Legacy Positions:
AAPL – Slow growth cyclical business that goes on sale during off product cycle years. Huge net cash hoard has historically made this stock cheaper than it screens, but still trading at higher multiples than its growth can justify.
DIS – Slow growth business with major headwinds not fully priced in. ESPN —not counting ESPN2, etc— demanded $8 a month in revenue from a peak base of ~100m cable subs. ESPN+ cannot hope to compensate. Domestic parks see double-barreled growth every year, international are more mixed. Cinema is likely a golden era and a source of decline rather than growth. Shit ton of debt due to ill-advised FOX acquisition makes this company more expensive than it screens.
BRK – A terminally slow growth company that owns Burlington Northern Santa Fe railroad, insurance, ie General RE & GIECO, energy, a portfolio of consumer brands, ie Dairy Queen, Fruit of a Loom, Duracell, and a whole lotta misc, ie Precision Castparts, Clayton Homes and about 80 more. Major equity holdings, some $176B worth as of 3/13, include major positions in AAPL, BAC, WFC (declining stake), KO, and AXP. (Equity holdings are down comparably to the SP500 since their 2/14 filing.) Huge cash position of some $120B is likely overstated due to the company’s insurance liabilities. Also due to an accounting law change, unrealized capital gains now affects net income which should be adjusted for when figuring out normalized earnings. WFC – Too big to fail, but damnit if that doesn’t keep them from trying. News broke in 2016 that sales personal had been incentivized to reach unrealistic goals, and chose to create millions of fraudulent accounts. Upon receiving the news, management did their best to cover it up even as new cases were being brought to light. The company has been hit by billions in fines and shareholder lawsuits. The former CEO stepped down and the search for the new one took months longer than necessary. The new CEO raises commitment concerns as he refuses to move from New York to San Fransisco. Deposit growth trails competitors some ~2% vs ~9%.Assets are capped at $1.9 trillion due to the Fed. It’s possible that the Federal regulators have no incentive to ever leave WFC. The world likely does not need WFC and the competitors will likely continue to eat up market share. 0.8 P/B appears attractive, but better run banks are also trading at cheap multiples.
New Positions:
Note: These are tiny positions, each representing .5% – 1% of my total portfolio. I bought these stakes with the understanding that I did not fully understand each business yet.
AMZN, GOOGL, & MSFT – Cloud computing looks like an infinite fish tank to me. All businesses will require more, not less computing going forward. Physical goods over physical channels continues to lose market share to digital channels. Digital goods over digital channels has uncapped potential (think streaming video, music, video games). All of that will need more computing. And given the cyclical nature of demand, it makes sense to have flexible, not fixed, supply. AMZN, GOOGL, and MSFT are currently the only notable players in this space (IBM’s offerings are reportedly laughable). Even if I’m wrong about cloud computing, and it’s merely a commoditized business that will attract outside competition and/or price wars, then those three companies still have wonderful core businesses.
AMZN – The most speculative holding. It’s possible that it’s priced to perfect and that retail will continue to integrate online shopping. Cost leadership is always a fleeting competitive advantage. However, they still have a network that’s impossible to replicate. Their Amazon Prime subscription model is incredibly sticky. I also believe there is untapped pricing potential since goods delivered to your doorstep are clearly more valuable than goods on a store shelf, but AMZN is forced to offer low prices to build up consumer habit. I’m speculating that eventually, once consumers are used to doorstep deliveries, they will gladly pay a premium over physical retail prices. If ten years from now, AMZN still had such tiny margins, then the investment will have likely been a failure.
GOOGL – Between GOOGL & FB, the two basically own online advertising, which is to say advertising since conventional TV ads, newspapers, magazines, etc are all trending down. GOOGL’s propensity to burn money on blue sky projects is why I sold the company years ago —I apparently also had a revulsion towards money myself— but the core business is simply too good to ignore any longer. Also the company has a $115B net cash position that makes it trade at a lower multiple than it screens at.
MSFT – I know the least about this company. But I do know that my irrational hatred for this company has caused me to miss out on one of the greatest value plays of our time. Their productivity suite alone probably made it worth the price, with the cloud going for free. Now I believe I’m getting a wonderful business at a decent price, but more research is needed.
TTWO – Take Two Interactive makes Grand Theft Auto. With their latest iteration, GTAV (2013), they figured out how to smooth the product cycle with online gameplay & purchases. GTAIII sold 15 million copies, GTAIV sold 25, and GTAV sold 110. GTAVI is coming out soon and I think the series sandbox style, online gameplay is perfect for the modern market.
FB – The company we all love to hate refuses to go away. Fears of declining usage are apparently overgrown. FB is an advertising company with an immensely powerful network. A significant net cash position makes this company trade at a lower multiple than its growth would suggest.