Thread by @trengriffin

"In S&P stress tests on U.S. CLOs it has rated, nearly 90% of triple-A bonds were downgraded to double-A in its worst-case scenario. That worst case included 40% of loans being downgraded to triple-C and defaults leading to outright losses of nearly 11%" google.com/amp/s/www.wsj.…

2/ "The past is always triple-A. We can all remember what the past was. But if we try to make the future triple-A, we have no future. The future is always single-B.”

Michael Milken google.com/amp/s/25iq.com…

3/ In the early days of the wireless the high debt level required to produce growth in cash flow was acceptable because the value of radio spectrum was rising so fast. By 2002 MIMO ended that arbitrage. So I voted with my feet for a business producing free cash without high debt.

4/ The original A and B side mobile operators in the US have been overbuilt by other operators twice.

In contrast, overbuilding last mile US cable assets has not, shall we say, been a particularly fruitful financial activity. Construction backhoes don't follow Moore's law.

5/ When the mobility market was being created it was actually better to have two competitors per city. Growth was actually faster than in cities where only one network operated. A business gets hard when there are four operators and many customers view the service as a commodity.

6/ "An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation." W Buffett

The challenge for mobile operators is to change (2) via differentiation.

7/ First level thinking is: "There will be huge future demand for X" (e.g., cannabis).

Second level thinking is: "How many businesses (including illegal suppliers) will be offering products that are 'a close substitute.' Are there barriers to entry?"

google.com/amp/s/25iq.com…

8/ What's an example of an "overbuild"? Assume you are the first business to sell hamburgers in a city. An overbuild happens each time a new hamburger restaurant opens. Opening a new restraining is easy. Building out a new cable plant to provide internet access is seriously hard.

9/ "There are all kinds of wonderful inventions that give you nothing as owners except an opportunity to spend a lot more money in a business that’s going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to customers.” Munger

10/ I meant "opening a new restaurant is easy." Typo. Sorry.

Example: Chicken teriyaki was a revelation in Seattle in 1980. But then overbuilding of new teriyaki competitors started and the only thing an restrautant operator did was buy themselves a job and a tough work life.