Five Aces Capital
@FiveAcesCapital
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Past life in M&A and equity research, now building/growing software businesses.
Joined July 2017
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Spoke to a HF analyst who invests in SPACs and he told me they track the sponsors' private jets to predict potential targets and announcement dates.
Just another example of how competitive public markets are.
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The portfolio manager with the best performance at my prior firm had the simplest models.
Three-statement model with discounted cash flow. One tab. No borrowing models from the sell-side. Manually input 10 years of historical numbers.
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13-F season. Which funds' 13-Fs do you look forward to the most?
My picks:
- Greenlea Lane Capital
- Shawspring Partners
- CAS Investment Partners
- RV Capital
- Himalaya Capital
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Everyone talks about the riches once you succeed. No one talks about being 26-32 and having no money, no status and family/friends wondering if you’ve ruined your life
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.
@chamath
's story is underrated. Poor kid from Ottawa, first job at Burger King, goes to UWaterloo, works in finance for 1 yr, then heads west to Silicon Valley. Hustles in various jobs, joins Facebook, becomes a billionaire, co-owner of the GSW, founder of Social Capital.. Wow.
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Need to dig deeper on this guy. 32 years old and becomes a billionaire in an traditional industry like investment banking. Also in a conservative country like Japan.
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Friend of mine runs a software company in the construction vertical. His marketer messed up his $FB ads for a week. Instant dip in new sales, sales guys twiddling thumbs.
$FB is a toll booth, it literally supplies oxygen to these smaller companies.
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My weird path:
- Studied biz undergrad
- Analyst at fund
- Studied the greats - WEB, CM, Akre, ML
- Corp dev associate at serial acquirer
- Left to learn internet marketing and sales (yeah, crazy)
- Acquired two tiny SaaS businesses, became location-independent
- Moved to Korea
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Notes from Charlie Munger's talk at Google in 2016. Haven't seen this before.
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I stumbled across this old man's blog when searching for Buffett/Munger resources.
His blog contains tons of posts on his walk with God, his 20-year battle with liver cancer, and also has an extensive section on Buffett/Munger/investing.
Fascinating.
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My best pal passed away this morning. We went through life together. He gave me so much joy and happiness with his unconditional love.
RIP Toby. See you on the other side, little man. ❤️
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Great table on turnarounds by Marathon Asset Management.
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Buffett’s characteristics of a wonderful business.
Source: The Money Masters by John Train.
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Buffett's answer to how he'd invest small sums if he was 20-something years old
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I wonder why I bought a low growth micro SaaS biz for 3-4x EBITDA instead of buying $FB which just grew top-line by 30% and trades at like 15x forward EBITDA.. 🧐
With the former, it's a shit ton of work
With the latter, you sit on your ass and Zuck does it all for you lol
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Is there an easier investment idea than Facebook?
Monopoly company that trades at 20x EBITDA, growing at 30%, sandbagging margins at 45% EBITDA margin, and led by an absolute fanatic.
Putting a big chunk of my mom's retirement fund in it.
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Signed the purchase agreement to acquire a boring little SaaS business today. Super stoked.
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As a single mid 20s dude with dirt cheap expenses, the cash flow from the SaaS business I acquired takes care of my needs.
I don't have a car, mortgage, etc. I can live wherever.
Moving to Korea in the next few months. Ultimate freedom.
Still grinding though!
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Slide taken from
@MohnishPabrai
’s presentation in Dublin. Interesting chart to ponder.
I don’t think you should index unless your time horizon is 20+ years.
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Going to open a Korean investment brokerage account this week. There are department stores and steel companies that trade for <3x earnings.
Will likely lose my shirt but looking fwd to the journey
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I like how $ABNB is pushing longer-term stays but you can find significantly cheaper accommodation by looking at local $FB rooms and shares groups. You save at least $200/mo on "service fees"
Long $FB
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Beautiful slide from Pershing's $SBUX thesis from Oct. 2018.
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The best portfolio hedge is owning companies that will repurchase shares for less than intrinsic value during market sell-offs.
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Cash flow is what drives business value. This Buffett guy had some good insights a while ago. Circa 2000.
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$CROX $2.5b acquisition of HeyDude is a prime example of management getting shiny object syndrome. Financed with debt too.
Massive opportunity with the core Crocs brand growing 90%+ in China and 30%+ in APAC.. But their focus is now diluted, have to make HeyDude work
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$FB thesis in one image.
The durability of $FB's moat is under-appreciated. Network effects + IP in advertising.
You also get a company that is in "moat formation" via Oculus. But pay next to nothing for it.
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Re-reading old Berkshire letters while drinking coffee on a Sunday morning in Seoul.
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Burry’s burner is
@Post_Market
Michael Burry's latest 13F is out!
Here's a list of all his new quarterly buys.
Some standouts:
- Bought Scorpio $STNG
- Bought $FB Calls (11% of port)
- Bought $CVS calls/equity (cc:
@Post_Market
)
- $TSLA Put is ~40% of portfolio
- Increased exposure to energy / financials
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I’m enjoying this book so much. It’s just a joy to read. Highly recommend.
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When I get interested in a company, this is what I do..
- Listen to the top 3-5 interviews of the CEO
- Listen to a few earnings calls while walking
- Read a few Twitter threads
Better use of time to get an initial read on a company than reading the last three 10-Ks, IMO
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Spotify going after the global 1-2 billion user opportunity in audio. $SPOT
Source: Reddit
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Here’s an honest, sobering list of lessons I learned of my first micro SaaS acquisition after 90 days.
1/ The offer of the business is extremely important. It's hard to sell mediocre offers, especially with paid traffic. The offer should solve an urgent and important problem.
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Put my mom's retirement fund into an equal weighted split between $CSU.TO and $TOI.TO. Plan to continue to dollar cost average into it over time.
Can't think of a team more deserving of hard-earned capital than Mark & Co.
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Great article $CPRT
- Johnson came from humble beginnings
- Natural disasters and distracted drivers = plentiful supply of damaged cars
- Scale advantage = contract wins (GEICO an example)
- Technology key to their growth - launched online tool in 1998
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Which CEOs have a profound “respect for capital”?
Warren Buffett, Mark Leonard, Bruce Flatt and Brett Roberts come to mind. Capital is precious to them. They think about the downside more than the upside.
You can sleep well at night entrusting your savings to them.
Who else?
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The Best of Charlie Munger 1994-2011. Probably a better education than my university degree.
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Narrative shift happening in front of us: $FB is a VR/AR play with strong core businesses, not the next MySpace losing to TikTok
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What did I accomplish this decade, you ask? I asked Charlie Munger a question and he said it was a good question.
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Buffett on the Ideal Business
“Something that costs a penny, sells for a dollar and is habit forming.”
Best example of this is on-prem software with a maintenance contract.
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As $FB hits ATHs, any takes on the valuation?
My 2 cents: it doesn't look expensive at 14x forward EBITDA with upside 2-3 years out to estimates from accelerating ad spend, payments / Shops, and VR in other bets.
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Anyone else get the vibe that $FB is paranoid about future performance all the time?
They put up great numbers then paint doom-and-gloom scenarios for the next 6-12 months.
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Akre initiates positions in $LYV, $ADBE, and $MAR. Sells down $BRK.
Pretty active quarter.
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Q: Favourite non-Facebook app?
Zuck: I probably spend more time on Spotify than any other app. I like music a lot. I think Daniel is a great entrepreneur and a good person. It's a great company and they've done a great job with their work.
Zuck seal of approval :-)
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Turns out
@sinstockpapi
and I know each other from undergrad and were part of the same investment club. Great guy!
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$ROP CRI formula.
I’m guessing their floor is in the in high teens, and their hurdle rate on acquisitions is around the same.
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Quick update:
I sold one of my SaaS apps last year because I wanted to focus on just one.
Now I’m all-in on one SaaS. We’re onboarding our 4th full-time engineer this week.
Turned 28 a few weeks ago.
It’s been a huge grind but couldn’t be more excited about what’s to come!
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Munger used lots of leverage in his early years.
Wonder how many of these wealthy investors leveraged up hugely in their 20-30s to accumulate their initial capital.
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Been learning to code for fun on the side, spending about 1-2 hours a day. Currently on day 21.
Some days, it's really fun. Other days - "This sucks. NoCode is the future, why am I learning this?!"
SaaS/internet investors out there - do you know how to code and has it helped?
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Fun Fact: $AMZN had a sub 20% gross margin in 1997.
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I wonder if all those wonderful LTV/CAC ratios promoted by SaaS companies over the last 2-3 years are holding true now.
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Going full-time on learning to code. Too valuable to not learn.
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Currently building two micro SaaS businesses, I absolutely love it.
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I'm up on $FB now, which means something is off in the universe. I apologize to all other shareholders once it falls.
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"We don't get rich on our dividends that we receive, although we're happy to receive them. We get rich on the fact that the retained earnings are used to build new earning power or repurchase shares, which increases your ownership in the company."
- WEB, Net Worth $82b
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Real recognize real. Bezos admired a man who made a fortune owning Domino’s Pizza franchises.
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Initial thesis for this acquisition:
- Solve marketing using funnels, and outbound/paid traffic
- Install a sales team to sell over the phone
- Take advantage of low hanging fruit in UI/UX to reduce churn
- Raise prices on installed base
- Rewrite front-end once LTV/CAC validated
Signed the purchase agreement to acquire a boring little SaaS business today. Super stoked.
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Still trying to wrap my head around how $FB grew FCF by 90% y/y in Q4, while simultaneously increasing capex by 12.5% y/y
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I feel like the best investment opportunities over the next couple of decades will be in SE Asia.
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WEB and CM should invite Mark Leonard to join the Berkshire board.
Cunningham (who sits on the Constellation board) should make the introduction.
Leonard is the best capital allocator in the world, and understands tech and software. Would be a huge win for BRK shareholders.
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Shortlist of Canadian compounders (source: DKAM letter).
Haven’t bought a new stock in like two years, feeling the itch!
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$FB has much higher returns on capital than the average S&P 500 company, yet trades at a discount.
My thesis - drivers of forward returns: (1) continued above-average returns on capital and (2) multiple expansion as narrative shifts to "internet holdco"
h/t
@JohnHuber72
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@thisisverysick
You can check out marketplaces (eg Micro Acquire or Flippa), develop relationships with brokers, or reach out directly to owners.
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Amazing video. Choe got paid in FB stock for his mural in 2007, which is now worth hundreds of millions.
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Tried cancelling $SPOT to see how life would be without it (tested YouTube Music)
Came crawling back and couldn't be happier. Spotify's curation makes music way more fun and enjoyable to listen to.
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You just need one acquisition like See’s Candies and you’ll print money for life.
A private business with pricing power, recurring revenue and high margins.
Gotta be right just once...
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Most of these companies boycotting $FB are consumer businesses.
Consumer companies are in the toilet right now.
May as well cut ad spend, spin it as a contributor to a pullback in revs, and win some PR points.
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What's the best book to learn about luxury brands? I remember there was a popular recommendation floating around Fintwit..
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Henry Ford was a pioneer of the fixed margin pricing strategy used by Walmart, Costco, and Amazon.
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Ek’s warrant bet on $SPOT from 2019. We’re getting close to his estimated break-even price of $211. The warrants expire July 2022
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Just completed my fourth case study interview with existing customers who haven't spoken to a single person from our company on the phone in several years.
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Went for a walk with
@nachkari
today. Feeling fresh and motivated with lots of ideas.. Thankful!
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Excerpt from Akre Capital Management's The Art of (Not Selling).
"We are unfazed when our businesses are quoted in the market at prices above what we would pay for them."
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Number of subreddit subscribers between r/spotify, r/applemusic, r/youtubemusic, r/amazonmusic
$SPOT
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One of my favourite nuggets is Peter Thiel's, "If you have a 10-year plan for your life, ask yourself why you can't do it in six months."
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Small win: booked my first discovery call w/ a prospect from a cold outbound email for my newly-acquired SaaS biz. :-)
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I should take out a five-year $500k fixed rate loan and go long Berkshire.
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“The best business is a royalty on the growth of others - requiring little capital itself.“ - WEB
This is a great point. I created a faux Shopify business last year just to get to know their products better, and the first thing they emailed me was a mini-course on how to advertise on Facebook and Instagram. SHOP is an incredible business, but it's also a farm team for FB
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Thiel’s Last Mover Advantage concept.
Companies that come to mind: $FB, $AAPL, $NFLX, $GOOG, $SPOT, $WORK, $MTCH
These companies look richly valued today but are likely cheap when looking out 15-20 years.
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$NFLX vs. $SPOT gross margins
$SPOT recently raised the upper-end of its guidance on long-term gross margins from 35% to 40%
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@naval
Best example of this that I can think of is Joe Rogan vs. Big Media. You learn more from his podcast interviews than watching mainstream media (e.g. his interviews with Bernie Sanders, Edward Snowden, Elon Musk)..
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Ted Weschler deserves more credit than he's getting for WEB and Berkshire's investment in Apple.
Here's Ted's $AAPL thesis from 2016.
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Narcos has the best theme song and it’s not close.
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Being a passive owner is underrated.
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