@timoreilly 1/Munger is talking about a normal business (most businesses) that is unlike Amazon or Malone's early cable TV or an early mobile operator. Cash isn't being invested in growth that has deferred profit like in these businesses. It is the type of business that he and Buffett buy.
@timoreilly 2/ Munger wouldn't buy AMZN, early cable/mobile or early SaaS firms like salesforce since it is outside their circle of competence. The hard part about deferred profit is that there are many poseurs that aren't really creating customer annuities. Alpha comes from avoiding fakes.
@timoreilly 3/ There's so much late stage private money that the need to report EBITDA is mostly private equity firms doing buyouts of old line companies a few super unicorns needing bank debt and bonds. Munger would never buy a cement company based on EBITDA. But Buffett bought 5% of AAPL
@timoreilly 4/ Buffett bought Apple since he thinks he understands their franchise and due to the massive free cash flow. Unlike AAPL which Buffett feels is inside his circle of competence AMZN is not. The business creating value is the consistent necessity. Harder to see in high growth!
@timoreilly 5/ Life is so much better if the investor uses free cash flow instead of earnings with a company like Amazon. The book that explains the better approach is Expectations Investing by Mauboussin. This link is wonderful. Please read: michaelmauboussin.com/excerpts/EIexc…
