For example, industries with relatively low short term price elasticity of supply occasionally experience jackpot economics when the service they’re supplying is mission critical.See: shipping.
26. In highly reflexive businesses, short sellers are kind of like economic terrorists by reducing the range of possible intrinsic value outcomes.
27. The pink sheets are one of the last Wild West markets in, well, the West.The SEC’s new proposed rule may make trading many of the stocks there much more difficult in the next few months.Looking forward to major dislocations, if so. Do the homework now to be ready.
28. Businesses that don’t have economic moats yet but are developing them can be better investments than businesses that already do.
29. Social hierarchies come natural to humans, so entities that sell perceived access to higher tiers of those hierarchies will always be in demand.Social signaling never dies and neither will lux goods and services.
30. The economy is creating more wealthy people and more poor people. The middle gets eaten by the economic meat grinder.The same is true for businesses. Midline is usually the worst place to be. High end and low end are key to the American Carnage portfolio.
31. You can run your own John Malone home game.Dividend stocks are for tax deferred accounts and geezers who want an extra $20 per month in income to supplement their SSI.Compounders are for taxable, just gotta hold them til you die so your heirs get a cost basis step-up.
32. LTV/CAC analysis can really screw you up if you don’t consider cohorts and scale of spend.Often, your earliest adopters are your biggest fans. If you don’t have an internal growth engine, there’s a good chance you’ll run into diseconomies of scale in customer acquisition.
33. Real estate leases serve as a hedge against Wholesale Transfer Pricing.Advertising may be the new rent, but the rent is month-to-month so if you don’t expect to get squeezed it’s your own fault.
34. Insurance tends to be an awful business, but a fun way to check the trend in reserving adequacy is converting calendar year loss development triangles into accident year ones.Insurance has goofy accounting so sometimes you can gain insight from the granularity.
35. Insurance float is one of the worst kinds of float because what you can do with it is heavily regulated.If someone is starting an insurer for float, run away. There’s a good chance they’re either living decades in the past, planning a scheme, or lacking in creativity.
36. Anti-prestige businesses are often not appreciated on the market.There’s often value in companies that cater to non-coastal regions and rural communities.
37. Having a list of businesses that should do well in alternate economic environments can be useful to help you move quickly if things change.$FMBL will make a killing if interest rates rise, for example, because of its huge base of non-interest bearing deposits.
38. Get on the mailing lists of the major investment newsletter publishers.Sometimes they’ll pitch a small cap stock for months at a time in their advertising, if the return on ad spend is high enough.Between a small float and a million Boomers, interesting things can happen.
39. Alternatively, just check out Stock Gumshoe and avoid the spam.There’s a guy there who analyzes the advertisements and outs the stocks they’re pitching.Sometimes the momentum from a repeated pitch alone is enough to be worth a small wager.stockgumshoe.com
40. Who knows how long it will last with the new proposed SEC rule, but there is an opportunity to create catalysts with Pink Sheet stocks that don’t post their financials publicly.Using shareholder rights laws to get and share them, you can sometimes help market efficiency.
41. Structural subordination sounds like a BDSM theme but unfortunately it’s just a credit term mostly relevant in distress scenarios.Well, I guess it’s not that different.
42. Jeff Bezos is a better capital allocator than Warren Buffett. $AMZN $BRK
43. Stock ownership doesn’t necessarily represent partial business ownership in any realistic sense.He who has the gold makes the rules.
44. Not every company is even trying to become more competitive over time.Many exist only to provide sinecures to their agent operators.There’s money to be made in companies that bother to care.
45. Massive presentations about a new position are massive not because that much information is relevant, but because it looks more convincing and shows people you “did your homework”Using research as marketing. Very smart.
46. The best players in bad industries are worth investigating. If economics are so poor most companies can’t make money, you MAY not have to deal with new players boosting industry capacity.Top dog’s scale can let it wring out profits surrounded by a moat of broken glass.
47. Real estate has some unique advantages in terms of leverage and taxes, but also has unique problems.If you don’t manage it yourself, you’re subject to an agency problem with expense pass throughs.If you do manage it yourself, you’ve bought a part time job.
48. The Greater Fool Theory is something to be cherished, not maligned.Playing it opens up a whole new world of opportunities where psychology is a competitive advantage.But if you never try, you’ll never get better.
49. $GOOG and $FB have faced a lot of criticism about their ads not working.Not a new problem. Most ads either don’t work or are hard to measure and advertising agencies have been feasting on that opacity for decades.Only when their lunch was eaten did they start crying foul.
50. There is a misunderstanding that advertising returns could not be measured before big tech came along and provided a treasure trove of data.This is false. Keyed ads have been a thing in direct response advertising since before Silicon Valley was even an idea.
Halfway there. Even fifty is hard without relying on basic bitch truisms!Time for a lunch break!Thanks to everyone who has enjoyed and shared my thread so far. 😄
51. Some of the best investment opportunities are found just by stumbling into them in your personal life and appreciating how cool the company is.Peter Lynch was pretty much right about this and this is also a big reason why emotion and empathy can be advantageous.
52. Someone asked for elaboration on tweet #3.You can count the present value of real estate operating leases as debt if you want, I suppose, but you should think about the lease rejection damages cap.502(b)(6)
53. Following up, it’s hard to perfectly transmit knowledge and sometimes the understanding of a subject becomes goofy because the knowledge has become a Xerox of a Xerox of a Xerox of itself.Knowledge is viral and without close inspection, can rot and become antiknowledge.
54. This has happened with people considering real estate leases as a form of debt, but it has also happened generally.If you copy a mentor or authority figure blindly, you will copy their defects as well.Learning through osmosis is wonderful but also dangerous.
55. In investing, as in life in general, do not be afraid to weaponize any (legal) advantage the world has granted you.The world will certainly not be afraid to weaponize your disadvantages against you.
56. Capital allocation is just as much about anticipating and influencing the sequence of events as it is about allocating capital.What’s optimal in one scenario isn’t in another. There’s more to it than choosing between dividends and stock buybacks.
57. It’s easy to conform your capital allocation decisions to the opportunities presented to you.It’s harder to make the opportunities presented to you conform to your ideal capital allocation policy.But it is possible. Companies that learn how can create fortunes.
58. Elaborating on earlier, consider Teledyne. Earnings fell in half from 1973 to 1974 because of problems at one of its subsidiaries, Argonaut, related to medical malpractice insurance.Stock took a beating, and the co. took the opportunity to tender for huge chunks of shares.
59. According to a presentation by Leon Cooperman, Teledyne engaged in three separate tender offers from 1974 through 1975, repurchasing from between ~10% and ~20% of its outstanding shares in each of themAmazing, considering Teledyne’s troubles at the time.
60. But just how bad off was Teledyne?Although Argonaut shored up its malpractice reserves, some of the company’s losses in 1974 came from its investment portfolio.There was more to the story than poor underwriting results, the seriousness of which MAY have been embellished.
61. For example, when talking to Congress about its NY biz, the CEO of Argonaut admitted that of $69 million of malpractice reserves, Argonaut had only paid out about $24k on its policies.An analysis by an outside firm estimated Argonaut was actually about 2.6x overreserved.
62. Funny thing about increasing your loss reserves as an insurer. Doing so lowers reported earnings, and can make a business look less profitable than it actually is.Maybe it’s a coincidence that so many of Teledyne’s massive tender offers happened around this time.
63. Or maybe it wasn’t a coincidence, and Singleton knew what he was doing.At the same time Teledyne was reporting losses from its insurance businesses, its other businesses continued to grow.But it was able to buy in shares at a discount to what it paid a few years earlier.
64. After insurance results turned in ‘75, the stock soared and became a multibagger from the tender offer prices.With the Argonaut losses, Teledyne had time to do big tenders at low prices.That’s why sequencing and narrative management are important to capital allocation.
65. A good CEO will try to position the company to perform optimally in the next part of the sequence OR alter the sequence to optimize current reality.$TSLA would be dead now if Musk failed at this, which is why it’s wrong to chastise him for issuing shares at $243.
66. Because if he didn’t issue shares at $243, the stock would not be at $404 now. It would be at $0, or close to.The future is not independent of the past. It is dependent on it. By altering narrative, we alter the current “reality,” which in turn alters the future.
67. Singleton altering perceptions of Teledyne’s profitability to buy back shares on the cheap and Musk performing elaborate 🐚 games to issue equity at high prices are two sides of the same coin.Both are legendary to me for seeing narrative & sequence as capital to allocate.
68. $L is ALLEGED to have used a similar trick on Boardwalk Pipeline, by deliberately tanking the units to exercise its call on them at lower prices.Capital is not just cash and assets. It is perception, ideas, and time.Alter those and the rational uses of cash also change.
69. Of course, I cannot prove any of this was done intentionally. I’m not suggesting it’s a matter of fact.But from the info I have been able to piece together, and noting Singleton’s genius in using reflexivity to build Teledyne, it’s an idea that makes sense to me.
Sources for those who care:
Argonaut's Malpractice Premiums in '74 Amounted to $35‐Million, Claims $24,000New Argonaut Ins Co pres Lawrence C Baker says while co took in $35-million in drs' malpractice ins premiums in '74 and has paid out only $24,000 in claims, it decided to abandon field after estimati…https://www.nytimes.com/1975/06/17/archives/argonauts-malpractice-premiums-in-74-amounted-to-35million-claims.html
For Argonaut, Profits Proved IllusoryTeledyne Inc. Calif conglomerate that expected huge profits from med malpractice ins business, precipitated current drs' job action when Teledyne property Argonaut Ins Co proposed series of large pre…https://www.nytimes.com/1975/06/08/archives/for-argonaut-profits-proved-illusory.html
Loews Must Face Suit Alleging Pipeline Stock Option GamesmanshipLoews Corp. must face a lawsuit claiming it intentionally tanked the price of a partial subsidiary so it could buy the pipeline operator out on the cheap, a Delaware judge ruled Oct. 7.https://news.bloomberglaw.com/mergers-and-antitrust/loews-must-face-suit-alleging-pipeline-stock-option-gamesmanship
70. Ken Fisher shouldn’t be shamed for discussing the use of LSD.Investing is a creative field more than a scientific one, and certain drugs do boost creativity by helping you make unique connections.I wish more investors would talk about how drugs influence their investing.
71. If you pay up to invest in moats you should be careful not to drown in them.If a company’s moat begins to degrade, you can get a deadly combination of decreased earnings power and multiple compression.All of a sudden the sure thing becomes a sure loser.
72. Portfolio diversification is like type diversification in Pokémon. If you just powerlevel Charmander, you risk getting BTFO by Misty’s Starmie in Cerulean City. Going all in will kill you eventually.
73. One of the cool things about getting taken out of school in 4th grade is that I got to spend my time playing a lot of games. Gaming teaches you how to creatively analyze and exploit systems, which is useful in the market and life in general. Never stop playing! H/t @NonGaap
74. Attention to detail often doesn’t matter all that much if you’re looking at compounders, but in some situations it’s crucial. Like how I accidentally created a new thread chain for the @vgr 100 Tweet challenge at number 72.Please don’t disqualify me! 🤣
75 Ben Graham was an innovator of investing in his day, and brought creative new ways of thinking to the field.It’s a disservice to Graham that many of his devotees refuse to do anything but emulate his investing style, when they should be emulating his creativity instead.
76. Culture is important. If a lot of people are really into something, you owe it to yourself to check it out and see what all the fuss is about.Culture creates cash and if you want some of it, it’s important to keep an eye on what people who aren’t like you think.
77. When I was a kid, I lived in a skating rink and later a trailer park.Rent seeking behavior towards those in poverty is disgusting, and companies that treat low income people with dignity and make their lives even a little easier can build a lot of loyalty.
78. Sometimes, one of the worst investments you can make is in yourself.Humans depreciate quickly and if you don’t make it to the immortality cutoff, you’re screwed.But ownership is a leech on other people’s time and can keep growing stronger well after you’re six feet under.
79. A great heuristic to gauge someone’s financial sensibility is to ask about their opinion on Rich Dad, Poor Dad.I have yet to find another question that cuts through so much BS so quickly.
80. Investments exist outside of financial markets, and there’s no reason you can’t apply your financial knowledge to investing outside the usual domains.Direct response marketing, with its focus on immediate sales, is tailor made for it. Used to be my job, actually.
81. The tech bubble at the turn of the century wasn’t wrong, just early.Same with the railroads. Just took until the industry consolidated to work.There’s often a big kernel of truth in mass delusions that makes them believable.Survivors of wash outs are worth looking at.
82. Walker’s Manual of Unlisted Stocks is a treasure map of OTC stocks, but more of the treasure gets dug up with each year that passes.It still has value as a starting point but one day its primary value will be as an antique.Would recommend getting one if you can find one.
83. A lot of people claim the dollar isn’t backed by anything since the end of the gold standard.That’s wrong. The dollar is backed by 3,800 nukes and the only demonstrated willingness to use them in warfare throughout history.
84. Okay, that last one’s a joke. Kind of. But Madman Theory shifts the Overton Window of what’s possible not only in politics, but markets and business as well.It can be a competitive advantage to make people think you’re a nutcase.
85. $CHWY is the perfect stock to play the immortality theme. Dog trials are happening before humans, and the longer Rover lives, the higher the LTV of a customer.It’s gonna be a big shock to the market when dogs start collecting Social Security.
A Harvard geneticist's goal: to protect humans from viruses, genetic diseases, and agingGeorge Church's lab at Harvard Medical School is working to make humans immune to all viruses, eliminate genetic diseases and reverse the aging process. Scott Pelley reports on how close the gen…https://www.cbsnews.com/news/harvard-geneticist-george-church-goal-to-protect-humans-from-viruses-genetic-diseases-and-aging-60-minutes-2019-12-08/
86. Some of the most interesting stocks in the market are high priced shares, especially on the pink sheets.They’re often family held or tightly controlled companies that have done well over time, and the stock has never split.Can find some unique and interesting assets there
87. Not caring what others think can be a strong competitive advantage.One of the most profitable businesses I’ve ever seen writes spam letters that open Boomer wallets like they’re running out of baked beans.Owner is a billionaire and few people know or want to emulate it.
Starting to run on fumes here... each one gets harder to pull out of the hat.Gotta get to 💯 in the next twelve hours...
88. When investors start being cryptic about their analysis and only hint at their meaning, it’s time to be skeptical.If I had a dime for every time I heard about the “non-guarantor subsidiaries” that were going to salvage $SHLD equity value, I could buy 100% of $SHLDQ.
89. Master Limited Partnerships have “Master” in the name because that’s what you’re going to have to address them as when you get on your knees and beg for your money back.
90. In investing, “DCF” has dual meanings. One is distributable cash flow. The other is discounted cash flow.Both are made up.
91. It’s said a company can’t grow at a rate > the economy forever or it will become the economy.Amazon has been since the ‘90s. There’s a chance big tech is going to upend things and create a cyberpunk dystopia.A lady from the DOD told me $GOOG is a national security threat.
92. I’d rather own one mediocre business than a mediocre conglomerate. $L is in a never ending game of whac-a-mole.As soon as it solves problems at one sub, problems at another sub pop up to take its place.At least I can get leverage to cyclical upside with the single biz.
93. Retailers and platform mom-n-pops are different businesses.With purchasing power, a retailer can get better terms from suppliers than a mom-n-pop $AMZN shop can.But the $AMZN shop may have COGS that round to zero if they’re getting inventory from dumpster fetch quests.
94. You should be totally open to embarrassing yourself as an investor, and if you can, come to enjoy the process.If you can laugh off being wrong, you can try out more investing styles as a form of R&D to keep improving.You never innovate without a little egg on your face.
95. Sometimes new ideas work, sometimes they don’t, but you can’t be afraid of the ones that don’t work if you want to keep growing.Otherwise, you plateau and the world slowly passes you by.When you successfully adapt your skillset, all the failures become worthwhile.
96. This is another benefit of diversification.You have less leverage to your top ideas, BUT you get to iterate your style more quickly by having more at-bats, which results in a faster feedback loop.You also feel better being experimental, because you’re making little bets.
97. Most of the people who complain about indexing seem to be active fund managers who can’t sleep at night because they’re worried about the existential threat cheap alternatives pose them.The financial industry needs a good shakeout. This has been a long time coming.
98. They’re losing business to... no one.No one is doing a better job than most asset managers. As in having no one as a manager is better than having most managers as managers.I’m glad the economic meat grinder is moving up the economic ladder to higher value targets.
99. Just as asset managers and workers have been replaced by robots, CEOs soon will be as well.Twilight Zone predicted it back in 1964, and it’s cool to see how close it has become to reality.AlphaGo beat the top minds of Go. Can it beat Buffett? $BRKen.m.wikipedia.org/wiki/The_Brain…
100. Don’t be afraid to invent your own investing concepts. The field’s philosophy reminds me of heatlamped hamburgers left out to rot for decades.Investing is artistic so be artistic and try new things. It’s fun. Like I tried this hundred tweet thread andnowImdonethanks @vgr!
This was a lot of fun and I got to meet a lot of new friends, who are now 1/3 of my followers!Excited to have finished my AphorismsTwitter debut successfully. Thanks for putting up with the last 30 tweets!Link to the start of thread, since I broke it.