12 Comments
Member
7 February 2, 2024 7:49 pm
Wow! What a lengthy and thorough letter! I will come back to it tomorrow, when I am not so tired, and try to learn more from it. So much to learn about basic stock analysis.
Member
111 February 3, 2024 6:31 am
Fantastic Friday file again Travis. I really like your calm dissection of companies, it really helps calm my nerves when I read the Yahoo finance headlines :-) I notice that the we study billionaires podcast has basically picked most of Chris Mayer's stocks when they have done these invest ideas shows. From memory they've done Dino Polska, Constellation software, Topicus and now Evolution. I know your a fan as well and own most of these so I was just curious (I don't know if he has a fund?) what has his performance been like? I think you mentioned previously that he has quite a concentrated portfolio so I just wondered how it worked out if you had just followed him.
Member 22353February 3, 2024 10:06 amI don't know his buy prices for the stocks he holds, but there have been a few spectacular winners over the years, like Copart and Constellation (neither of which I own), so I expect the average performance is probably quite good so far. He's only been running the portfolio for 5-8 years or so, I imagine, he was a newsletter guy before that.- Member 111February 3, 2024 10:23 amThanks Travis, actually Copart was another one they have covered, they must watch him closely.
Member
4 February 3, 2024 8:46 am
Thanks for the thorough write up. I have a follow-up question on Markel. The high loss ratio for Markel this quarter: Is this because they โpresent valueโ the future losses they see coming (in the form of additional reserves)? If so, I assume the management of Markel is more inclined to err on the side of setting aside a larger reserves. I cannot see them telling investor that they have to set aside an even larger reserves next quarter. That would make me lose confidence in the management of Markel.
- Member 22353February 3, 2024 9:53 amIt's not quite that simple and clear, but that's the general idea. They didn't suddenly have a huge one-time claim in the fourth quarter, they just realized they were very likely to have higher losses.
Member
February 3, 2024 2:28 pm
Whew! I will need to go back again when I am more awake. Great Stuff. Thanks
Member
44 February 4, 2024 11:38 am
On Pershing Square, what expense/fee structure do investors pay to icky Bill Ackman and his firm? Thanks.
- Member 22353February 4, 2024 12:43 pm"Icky?" :)The expense ratio is 1.6% of assets/yr, plus 16% of any return above a high water mark. There are some lingering adjustments to the 16% profit share, so it could be a hair lower this year, but not much. Assuming they have a profit.
- Member 44February 4, 2024 12:54 pmYes, definitely icky.Ackman is infamous for making himself a billionaire while his LPโs return have around a 0% IRR. You can thank blowups in Valeant and other shows of overconfidence as the risk.To avoid those fees, could you you replicate the exposure by just buying the limited number of stocks in his portfolio? I believe he runs fairly concentrated, no?Thanks for your thoughts.
- Member 28February 5, 2024 12:04 pmHe usually holds less than 15 positions. He does use derivatives which they often don't disclosed until they expired or closed.
- Member 22353February 5, 2024 2:19 pmCertainly the Valeant era (error) was a massive black eye for Ackman, but his longer-term LPs have generally beaten the market, after fees, even if you include that time period. We'll see if that holds true for public investors in this "new" era for Pershing Square that started about 5-6 years ago, when the strategy changed meaningfully in the wake of Valeant. He definitely gets a windfall management fee when things go well -- and the primary complaint I'd have about that is the 16% profit share is a percent of gains above zero, not above any benchmark in any given year (he doesn't have to beat the S&P, he just has to make money).And yes, you could easily replicate the exposure, it's usually 8-10 stocks and they're (almost) all large-cap liquid names, all but one of the core positions are listed in the US, and you'd essentially give up the discount and the hedging in exchange for not paying the management fee. I wouldn't buy Pershing Square without a big discount to NAV, personally.
- Member 44February 5, 2024 2:39 pmThanks Travis.Would be interested in knowing the LP returns (IRR) after fees if you have access.I know that the LPโs returns were negative two years following the Valeant blow-up, Herbalife, etc.His problem has been risk management. Ackman continued to add aggressively to Valeant on the way down to near zero.If you do a Google search for โoverconfidence risk in investingโ, I think his face shows up. ; )
- Member 22353February 5, 2024 3:55 pmI agree, the risk management was atrocious in 2015 when he was gaga about "platform" companies and swallowed the hook for Valeant, and kept swallowing. ... though I'm more understanding about his other high-allocation losses in what were mostly activist positions or shorts (JC Penney, Herbalife, etc.), mostly because the Valeant position was just so MASSIVE. I owned Pershing Square shares during the Valeant fiasco, and remember it well (I sold out at the time, after losing confidence in Ackman, and wrote some about the process of reconsidering the fund when I bought back into it during the 2020 collapse).Interestingly, the two big institutions that had absurdly massive positions in Valeant back in 2015, the Sequoia Fund (more than 30% in Valeant) and Pershing Square (it was an outsize holding, but more like 20% as I recall), also now have their largest position in common today, Universal Music, though it's a much less controversial company and is a smaller percentage of their funds than Valeant was.Those net return numbers are usually in the presentations, this is last year's:
- Member 503February 6, 2024 3:48 amAckman said some kind of racial slurs stuff a cpl years back. I don't remember the details, but it certainly qualified as "icky" to me, at the time.
- Member 22353February 6, 2024 12:08 pmDon't recall that, but he has certainly made me cringe many times with his Twitter feed. He might give off the most earnestly pompous vibe of anyone I follow, and that's saying something.
Member
88 February 7, 2024 5:17 am
Any thoughts on NVDA, as their ER is approaching? It's a nervous hold for me, for some months now, due to https://laductrading.com/fraud-always-marks-the-top/
- Member 22353February 7, 2024 10:25 amNot specifically nervous about the self-dealing allegations, but there are certainly ample worries about NVDA -- a very large company has never traded at a valuation like this before, and the dramatic demand for their data center GPUs has to remain persistent for a long time to justify the valuation.The biggest risk, for me, is that a little slowing demand would reduce both revenue growth and margins. That would have a double impact on earnings and is very likely to happen. Someday. Whether that comes in a couple years or this quarter, though, is the big question when it comes to the stock price.I've sold a lot of NVDA on the way up (each sale a mistake, in retrospect), so I'm willing to continue to ride the rollercoaster with my current position... but NVDA shares could easily rise 50% or fall 50% in the next six months. I sometimes hedge my position a little with options to ease the stress, though my position isn't so large that I really need to -- if you're worried about a big collapse, then it might help to buy WAY out of the money puts out six months or so to make it emotionally easier to hold.
Member
22353 February 7, 2024 7:59 pm
Trade Note:Some of the "not completely certain" value at Acacia Research (ACTG) became more certain this week -- I opened my ACTG position last month, when it was trading for roughly the value of cash on the books, with no assumptions about the value of their remaining operating businesses or the settlement of their current litigation over patent rights. They announced on Wednesday that they've entered into settlement and licensing agreements for their WiFi 6 patents, with "aggregate payments under such agreements totaling more than $81 million."They did not reveal all the details about timing for those payments, and there will be fees taken out before they collect (lawyers, etc.), but that's a sight better than the $37 million legal decision they won with one infringer last year (and which might well have been tied up in appeals for ages). That should boost the real value of Acacia Research by close to 10%, though we'll see what they say about the details on the next quarterly update... but it's at last enough for me to boost the "cash-like" value of the shares from about $3.90 to at least $4.25. And to offer some encouragement that management knows what they're doing when it comes to monetizing these legacy assets.This is not a riskless investment, as I noted when I bought shares in January, but with their massive pile of cash it's essentially all management risk. Acacia had something in the range of $3.90 in cash per share before this IP deal, along with some other assets whose value is uncertain, so depending on when they receive payment that's likely to now be something in the range of $4.25-4.75 per share. With no debt, and a share price below those levels, the risk is in what they do with it. I think that the track record of Starboard Value, (which owns most of the shares and provided most of the management team), and the reasonable acquisition criteria they're using, makes it worth owning while they put that cash to work... so I bought more after this announcement, roughly doubling my position as the stock lingered under $4 in after-hours trading. More on Friday, but I've bumped my "preferred buy" up to $4.25.
Member
26 February 10, 2024 10:45 am
Off topic. . There is a very interesting business review of Samsung on Business Breakthroughs. High level take always: 1. Their core and future business is memory storage. They are number one in the world and separarting themselves from number 2 Micron Technology and #3 Hilix by strategic and efficient usage of their Hugh cash flows. They are able to invest in new, better, more high end memory production when the competitors are conserving Capital during down trends. Hilix needed Korean govโt bail out money to survive the last down-turn. 2. Their smart phone business generates about $10B in FCF which is used to not grow their cell business, but their memory business. They see memory for AI as being a much stronger business over the next decade as more and more of the worldโs population are in the smart phone universe. 3. Their home appliance business is just for cash generation and base loading their components business. 4. They are not available via ADR in the US, which if occurs makes their financial reporting more aligned with what we expect. 5. They are glad to be the one stop for anybody needing memory, glass, etc.The review is in-depth and interesting. It left me with some things to ponder. How does a competitor who sees one of their main FCF generators as secondary impact the cell phone market. They are dancing to a different tune. How does their memory dominance and the AI build out translate into meaningful profits. Are they a pick and shovel company?
Member
390 February 25, 2024 1:29 pm
Had no idea you were a Lions fan, though admittedly I haven't been reading articles here often in the last year. What a ride it was, and as much as I wanted to be mad over the last game I had to take a breath and look at the season as a whole. The best season in my lifetime, hopefully with many more exciting and winning seasons to follow.May our future investments payoff as handsomely as the most recent Lions draft picks.