never forget

Tobin-Q: 1.783

"Companies in sectors with low capital spending requirements tend to outperform those with greater spending needs" page 35

"The sectors we look to invest in are characterised by corporate restructuring, industrial consolidation, a focus on the core business, and a history of underinvestment" page 49

ROIIC matters most

pre-mortem for popular growth stocks

lets be honest, all y'all growth investors are just trying to beat the fade

why active managers underperform

"The fashion for indexation has caused capital to flow into large cap stocks, regardless of valuation [and] the declining market share of the traditional defined benefit pensions and the rise of defined contribution vehicles, such as 401 (k) plans." page 101

Defined contribution plans places investing skills in the hands of retail investors

"Rather than shopping for corporate bargains in the universe of undervalued stocks, the most highly-prized companies are currently choosing to repurchase their own shares, at ever higher prices." page 102

"In the first two months of 1999, no less than 128 per cent of net equity fund inflows were directed toward index funds or large capitalisation growth funds, compared with 29 per cent in 1997, and 60 percent in 1998." page 103

Marathon increased its weightings in "value" stocks in '99 because these firms were reducing capacity and harvesting cash flows (weren't spending).

Which industries are like this today? Uranium? Canadian oil?

Sign of froth at the end

Hmm... sounds like a very big group of investors today

"Given the concentration of funds in a relatively small number of investment firms, the rising popularity of global investment appears to be forcing up the valuation of the largest companies in each market." page 108

Two insightful paragraphs

"Indexation has also led to a gross misallocation of resources across economies. Passive investing is, in our view, dumb investing. Shares are bought as companies increase their weighting in the index and are sold when the weighting is reduced" page 122

"A common question put to professional investors during the bubble was, ‘why do I need an active manager, when the index can be bought for a nickel?’ Some three years later, the answer is clear" page 125

Perhaps passive won't take over the entire industry? Hurray!

"The potential of the mobile Internet allowed analysts to fantasise a future in which our lives would be transformed by the transmission of data on the move" page 179

Sounds like 5G not too long ago

"EVA flag-bearers have displayed a marked enthusiasm for repurchasing their own stock... Coca-Cola, for example, is buying back its shares on a multiple of approximately 50 times earnings. Is this really the best use of the shareholders’ funds?" page 185

"After Hershey Foods adopted EVA in '94, [capex]
was cut from a peak of $250 mil to $150 mil and [reduced] advertising, the lifeblood of any consumer products business. Yet between '92 and '96, the firm spent $763 mil [repurchasing] shares." page 185

1/ This is literally today except the bull case is that "this time its different" and the best companies are far more dominant... we will see...

2/ then...

end/ now...

Cannot have said it any better 'Just your annual reminder that a buyback policy to offset dilution isn't really a buyback policy. Its just an operating expense that gets adjusted out of earnings.'

https://twitter.com/Post_Market/status/1215056505914916864

Private equity playbook

"What is the use of an EBITDA ratio to the equity owner if, as in the case of France Telecom, interest payable is nearly equal to that EBITDA?" page 198

Turnarounds

Holy fuck was this pristine (written in 2002).

Same dynamic exists today I feel

Becht is formidable and always focused on operations. Could've had a better legacy if he stuck to running a company rather than wheeling and dealing at JAB