Sunday Briefing: On tech monopolies, Teledyne and Henry Singleton, and Intuitive Surgical

Sunday Briefing: On tech monopolies, Teledyne and Henry Singleton, and Intuitive Surgical

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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

My annual letter to members will be posted next week in which I chronicle last year’s events, lessons, and performance. Unlike last year, this one will only be available to members since it includes the portfolio.

I’m also posting a company write-up on Better Collective A/S next week. Better Collective, located in Copenhagen, Denmark, is a very interesting business. As a leading sports betting media company, the company operates a wide web of betting and gaming-related websites pulling in +65mln visits per month that earn affiliate revenue by providing online bookmakers and casinos with targeted user acquisition, increased user engagement, and retention. But the best way to describe the business is as a capital-light content acquisition machine. More on that in the write-up.

What I’ve been reading

The tech monopolies go vertical.

Now the largest software companies are slowly becoming hardware companies and pursuing an integrated strategy that only can be achieved at the largest scale possible and with barriers of entry that are quickly expanding in addition to their well-known network or aggregation effects. The walls are slowly rising, the moats slowly widening, and as we are on the cusp of a new hardware renaissance, the decisions the hyperscalers make now are going to have a long-lasting competitive shadow.

A case study of Teledyne and Henry Singleton. One of the most detailed studies on the history of one the greatest capital allocators of all time.

An investor who put money into Teledyne stock in 1966 achieved an annual return of 17.9 percent over 25 years, or a 53x return on invested capital vs. 6.7x for the S&P 500, 9.0x for GE and 7.1x for other comparable conglomerates. Teledyne’s investors were rewarded with a triple whammy of increasing earnings with a shrinking capital structure along with an expanding P/E ratio. As the single largest investor in Teledyne, Dr. Singleton chose to make money alongside his fellow investors not from them.

Company of the week

Intuitive Surgical—the maker of a highly successful robotic system (da Vinci, placed in ~6,000 hospitals worldwide) for assisting minimally invasive surgery.

Key assumptions for the DCF:
– 5-year rev growth rate: 20%
– Gradual growth decrease to 3% terminal in y10
– ROIIC: 25%
– HGP reinvestment rate: 80%
– Terminal reinvestment rate: 20%
– Out-year EV/EBITDA: 15x

Access the Sanity Check model here and make your own assumptions.

Intuitive Surgical stock valuation

Quote of the week

Warren Buffett on why most investors fail:

“People get smarter but they don’t get wiser. They don’t get more emotionally stable. All the conditions for extreme overvaluation or undervaluation absolutely exist, the way they did 50 years ago. You can teach all you want to the people, you can tell them to read Ben Graham’s book, you can send them to graduate school, but when they’re scared, they’re scared.”

A thought

Discipline is painful. But the regret of not reaching a goal from a lack of putting in the work is unbearable.

Have a great coming week,
Oliver Sung

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