My stock screening criteria for this market:
Up and to the right chart
Owned by ARK Invest
Popular on TikTok / WSB
High short interest
CEO has account on Twitter
Hated by value investors
Memeable
Companies with substantial R&D budget, very long investment cycles and ability to withstand pressure from public market investors are a great source of option-like returns, can quietly build some products for years with stock staying flat and then suddenly going parabolic
Imagine a fund manager with zero skin in the game investing in companies with management who have zero skin in the game. that's 2 levels of misaligned incentives
Recipe for a career-making trade:
1) find a near bankrupt biz people are afraid to touch
2) it should be a successful turnaround case
3) it should have huge reinvestment opportunity and be led by an outstanding mgmt team
4) hold for 10-20 years
(Inspired by Weschler’s DVA trade)
How do you get a multibagger? You need 1) positive surprises in growth; 2) positive surprises in margin; 3) multiple expansion; 4) patience.
How do you lose >90%? 1) negative surprises in growth; 2) negative surprises in margin; 3) multiple compression; 4) patience.
During Mar 2000-Sep 2002 when S&P 500 declined from 1500 to 800, these stocks delivered >100% returns. It's possible (although hard) to make money being long in a bear market
Been studying management as a value driver for the past year. One of key takeaways - what really matters is not how good management team is in absolute terms, but how good management team is RELATIVE to management teams of competitors.
Doordash is frequently compared with Amazon, but Amazon was trading between 2x and 3x revenues most of its history, Doordash is trading at 15x revenues 🤷♂️
Even if this is the next Amazon, future returns from here won't be similar to buying Amazon at 2x revenue.
You probably have not heard before about former Graco CEO Pat McHale. But he is an interesting person and a true leader. During his time as a CEO of Graco (2007-21) stock delivered 500% return, having materially outperformed S&P 500. Some lessons from him are below.
Anyone building investment theses from scratch these days? I mean completely ignoring sell side, VIC / SA / any other writeups and coming to your own conclusion based on primary sources and legwork?
Simple but powerful heuristic
'an index of S&P 500 companies in which the founder is still deeply involved performed 3.1 times better than the rest over the past 15 years'
1/ Lessons From The Tech Bubble:
Last year, I spent my winter holiday reading hundreds of pages of equity research from the 1999/2000 era, to try to understand what it was like investing during the bubble
A few people recently asked me for my takeaways. Here they are -
during dotcom bubble there was a phenomenon where tech bubble led to outflows from other sectors which resulted in "negative bubble" (e.g. abnormally cheap valuations) in other sectors. any signs something similar might be happening today?
"Asset-light" as well as "capital intensive" are misnomers. The difference between these two business models is largely coming from a failure of GAAP to properly reflect investments in intangible assets
Seeing a lot of people studying successful companies and trying to find the next Amazon, Netflix or Google. What many fail to do is studying notable failures. You can learn as much (if not more) from studying great failures.
Hypothesis: we are early in "metaverse" hype cycle/bubble. Watch $50-100M market cap companies declaring they are building "metaverse" with their stocks going parabolic