Category Archives: Uncategorized

Jeff Bezos’ Criteria for a Great Business

Warren Buffett famously uses four filters when selecting an investment.

  1. Does he understand the business?
  2. Does it have a competitive advantage?
  3. Does it have able and trustworthy management?
  4. Can it be purchased at an attractive valuation (margin of safety)?

In Amazon.com’s 2014 Letter to Shareholder, Jeff Bezos begins with his own set of criteria for a “dreamy business offering”.

  1. “Customers love it,
  2. it can grow to very large size,
  3. it has strong returns on capital, and
  4. it’s durable in time – with the potential to endure for decades.”

Bezos writes that, “When you find one of these, don’t just swipe right, get married.”

Bezos makes no mention of valuation.

In my estimation, there are not many businesses that meet these criteria. Finding one a year and buying right would be more than enough.

 

Scale, organic growth, levered equity driving Liberty Global

Notes from Liberty Global Annual General Meeting of Shareholders – Thursday, June 26, 2014

  • Value creation drivers (all thriving in Europe)
    • 1.) scale in core markets
      • benefiting from fragmented market
      • favorable regulatory environment
      • winning share from larger telco incumbents
      • scale aids technology procurement (set top boxes), content acquisition, leveraging services & human resources
      • Virgin Media and Ziggo acquisitions were based on building scale
        • substantial synergies to be realized
    • 2.) organic growth
      • targeting mid-single digit growth in revenue and operating income
      • Europe has low penetration of advanced services
      • Liberty’s bundles are attractively priced and over best-of-breed offerings in video, broadband
      • 1ooMbps broadband speeds anchor bundles and organic growth
      • declining video losses from advanced digital platform
      • growth will require continued innovation
        • Horizon TV
          • Horizon generates 30% more ARPU
          • 20% less churn (vs. avg. digital customer)
        • mobile and B2B businesses
          • expects increased demand for quad plays
          • Wi-Fi hot spots and Wi-Fi calling technology
          • SOHO segment growing over 20% annually
      • content
        • with large video and broadband base makes sense to evaluate how select investments in content can help maintain and grow customers
        • All3Media JV partnership with Discovery Communications
        • 50% stake in De Vijver Media, Belgian free-to-air station
        • More content deal/investments to come, particularly in the OTT space
        • SVOD services, such as MyPrime, designed to get ahead of rising OTT threat (Malone is on record as thinking U.S. cable industry was slow to respond to SVOD threat.)
    • 3.) Committed to growing FCF per share (levered equity capital structure)
      • managing capital intensity
      • optimizing balance sheet
      • using excess cash to repurchase shares
        • asset they know the best (circle of competence)
      • best way to drive equity returns for shareholder

A review of Guy Spier’s new book “The Education of a Value Investor”

“The unexamined life is not worth living” – Socrates

“We have met the enemy and he is us” – Pogo

Guy Spier has written a very thoughtful book about investing and about life. Fans of value investing may initially be disappointed that the book does not dispel more valuation techniques or models. But alas anyone who has seriously taken up the task of becoming a skilled value investor eventually realizes that the value investing framework per se is relatively straightforward. Ben Graham and Warren Buffett have already provided these and there are no secrets. The real challenge is the emotional and psychological discipline required to actually implement this proven investing framework.

Some investors such as Warren Buffett and Mohnish Pabrai display a kind of natural virtuosity in this regard that can make it look easy (this may indeed be their greatest genius). Yet, anyone who has seriously undertaken the task of becoming a skilled investor who can add real value – whether measured in relative terms (beating the S&P 500) or in absolute terms (doubling your money every X years) – is sooner or later disavowed of the notion that it is easy.

Fortunately, to quote one of Guy’s mentors, Tony Robbins, “Biography is not destiny. The past does not equal the future.” This is where Guy’s book shines. It is a book-length memoir of one man’s journey to overcome his mistakes and limitations and become a successful investor. Along the way, he discovers much more about life and relationships and important values that we all need to learn or be reminded of.

Charlie Munger has taught us to learn from other peoples mistakes. Here Guy has been remarkably candid and generous in his self-revelations, and there is much to learn from them. It can be a catalyst to look at our own foibles and blind spots and work to overcome them.

In case all this sounds too fluffy and devoid of real meat, I want to assure you that the book contains plenty of useful and actionable investing information, from how to set up an environment that supports rational behavior, to rules of thumb for countering your psychological biases, to how to research a stock, to the importance of checklists and how to construct one that adds value, to a first-rate reading list.

I commend this book to you and look forward to using its many lessons myself to become a better investor and, hopefully, along the way, a better person.

Links of Interest – May 23, 2014

A few thoughts from Omaha on Berkshire Hathaway’s future ($BRK.A, $BRK.B)

I came away from the Berkshire Hathaway meeting generally reassured about its future as a sound investment.

The results will not be spectacular going forward. Berkshire is simply too big for that. However, the result are likely to be quite satisfactory. I think it is rational to assume (as Buffett himself believes) that Berkshire can still beat the S&P 500 over a complete business cycle, something few managers can do. Moreover, in Berkshire’s case you have a high probability of selecting the manager BEFORE you invest, a rarity.

Buffett has put together a collection of businesses that are not only highly profitable, but also remarkably immunized from creative destruction, which provides a margin of safety. It is not a stretch to assume that one hundred years from now BNSF will still be riding the rails, BH power will be providing energy in one form or another and BH insurance companies will be underwriting. This also is rare.

The key question that will drive Berkshire’s results going forward is whether Buffett or his successors will be able to intelligently put to work the enormous capital the company generates.

For now, Berkshire has shown that it still has this capacity to do this given the following options.

  1. Tuck-in acquisitions and organic growth, i.e. NFM Texas store
  2. Large cap-ex investments in rails and energy. Tens of billions can be put to work here over time at satisfactory returns, i.e. 11%-12%.
  3. Stakes in publicly traded companies
  4. An occasional whale (this may be aided by 3G Capital)
  5. “Special Deals” (such as those done with Goldman, GE, BOA, etc.) – Buffett thinks these will still be available after he is gone, based on Berkshire’s reputation and its ability to write a huge check.
  6. Something we are not thinking about. This may seem a bit of a stretch (and certainly not something to count on) but Buffett is an investing genius who has surprised many times in the past by coming up with new ways to deploy capital.

Another positive is that Berkshire is one the few companies that will have both the firepower – cash, operating profits, borrowing capacity, liquid securities – and investing philosophy to exploit Mr. Market when he goes into a future depressed state. Moreover, confidence is growing that Todd Combs and Ted Weschler are skilled investors who could have a long and successful run ahead of them at Berkshire.

Links of Interest – February 8, 2013

An 18-Minute Plan for Managing Your Day – Peter Bregman – Harvard Business Review

Graham & Doddsville – Winter 2013

Links of Interest – October 5, 2012

GreatInvestors.TV – Value Investing Video of the Day – Investing Legend Jean-Marie Eveillard on What’s an Investor To Do in an Uncertain World

The Brooklyn Investor: Recapitalizing Berkshire Hathaway

Lancashire Holdings Annual Report 2011: Interview with Richard Brindle, CEO – Lancashire Group

Big Pharma Dividends Alive and Well

Q3 2012 Letter to clients | Motiwala Capital

Reactions Magazine – Article on Prem & Fairfax

Value Investing Congress Presentation-Tilson-10!1!12

The Value Investors: Lessons from the World’s Top Fund Managers: Ronald Chan,Bruce C. N. Greenwald: 9781118339299: Amazon.com: Books

Meg Whitman’s Toughest Campaign – Retooling Hewlett-Packard – NYTimes.com

Glass Works: How Corning Created the Ultrathin, Ultrastrong Material of the Future | Wired Science | Wired.com

Note to World: Dell Is Not a PC Company – DailyFinance

Berkshire Hathaway: Worth Its SALT – Seeking Alpha

Berkshire Hathaway: Worth Its SALT – 2012 Update – Seeking Alpha

Links of Interest – June 22, 2012

3 Stocks in Sweet Spot: Yacktman

Why Newspapers Were Doomed All Along – Justin Fox – Harvard Business Review

Southwest Airlines’ profitability: How the company uses operations theory to fuel its success. – Slate Magazine

The Brooklyn Investor: Net Interest Margins etc.

The Path to Global-Brand Investing – Barrons.com

Charlie Munger’s 30 Best Zingers of All Time (BRK-B, USB, WFC)