Welcome to the Sunday Briefing newsletter where I share some of the interesting lessons in life, business, and investing that I’ve come across during the week.
Latest on Junto
One article was published on Junto during the past week.
Stock Buybacks: Good or Bad? Buybacks split investors, the media, and politicians. Are they a good thing, or not? The answer is simple but the nuances aren’t. In this article, we’ll wrap up the debate.
To members, my write-up on Adyen will come out some time in the next five days. Right now, the write-up is incoherent to the point where it’s frankly not worth posting. I have a lot of brushing up to do but I promise you it’ll be worth the wait.
What I’ve been reading
I think the way capital is allocated is broken. Way too much value is placed on funds being large. I have sympathy for folks tasked with allocating billions of dollars to managers. It is hard. They have to write big checks and the money they are investing is typically not their own, so they have real career risk. Their incentives and the realities of size dictate that the majority of their funds must flow to the largest of managers.
[…] you can’t compound money at 20% forever unless you have that hard-wired into your brain from the age of 10 or 11 or 12. I’m not sure if it’s nature or nurture, but by the time you’re a teenager, if you don’t already have it, you can’t get it. By the time your brain is developed, you either have the ability to run circles around other investors or you don’t. Going to Harvard won’t change that and reading every book ever written on investing won’t either. Neither will years of experience. All of these things are necessary if you want to become a great investor, but in and of themselves aren’t enough because all of them can be duplicated by competitors.
Business of the week
The business of the week is Autodesk Inc—the software company that dominantly serves verticals in architecture, engineering, and construction through its design, modeling, and rendering offerings.
Key assumptions for the DCF:
– 5-year rev growth rate: 15%
– Target EBIT margin in Y5: 28% (from ~21%)
– Marginal IC turnover: 5
– Out-year EV/EBITDA: 16x (which, I am aware, is conservative and critical to the model)
At 25x out-year EV/EBITDA, the present value jumps to $311/share. Whatever assumptions you make is up to you. I err on the side of caution as high growth is (still) driven by customer growth from a recurring revenue transition tailwind. Download the model here and make your own assumptions (membership required),
Quote of the week
Charlie Munger on patience in investing.
“One person said to me, ‘I have a list of 300 potentially attractive stocks, and I constantly watch them, waiting for just one of them to become cheap enough to buy.’ Well, that’s a reasonable thing to do. But how many people have that kind of discipline? Not one in 100.”
Intrinsic value is of probabilistic nature—an intermingled number from a wide range of branches on a huge decision tree of future possibilities.
Have a great coming week,