Thread by @RyanReeves_

Late with sharing my notes but really enjoyed this interview with Dennis Hong

Short [THREAD]

1/

"Growth in revenues, earnings and free cash flow are the sign posts for growth in intrinsic value. Everything else is an abstraction."

This is really 1st-principles thinking. Of course, w/o abstractions like moats, positioning, etc., sustaining earnings growth is tough.

2/

Ecosystem control

Does every constituent love the business?

- Employees
- Customers
- Shareholders
- Suppliers
- Community

Love the idea of ecosystem control. It comes down to how much is the business loved by each of the 5 stakeholders.

3/

Three types of business ShawSpring likes:

1. Marketplaces (JustEat, Sea Limited, ANGI)

2. Vertical integration (JD, Carvana)

3. Cognitive referent (IAC)

4/

Cognitive Referent

I really like this term. It's when a product/service has become a verb or associated with the general category (Uber, Zoom, Kleenex).

We did a podcast on this a little bit ago:
investingcity.org/podcast/episod…

5/

More on cognitive referents

- "If you have a cognitive referent, you have a moat in CAC and LTV"

- Service cognitive referents seem more sticky than products b/c you can actually say you're buying Kleenex but then go for the private label. The switching costs are lower.

6/

Not all IRR’s are created equally

3 things ShawSpring takes into account when calculating IRR's. This is almost like handicapping or qualitative scoring.

1. Predictability of cash flows

2. Ease of execution

3. Macro/international

7/

On portfolio management

- Starter position is 10% (if not willing to do this then there's not enough conviction or it's not cheap enough)

- Cap at 20% at-cost

- Try to underwrite at 30% IRR's

End/

I really enjoyed the interview. Tilman has a bunch of great conversations on his ValueDach YouTube channel.

Main takeaways were:

- intrinsic value is a function of sales, earnings & cash growth
- ecosystem control
- cognitive referents

And how nice of a guy Dennis is :)