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Some good articles this week.
The ones on Netflix and Peloton attempt to dispel the notions that seem to have taken hold that Netflix’s increased competition will doom it, or that Peloton is hiding a massive churn nightmare.
Investors are always advised to be “contrarian,” but it’s hard to even know what that means sometimes. Is it contrarian to be optimistic or pessimistic about Netflix right now? I guess you can be optimistic about Netflix the company but believe the stock price is still not attractive, which is perhaps where I fall (though, to be clear, I have not dug in here).
Maybe being contrarian means playing in non-FAANG areas of the market entirely, which is perhaps where I fall even more. The podcast from 2 weeks ago with our friend Ian Cassel of Microcap Club helped reinvigorate some of my small-cap screens. The article this week about the performance of Ben Graham Net-Nets is a good reminder of other ways to find huge opportunities.
As is this week’s “podcast of the week” with Chuck Akre. Akre Capital’s “three-legged stool” of investing really starts with identifying companies with sustained, above-average returns on capital, available to buy at a modest valuation. He really makes it sound simple (in a good way).
“An interview with Amazon.com founder Jeff Bezos touches on the timeless lessons he’s learned for business success. The three big ideas are (1) thinking on a different timescale; (2) putting the customer first; and (3) inventing.”
(1) Value investing is not for the weak. (2) Don’t time the market. (3) Value investing takes a ton of time.
This is a bit wonky, but the conclusions aren’t: “Net nets, on a gross basis, more tripled the returns of the market over the sample period (as measured by the S&P 500 [total return]). Net nets, on a net basis (i.e., after commissions and potential taxes) more than doubled the returns of the market (as measured by the S&P 500 TR).”
“‘It’s all about focus,’ says Towson. ‘You’re not going to accomplish 25 things in your life. If you really focus long-term you can do three to five big ones, maybe.’”
Markets & Investing
Reads like a Michael Lewis article. Wall Street can be insane. “The ‘worst-case’ loss I derived in September was $30 million, less than a sixth of what I ended up losing in October alone.”
“…Warren Buffett [says] that he’s a better businessman because he’s an investor and a better investor because he’s a businessman…But good investors aren’t always good business people and good business people don’t always light it up as investors.”
“To meet 2018 levels of energy demand, the oil industry would have to spend $25 trillion a year for the next 25 years, while to produce the equivalent level of energy from renewables would cost on $4.6 trillion – $5.2 trillion, Lewis says.”
Company & Strategy
I hadn’t really sat down to think about the economics of podcasting, so I thought this was interesting.
“Take a look at Joe Rogan… Let’s assume he [has] 100 million downloads per month. Assuming he sells ads at a low $18 CPM (cost per thousand listeners) and sells out his ad spots, he’s making approximately $64mm in annual revenue. If he’s on the higher end, at $50 CPM, he could be making as much as $240mm per year.”
“In fact, there is an argument to be made that if you invest in WeWork equity, you are investing less in an ongoing business, and more in an out-of-the-money option, with plausible pathways to a boom but just as many or even more pathways to a bust.”
In the wake of all 50 states opening antitrust investigations into Google, plus some into Facebook, here are the lessons: (1) Antitrust law may be old, but it can apply to the modern tech industry; (2) Consumer harm extends well beyond the price of products; (3) Fight, but be flexible; (4) Politics and public opinion matter a lot; (5) The Microsoft case changed the industry … or so it seems.
“The bigger impact to the entire market will be that the surge of streaming service options, each with its own package of unique content, will finally kill cable television service model. If for $25-40/month you can get Netflix, Hulu, Disney Plus, ESPN Plus and Amazon Prime video, who will keep cable TV?”
There have been a lot of articles about Peloton potentially disguising likely huge churn when the 12-, 24-, and 36-month agreements expire, but this guy built an interesting model that says this may be overblown.
Podcast of the Week
A great interview of a classic value investor. Highly recommended.