Dennis Hong (@DennisHong17) Framework For Understanding Optionality is a MUST READ.

S/O to @ClarkSquareCap for sharing!


Here are Dennis' Four Types of Optionalities 📝
Optionality #1: New Business / Businesses

- Amazon/JD forming logistics businesses
- Tencent/Sea, Ltd forming payments businesses

In essence, using core biz to develop new (asymmetric) opportunities.

Where to find these options: in the business' operating cost structure
Optionality #2: Product / Category Expansion

- JD's "JD Health" business
- Tinder's "Boost" feature
- Square's "For Retail" and "For Restaurant"

How to find: focus on the customers’ objectives & determine whether the current or potential products/services fulfils objective
Optionality #3: Strategic Shift / Evolution

- NFLX from DVD to streaming
- Adobe's on-premise to SaaS

Optionality arises when a company recognizes a natural evolution away from (but still related to) their current business towards one with a superior customer value proposition
Optionality #4: Geographic Expansion

- Shopee in Brazil
- Starbucks into international markets

"Geographic expansion occurs when a company expands to a new region or country in hopes of replicating
its success from its core market."

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More from @marketplunger1

12 Jan
📝📝 2020 @MacroOps Portfolio Review 📝📝

Here's our portfolio metrics:

- Return: +66.40%
- Max Peak-2-Trough DD: -14.13%

Overall grade: B-

While the returns look good, we could've done better.

Here's a thread discussing our many errors in 2020! 👇…
1/ Our Three Biggest Errors

Recurring revenue is great. Recurring mistakes, not so great. Here were our biggest mistakes:

1) Too slow to act on a high conviction thesis
2) Overly constrictive trade management
3) Not sizing up (within limits) on higher conviction opportunities
2/ Error 1: Slow To Act on High Convictions

We come across a fantastic setup that has a Trifecta of tailwinds (sentiment, fundamental, technical) behind it.

We pitch it, write it up for the group.

And then don’t take the first entry and watch as our thesis plays out to the T
Read 10 tweets
30 Dec 20
[THREAD] A Sober Look at SPACs

Sorry to rain on the SPAC parade, but it's important to understand the inherent shareholder disadvantages in the current SPAC structure:

- Higher cost/dilution
- Lower returns

Great article from Harvard Law.

1/ The SPAC Structure

SPACs raise cash and have 2 years to find a company to take public.

SPAC owners dilute shareholders via three ways:

- Warrants
- Shares
- Rights

This leads to SPACs historic high costs & poor post-merger performance.

Here's an illustration ...
2/ Further Embedded SPAC Dilution

The article mentions 3 other forms of dilution:

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- Redeeming shareholders receive 11.6% annual return (incentive to redeem)

- SPACs pay u/w fee on IPO proceeds
Read 7 tweets
30 Dec 20
Rightmove (RMV) is one of the decade’s top-returning stocks.

Investors have generated a +1,500% total return!

Studying the Super Stocks of the past helps us spot future Super Stocks today.

Here’s a thread on what made RMV a network effect monster 👇…
2/ Biz Description & IPO

RMV is a property portal in the UK. They allow RE agents, homeowners & homebuilders to list their home for sale on their website (think Zillow).

Before IPO, RMV offered initial shares to its customers (RE agents and developers).

That’s confidence.
3/ Owning Their Market

In 2004 RMV was the largest property list site in the UK.

They commanded 79% market share in total pageviews.

24/25 top RE agents listed homes ONLY on RMV

25/25 top UK home dev. Listed on RMV

82% of UK homebuyers that bought on the internet used RMV
Read 13 tweets
21 Dec 20

Bill Miller (@B3_MillerValue) is one of this generation's best investors.

There's 3 things we can learn from him:

1. Free cash flow above all else
2. Disregard investment style labels
3. Buy at points of lowest market expectations

Let's go!…
1/ FCF Is King

A biz is worth the sum of its future FCFs discounted back to the present.

Miller examines things like:

- LT economic model
- Quality of assets
- Management
- Capital allocation record

He wants to buy >6% FCF yields.

Important: Growth < COC = bad investment
2/ No Labels Investment Approach

The thing I love about Miller the most is his disdain for investment labels.

It's not Growth vs. Value for him. It's paying less than what a biz is worth. Period.

In doing this, Miller avoids investing in value traps because "they're cheap"
Read 6 tweets
2 Dec 20

Let’s learn about Mr. Market’s latest AI IPO: C3 AI

C3 allows companies to develop, test and run full-scale, real-time enterprise AI applications.

The company’s led by one of the sharpest founders/CEOs in the game, Thomas Siebel.

Let's learn🚀… Image
1/ Executive Leadership

C3 is led by Tom Siebel, one of the sharpest founders in this space.

His resume includes:

- Helping Oracle reach $1B in revenues
- Starting Siebel Systems which did $2B in revs in 6 years

Here's Siebel's reasons for starting C3 (hint, not about $) Image
2/ Culture Matters

C3 has one of the best Glassdoor ratings/reviews I've seen:

- 89% approve of CEO
- 92% would recommend co. to friends
- 4.6/5 stars w/ 338 reviews

Employees rave about three things:

- Meaningful work
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- Great incentives (paid learning) ImageImage
Read 21 tweets
5 Nov 20
5/ Example of Great AI Company: Stitch Fix

Defensible Data: Personalized style data from previous $SFIX orders

Problem Solved: Predict what customers will want/not want

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Here's @bgurley's take:
6/ The 4 Quadrants of AI Application

AI has four unique stages of industry application:

1) Transition: high penetration + low scale
2) Germination: low penetration + low scale
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4) Developed: high pen/scale

source: Deloitte white-paper
7/ Which Industries Fit In Each Quadrant?

Deloitte has a killer chart showing which industries fall in each quadrant (see below).

We're (@MacroOps) focusing on these four industries:

1) Retail
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3) Education
4) Finance

Let's highlight the first two ...
Read 7 tweets

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