Michael

TXT | Yezi | IU
Learning to invest in good companies.

[Michael @himichaelhe]

@HugoNavarroPer2 You gonna do great dude - hope you get rich 🤑

[Michael @himichaelhe]

@sammutgabi From one legend to another⭐️⭐️

[Michael @himichaelhe]

@MaiusPartners @rubicon59 CYD has done very well - hope I can buy a diesel generator one day lol

[Michael @himichaelhe]

@realroseceline Moutai is fantastic too. You sell out your liquor months in advance and collect deposit from the distributors. Technically require no capital to run, but of course, being Chinese, they have tons of cash on the books lol

[Michael @himichaelhe]

@fivepointscap I think their M&A and strategic acquisition track record is maybe under appreciated by the market. Jensen is an exceptional leader and tries to be close to the apple tree so he can catch it first.

[Michael @himichaelhe]

@evrgn11112231 Zuck and Elon are two founders no one should really bet against. They’re crazy good at this stuff even if the road is full of twists and turns.

[Michael @himichaelhe]

@Investor_NICK_ damn bro

[Kyle Tucker @kylehtucker]

🚨Koch ebitda released for first time ever!! “On May 18, 1981, four Wall Street bankers traveled to Wichita, Kansas. They went there to make an offer to Charles Koch, the CEO of an obscure, midsize energy company. The bankers, from Morgan Stanley, wanted to convince Koch to take his family’s company public. Squarely in line with the conventional wall street wisdom.

Charles Koch was forty-five years old. He had run Koch Industries since he was thirty-two, when his father died suddenly. He was trim, tall, and had an athlete’s build. He spoke quietly in meetings and seemed almost passive.

So the bankers laid out their plans.

What did Charles Koch say?

No thank you.

If the bankers expected Charles Koch to go along with the conventional wisdom of their time, then they, like so many outsiders, did not understand the man. Beneath his low-key veneer, Charles Koch was, at his core, a fighter. He had unmovable ideas about how things should be, and he did not back down when challenged.

When he was challenged by his own brothers for control of Koch Industries, he fought them in a bitter legal battle that lasted decades.

When he was challenged by members of a powerful labor union during his first years as CEO, he fought them even as they tried to blow up Koch’s central oil refinery.

When the FBI and the US Department of Justice launched a criminal investigation into Koch Industries, Charles Koch fought them with every legal and political tool at his disposal.

In each of these fights, Charles Koch prevailed.”

--
>graph from Charles/Chase Koch’s new book “Becoming a Principle-Driven Leader”. It only included indexed earnings but it’s somewhat well reported that 1961 earnings were 3-4m range so I multipled the y axis by 3.5

>excerpt from Christopher Leonard’s @CLeonardNews awesome book “Kochland” I slightly adjusted/simplified/reduced a bunch to make fit.

>Please join my newsletter! link below and in profile

[Daniel S. Loeb @DanielSLoeb1]

In 1989~1991, I traveled the country putting deposits in mutually held S&Ls. At the time my net worth was under $10,000. I put the better part of my life savings in passbook accounts and CDs in the expectation that they would one day go public and that I would have the capital to participate in the IPOs which usually allow for investments of $250k-500k
A number of them went public during my days at Jefferies working for @HandlerRich in ‘91-‘94 allowing me to make enough (along with some generous bonuses from my employer) for my grub stake which funded the GP capital to launch Third Point on June 1, 1995. 35 + years later I have maintained all the accounts and periodically participate in the offerings to this day.

[Michael @himichaelhe]

@lundeen_ne From what I’m hearing, one major firm just upped their usage. That’s gotta be good for them.

[Michael @himichaelhe]

@realroseceline Omg that is amazing - very looking forward to reading it. Of course, if possible, would love to translate it to Chinese for you - I’m learning a ton from you.

[Rose Celine Investments 🌹 @realroseceline]

Working hard on my book, approximately 60,000 words written so far. Here’s a little sneak peek of Chapter 27.

I didn’t start this project because the world needed another investing book. In fact, that was the entire problem. Over the last twenty years I’ve read most of the major investing books I could get my hands on. Many of them were excellent and taught me a tremendous amount about valuation, accounting, competitive advantages, capital allocation, and business analysis.

Yet after finishing many of those books, I often felt there was still something missing. Most books teach you how to analyze a business, but very few teach you how to survive being an investor. The longer I invested, the more I realized that extraordinary results rarely come from discovering some secret piece of information nobody else knows.

More often they come from doing things very few people are capable of doing consistently. Remaining patient during boredom, staying rational during fear, holding conviction when the crowd disagrees, and thinking independently when everyone else is reacting emotionally. The real challenge is rarely finding a great business. The real challenge is becoming the kind of person who can hold one.

That realization became the foundation for this book. I wanted to create something visual, practical, psychological, emotional, and realistic. Something that reflected what investing actually feels like in the real world, with all the uncertainty, doubt, waiting, temptation, and emotional storms that destroy returns.

Because of that, the book contains hundreds of original illustrations, diagrams, mental models, frameworks, checklists, and visual examples designed to help understand the concepts into ideas that are intuitive, memorable, and applicable in real life. I’ve always been a visual learner and I believe some lessons can be understood in seconds when they are seen rather than simply read.

When I first told people what I was building, many rolled their eyes. I don’t blame them because there are already countless investing books in existence. The last thing I wanted to do was write another book that repeated the same concepts and lessons that have already been written about for decades.

What mattered to me was building the book I wish existed when I started investing almost twenty years ago. A book that teaches not only how to analyze businesses, but how to think, how to decide, how to wait, how to endure, and how to remain rational when everyone else is losing their minds.

Many of the people who were initially skeptical eventually came back after reading portions and told me the same thing: “This doesn’t feel like any investing book I’ve read before.” Whether readers ultimately love it or hate it is up to them, but if there is one thing I can promise, it’s that I didn’t set out to write the same book everyone else already wrote.

🌹

[Rose Celine Investments 🌹 @realroseceline]

$WING

One of the things I’ve thought about recently is that if See’s Candy were a public company today, I’m not sure many investors would appreciate the quality of the business. After all, it’s just a candy company. There is no AI story, no disruption story, and no revolutionary technology that investors can get excited about. Yet it ended up being one of the greatest acquisitions $BRK ever made because of its pricing power, capital light model, and ability to generate cash year after year while requiring very little capital investment.

I think $WING is similar, although obviously a very different business. Most people look at $WING and see a chicken wing restaurant, but I look at it and see a royalty business. The company spent the last twenty years proving the concept, growing from a small regional chain into more than 3,000 stores while generating positive same store sales growth for more than 20 consecutive years.

What makes the model so attractive is that $WING gets to participate in the growth without carrying the burden. Franchisees provide the capital, sign the leases, hire the employees, and operate the restaurants while $WING collects a percentage of sales. If a store generates $2m of annual revenue, $WING receives a royalty stream despite not funding the construction, staffing the location, or managing day to day operations. That creates a business model where growth is highly profitable without requiring enormous amounts of capital.

I think one of the most overlooked aspects of franchising is that the franchisee is just as important as the consumer. Investors spend a tremendous amount of time thinking about customers, but a franchise system only works when operators are making attractive returns on their investment. When franchisees are earning strong returns they become highly motivated to keep opening new locations, and that is exactly whats happening at $WING today. More than 2,000 stores are already committed in the development pipeline, i view this as RPO as a SaaS company.

The other thing that stands out to me is how scalable the economics appear to be. The franchise segment already generates 60% operating margins, and I think those margins move higher over time (70-80%). $WING does not need twice as many executives, accountants, lawyers, or corporate employees to grow from 3,000 stores to 6,000 stores. As they expand, a large portion of future revenue growth should fall through to earnings, which is exactly what investors want to see.

One lesson I’ve learned over the years is that many of the greatest businesses sound incredibly boring. Payment networks sound boring. Credit ratings sound boring. Insurance brokers sound boring. Chicken wings sound boring. Yet boring businesses often make extraordinary investments because they solve simple problems repeatedly, generate high returns on capital, and quietly compound earnings for decades without attracting much attention.

I also think investors consistently underestimate the power of time. A business growing stores at 10% annually does not become 50% larger after a decade. It becomes roughly 160% larger. Most people understand compounding mathematically, but far fewer appreciate what it actually looks like when it unfolds over long periods of time. The real wealth creation often comes from finding a long runway and allowing time to do its thing.

Management believes they can eventually reach 10,000 stores globally, and whether that exact number is achieved is probably less important than the direction of travel. Even if the company simply reaches 7,000 stores over the next seven to ten years while average unit volumes move toward the $3m target, the earnings power of the business will be dramatically larger than it is today. When I think about $WING, I spend very little time worrying about how many wings were sold last quarter and far more time thinking about what the business might look like with 7,000, 8,000, or 10,000 stores.

1/2👇

[Rose Celine Investments 🌹 @realroseceline]

$MA is currently trading at a 4.3% free cash flow yield, which is approximately the same as the 10 year Treasury yield, often referred to as the “risk free rate”.

Historically, when a business of this quality could be purchased at a free cash flow yield similar to the risk free rate, it has often proven to be an attractive investment.

The reason is simple. A Treasury yielding 4% today will likely still be yielding 4% years from now. There is no growth. You simply collect your 4% and eventually get your principal back.

$MA is different because the 4.3% free cash flow yield is the starting point. $MA continues to benefit from the secular shift away from cash and steadily reduces its share count through buybacks.

If free cash flow per share compounds at 10% to 12% annually over the next decade, which I think is reasonable, today’s 4.3% yield could end up looking quite attractive in hindsight.

A simple way to think about it is 4.3% starting yield plus 10% to 12% growth gets you into the neighborhood of 14% to 16% annual returns before any change in valuation. If the multiple stays roughly where it is today, I think something in the 12% to 16% range is a reasonable expectation.

I do not think $MA will be the best investment you ever make from here. The business is simply too large, too widely followed, and too well understood.

If I were buying $MA today and planning to hold it for the next decade, I would expect something around 13% to 15% annual returns. That may not sound exciting, but $100k compounded at 14% for 10 years becomes almost $400k.

Of course, nothing is guaranteed. Growth can slow and valuations can compress. But when one of the highest quality businesses in the world can be purchased at a free cash flow yield comparable to the 10 year Treasury while still having a reasonable path to double digit growth, I think it deserves attention.

At today’s valuation, $MA is becoming increasingly interesting (as long as your expectations are sensible).

🌹

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[Michael @himichaelhe]

@lundeen_ne Greg, just buy them all lol

[Myles @finphysnerd]

The selloff in the high moat, compounder names is getting ridiculous. The irrs I get for some of these co's as long as they don't royally shit the bed are pretty attractive. Stuff like $SPGI, $MA, $V, $BR and now add $CME, $CBOE and $ICE with their recent selloff. Steadily adding

[Francisco Amador – Sleepwell 🌙 @SleepwellCap]

“If you ask me in retrospect what was our worst mistake in the tech field, I think we were smart enough to figure out Google. Those ads worked so much better in the early days than anything else. So I would say that we failed you there.” — Munger in 2017

$GOOG ~3.5x since then

[Rose Celine Investments 🌹 @realroseceline]

As I mentioned on the call with @DimitryNakhla and @DrewCohenMoney, when most people hear the word “bubble,” they immediately think of something like the Dot Com crash, the Financial Crisis, or Covid. They think of stock prices collapsing, businesses struggling, and investors losing money very quickly. That’s certainly one type of bubble, but I don’t think it’s the only type.

Sometimes a bubble doesn’t end with a crash. Sometimes the business continues performing well, revenue keeps growing, earnings keep growing, and management keeps executing. The problem is that investors became so optimistic that they paid a price that already assumed years of future success.

$MSFT is probably one of the best examples. If you had looked only at the business, you would have seen a company becoming stronger, more profitable, and more dominant. Yet despite all that progress, the stock largely went nowhere for more than a decade because the valuation at the starting point was simply too high.

I think this is one of the most important lessons in investing because many people assume that finding a great company is enough. In reality, a great business and a great investment are not always the same thing. Sometimes you can be completely right about the company and still end up with disappointing returns.

There are really two ways to be wrong as an investor. You can be wrong about the business itself, which is the risk most people spend their time thinking about. Or you can be right about the business but wrong about the price you paid, which in my experience is often the more common mistake.

What’s interesting is that time can be just as effective as a crash when it comes to correcting excess valuation. The market doesn’t always need a stock to fall 70% to fix a bubble. Sometimes the stock simply moves sideways for 10 or 15 years while the business slowly grows into the valuation that investors once paid.

The irony is that some of the highest quality businesses can become the most dangerous investments. When everyone agrees a company is exceptional, that quality often becomes fully reflected in the stock price. At that point, future returns become much more dependent on the valuation than on the quality of the business itself.

This is also why opportunity cost matters so much. Imagine owning a company that grows earnings at 15% annually for a decade, yet the stock produces very little return because the valuation falls from 60 times earnings to 20 times earnings.

Sometimes bubbles end with panic and headlines. Sometimes they end with bankruptcies and forced selling. But sometimes they end much more quietly, through a long period of stagnant returns while the underlying business does everything right.

In many ways, that may be the market’s most effective way of punishing excessive optimism. Not through a crash, but through time.

🌹

[Michael @himichaelhe]

@realroseceline Royalty business model has amazing cashflow conversion.

Moutai in China is also insane with this - 95% gross margin, 50%+ profit margin, all free cashflow essentially

[Michael @himichaelhe]

@lundeen_ne Dude should buy Omnicom to finish what he started fifty years ago haha