Every now and then you get a glimpse into the inner workings of a privately held company. It’s unfortunately not always inspiring.
Patek Phillipe is one of the world’s leading watch manufacturers, and is owned and managed by the Stern family.
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I’ve been working in the public equity markets for a little over 9 years. It’s funny to think of all the things I believed at the start of my career that turned out to be just plain wrong. So I made a list (that I will periodically be adding to):
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Took a shot at a LO version:
These are fantastic - can we get a LO version?
nitter.app/DynamicMoats/status/14…
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French CEOs are really special.
"Why did you do this deal now?"
"Well, you see, the beauty of life..."
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Of course, there won’t be any consequences. The CEO is the owner. And customers won’t stop buying the product. The sunk costs for collectors are *immense* - they need the brand to work.
But it does demonstrate that the discipline instilled by public markets isn’t all bad.
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Chicago is, without question, one of the best looking North American cities.
You wonder, “Why is it such a great value?” … but then you look at the forecast.
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Western Europe will be fine without Russian gas.
If they burn all the ESG reports we've sent them, they have enough fuel to last years.
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I never thought poorly of Ted Weschler… but I’ll admit I sometimes wondered, “Is he that special?”
Well, it seems the answer is, “Yes, he is.”
I don’t know what he has doing in that Roth IRA 1989 - 2012, but those numbers are… something. documentcloud.org/documents/…
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Why not make childcare tax deductible?
The (unpaid) labor performed by stay-at-home parents is already untaxed.
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Doing deep work isn't that hard - it's actually a lot of fun. But knowing where to do deep work is harder.
I reflect back on what @schaudenfraud said: "Putting a turd under a microscope won't change it into a diamond."
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Chicago is the value investor city: 80% of NY at a fraction of the price.
The terminal value concerns are overstated! Yes, it is highly levered and shrinking in aggregate, but the nicest parts of the city are growing, so on a SOTP basis…
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Woah, woah, take it easy. "Starting to behave aggressively"? That's table pounding language on the Howard Marks scale, which usually ranges from "very cautious" to "cautiously optimistic".
ft.com/content/a3f14c51-0b1c…
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I am not sure any public company executive would (1) operate this way, and (2) say these things in a public forum.
Like this wasn't a "bet the company" project, but it was material. For him to force it through with minimal external validation is almost unbelievable.
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Well, the Patek heir-CEO felt the need to give an interview to a German newspaper. Seeing that he was in a hole, he decided to keep digging.
handelszeitung.ch/bilanz/wat…
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An incredible piece of work by Harvard Business Review. Absolute must-read. I am truly at a loss for words.
hbr.org/2018/06/why-we-need-…
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12) Build it and they will come.
No. No, there's a very good chance they won’t come. There are a lot of guys toiling in relative obscurity with good records. It's a cliche, but "every job is a sales job".
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I’m more conflicted than I should be on $FB -
Easy to pitch the bull case:
They get targeting / attribution worked out, and start lapping IDFA in 2H. Ex-IDFA impact, growth looks ok.
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Wow look at all this trash squeezing. Such a garbage rally.
Oh, hey, a couple of my names are up 15% this week. Glad the market is finally recognizing their intrinsic value.
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Looking back on my early 20s, I wish I had spent more money. Lived in a nicer apartment, taken trips, gone out more, etc.
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Morgan Stanley estimates they did over $2b in sales in 2023, despite selling only ~70k watches. (As reported here: usa.watchpro.com/rolex-sales…) Patek is to watches what Ferrari is to cars.
They are a big deal. There was a Business Breakdowns on them: joincolossus.com/episode/rea…
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Reading about WWE for much of the past week has made me think about how certain names become hedge fund hotels -
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4) Private equity is long in the tooth, and will probably underwhelm over the next decade. All these MBA students want to do PE - probably a contrarian indicator!
Not so much...
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The market called the heir-CEO's baby ugly, and he responded by calling the critics haters.
That's not a translation, he literally used "haters" in a German language interview.
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It’s also worth noting the heir-CEO’s wife is head of creative. So the four person team might be even more insular than it sounds.
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Mala Gaonkar with a $1.8b launch... good for her. Timing seems quite favorable.
And her exit from Lone Pine was well timed too. 2022 was a pretty good year to be out of the market as a TMT-oriented manager.
bloomberg.com/news/articles/…
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You all remember when that ARK analyst posted their TSLA model in 2019 and Twitter tore it apart?
I don’t think that sort of analysis is restricted to ARK. Such fantastical forecast can come from even the most pedigreed, ostensibly well-trained analysts.
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Watched Dumb Money yesterday. I think working in the industry gives you a slightly different perspective. Like are we supposed to celebrate the people who got in early on what effectively became a mass pump and dump? It’s a weird message.
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GQG (Rajiv Jain) seems more comfortable shifting exposures than many LO managers.
Like look at how the GQG Global Quality Equity fund shifted its top 15 holdings:
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This was a good downgrade note - everyone kind of recognized that $HAS was over-monetizing Wizards, but didn’t want to argue against it because (1) it was working and (2) WotC growth was key every SOTP pitch. Analyst does a good job advancing his argument too.
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Rolex is Warren Buffett.
To the layperson, it's the best.
When you start learning more, you think it's overrated and all marketing.
And then finally you appreciate it as being pretty great in its own way, but for different reasons than the layperson.
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Seth Klarman is on Squawk Box tomorrow? I can't remember the last time he gave a televised interview.
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Of course, they will still sell out. Just like Ferrari could produce a Yugo with a $75,000 sticker price, and still have a waitlist.
But it’s a black eye, reputationally.
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2) That the valuation spreads I saw at the beginning of my career were normal, and would persist.
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As I schlep to the GS TMT conference this year, I can’t help but reflect on how my perception of these events has changed.
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Inspired by a locked account, thought it would be interesting to track the performance of a couple cohorts of software stocks going forward.
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FOMO in rallies is weird. You see some horrible companies rally 40%+ in a few weeks and think "That could have been me, I could have owned that now-ascendant dumpster fire."
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13) The sellside is useless.
I think many analysts go through this phase. “Oh, their estimates / price targets / etc. are wrong”. Yeah, that’s not the point. The sellside exists to save you time (and facilitate information dissemination / corporate access).
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This is very good advice. For any profession.
Also worth asking, "Of the people you worked with at the beginning of your career, how many are still in the industry?"
Survivorship bias can really distort your perception of a given career path.
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The US should welcome any Ukrainian refugees who want to come here. And any Russians too.
You want to wage economic war on Russia? Roll out the welcome mat for their best and brightest.
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PE became more institutional, but returns have held up and allocations have only increased.
It’s fair to debate how much alpha PE firms actually add… but it satisfies the needs of the end asset owners (investment and career).
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Ah, $SNAP earnings tomorrow.
I, too, am eager to draw conclusions about the state of advertising and the broader economy from a teen messaging app.
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I manage a concentrated portfolio, yet my turnover is high-ish.
Not Millennium pod high, but significantly higher than your average mutual fund.
This bothers me. Probably because many of the investors I most admire have glacial turnover.
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Do we still need to maintain the pretense that DJ Sol is CEO of Goldman, or can we openly acknowledge that he's probably gone within a year?
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After ~25 years, they released a new model. It did not go well. I think it would be fair to characterize the reception as “acutely negative”.
Behold, the Cubitus. hodinkee.com/articles/introd…
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Takeaway from the “NYC just isn't worth it anymore” discourse should be that opportunities for geographic arbitrage are limited. If you have to work in NYC, you hopefully like the NYC consumption basket.
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One of your analysts comes to you with a turnaround pitch -
“Yes, I know [ Citigroup / Advance Auto / Expedia / etc.] has underperformed in the past, but this time is different! Look at all these new plans, they’ve got new mgmt, I’ve done a bunch of checks and…”
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Looking at my podcast listening habits in 2022…
Little surprised; I didn’t think All-In would be in my top 5. I guess because it drops Friday, I end up up listening to it at the gym on Saturday morning.
Also I might be a slightly boring person.
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6) Sellside equity research would be a great path to buyside equity research. Similar skillset!
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I appreciated this introspective piece from Oakmark on the underperformance of Oakmark Select relative to Oakmark.
oakmark.com/news-insights/wh…
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Iger just confirmed that $PENN “stepped up in a very aggressive way and made an offer that was better than any of the competitive offers by far”.
Not saying they overpaid, but… good luck guys.
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SIVB demonstrates that it’s rarely the known risks that kill you… it’s the stuff you think is safe.
They didn’t blow up on crypto. Or startup warrants. Or wine loans. They blew up on MBS, and a partially self-inflicted bank run.
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That GS Prime Brokerage report on multi-managers... I think I've looked at it a half dozen times over the past week.
Quantifies what I felt to be true (that multi-managers account for nearly 100% of industry growth).
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a) Silicon Valley started creating more capital intense businesses.
b) Companies have gotten much more aggressive ramping S&M (theoretically supported by strong unit economics – usually true, sometimes not)
c) Hello, Growth Equity.
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5) Venture Capital is a niche industry, and is limited to small funds. How can you invest that much in early stage, relatively capital light businesses?
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I'm amazed Buffett / Munger can still consider new ideas at all.
If you think about what a 90-something person has lived through... growing up in aftermath of the great depression, WW2, the end of Bretton Woods, multiple crises and crashes...
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What are some stocks that you *wouldn't* want to buy today (professionally speaking), but you think work pretty well over the next few years?
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There are some businesses that bad things just happen to. They hit every pothole. Step on every rake.
Factories catch on fire. Drugs fail. Products get recalled. If there is a scandal, you can be almost sure they touched it somehow.
For example, Citigroup. Who else?
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I was always a little put off by Larry Ellison’s spending habits… the yachts, the planes, the island of Lanai, etc.
But now I appreciate them. Larry cares about the $ORCL stock price. Both as a reflection on himself… and so he can buy another island. Normal billionaire things
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Chase Coleman (1) showing up to a conference 2x1 meeting, and (2) being sufficiently well prepared to lead Q&A… I’m impressed.
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There's a certain group of companies where earnings continue to grow, yet the stocks just don't work.
There's often a terminal value debate. Sometimes justified, sometimes not.
Expedia, GoDaddy, Fleetcor / Wex, Brink's, Henry Schein... who else fits here?
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A lot of office work is performative - the meticulously formatted, 50 slide deck does not exist to be read. Rather, it’s a way of saying “I did a lot of work on this and/or care deeply about it.”
What happens when you can generate said deck with AI?
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Apropos of nothing, the CRZ Yoga golf pants on Amazon are a near perfect Lulu ABC dupe, and an exceptional value at only $45 vs Lulu at $128.
amazon.com/dp/B0BJQ6FCL8
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Not actually that similar.
Regrettably, I thought this just as the world was shifting to the 2 yr IB +2 yr PE paradigm. I also underestimated just how much recruiters / recruiting pipelines mattered in getting that first buyside job.
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And business appears pretty good going from their UK accounts (Companies House, charts from usa.watchpro.com/what-can-we…)
This is all to establish that they are a large and successful enterprise. They would likely be a midcap if publicly traded.
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10) Distressed debt sounds amazing as a career.
Thank god I did not get my wish... I think it’s fair to say this has been a challenging decade for distressed. Distressed seemed great right after the GFC! Unfortunately, it also seemed great to a lot of allocators.
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I love how Ryan Cohen has made terrorizing consumer pods with poor risk management his second act.
Hey, it's not what I would do if I had that sort of money, but I guess it keeps him busy.
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Even if you are targeting the super long term, thoughtful allocators we all dream about… you need to be able to tell a story. Why should they buy your artisanal, small-batch alpha? Why are you special?
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True equality will not be achieved until women lose just as much money gambling as men. #ESG
bloomberg.com/news/articles/…
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I enjoyed this interview with GQG's Rajiv Jain.
He invests *very* differently than I do. But that's partly why I find him so interesting.
goldmansachs.com/intelligenc…
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8) Related: multi-manager analysts look only care about the next quarter.
Yes, they care a lot about the short term. But they certainly understand the longer term theses as well. Especially the more senior guys.
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Even better if it's part of a complex cross asset trade, or some yield harvesting strategy - and then it blows up in a novel yet entirely predictable way.
Simply being wrong in size is too simple for the French.
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I've been thinking about this a lot the past year or so:
Does the Capital Cycle work differently in intangible-driven businesses?
It's fun to think about, even if it doesn't really help you make money near term.
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But I increasingly recognize it would be hard to get the “reps” in as a junior analyst at a super concentrated fund. Case studies are great, but they are a poor substitute for actually managing some money.
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14) BRICS are the future, and will be great investments,
Well, they’re still the future! But have been very mixed investments. The whole “GDP growth does not correlate to stock market returns” thing wasn’t so consensus back then.
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Thinking back to the month or two pre-Archegos…
I wonder how many analysts, if they were bullish VIAC / DISCA / FTCH / TME / etc., created fundamental narratives to justify the stocks’ outperformance in February and March?
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Every large asset manager seems desperate to build / buy a private credit business. Yes, it's a big market... but somehow we will oversaturate it.
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I've actually come around to the view that students should ask themselves, "What do I want my life to look like?" rather than "What am I passionate about?"
You can cultivate passion for almost anything. But you can't make BigLaw a 9-5 job.
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My wife recently told me, “If you [achieve large professional milestone], I want to get you a nice watch.”
I thought it was a kind gesture. We aren't big on gifts. But I thought about it for a moment, and realized I had no idea what I would even want. If anything.
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I need to figure my life out and have a kid.
That’s been one piece of advice I’ve consistently gotten: just get started, the timing will never be perfect.
I’ve been placating my wife with cats. We are at 3 cats. We cannot get a 4th cat. 3 cats is ok, 4 is weird.
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There’s some lesson buried in this Twitter buyout.
Used a debt-heavy cap structure, which then forced certain business decisions, which may permanently impair the equity… versus using less debt, implementing moderate cost cuts, and achieving a decent outcome.
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Finally learned to ski at 31.
Not bold enough to go on one of those broker sponsored ski trips yet… but kind of understand the basics now.
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Well, I didn't buy $NFLX on the blowup last quarter... but I did buy FB and PYPL.
So I'm sure I'll have my own horrible blow up over the next few weeks.
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Maybe was true at the time… but it has become increasingly de-risked as a career path. Everybody understands that pods blow up all the time. It’s not a black mark. And guarantees for more senior analysts / PMs really mitigate extreme downside scenarios.
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Corporate culture isn’t built through team outings and mission statements.
It’s built through shared experiences, specifically shared trauma.
You want to see a strong culture? Find a team in financial services that worked together during the GFC.
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So I was thinking about $SHOP today.
It's tempting to judge managers who rode it up and then down... but I think it's actually a rather challenging problem.
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FinTwit is great - it’s a community that self selects for enthusiasm / curiosity. What I imagine VIC was 10-15 years ago.
People who have effectively said “I enjoy doing this enough that I’ll engage with industry-related subject matter pseudonymously on a Sunday afternoon.”
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