There are ~50 U.S. companies publicly traded today that provided a 15 yr IRR > 20% vs. the S&P's 8% IRR.

A couple interesting things to note:
1) Companies in 2006 w/ < $100M mkt cap & < $50M in sales were removed.

2) There were 50 out of the ~3,000 companies w/ a total IRR > 20%.

3) Of the 50, only 3 had a 2006 mkt cap > $10B. $AMZN $AAPL & $NVDA

4) Only 7 had a 2006 mkt cap > $5B. $SCW, $INTU, $LRCX, $NKE
5) 2 had a P/S > 10x. $REGN which had an $800M mkt cap & $60M in sales. $ISRG which had a $4B mkt cap &$370M in sales.

6) $NFLX had the highest IRR of 39%. It's 2006 mkt cap was $1.5B on $1B in sales, selling for 1.6x P/S. Today it is 8.1x.

7) Look at all that P/S expansion. 👀
8) Most had double digit sales growth during the 15 yr period.

9) 15 yrs is a long time to compound at 20%. It is very hard to do. Nearly half of publicly traded companies are either acquired, go private, or go out of business over a 10 yr period.
10) The future return of any stock is the sum of 1. the dividends it pays per share plus 2. the change in the market's capitalization of a stocks earnings power (ie ability to pay out dividends per share).
11) Stock returns have benefited from generally growing earning power per share & the market pricing stocks at lower capitalization rates, largely from lower expected LT interest rates & increased capital looking for assets to invest in.
12) Who knows what future interest rates will be, but it is interesting to look back at the past winners & then try to contemplate what factors helped them win & whether if it was possible to pick them w/out the help of hindsight.
13) Helpful to have realistic expectations when investing in stocks. LT stock returns of 20%+ are very rare. I get nervous when so many people think 20% annual returns are easy to come by. Recency bias?
14) Wish I could've bought:
-$NFLX at 1.6x sales & $1B mkt cap,
-$AMZN at $10.7B sales & $16B mkt cap, or
-$AAPL at $19B sales & $60B mkt cap.

They seem like such no brainer investments looking backwards. 😅🙃
Corrected P/S % Chg.

Still high but not as high as previous post. 😅

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More from @SagaPartners

31 Mar
Michael Porter’s major sources of barriers to entry from his 1980 book.

The economy may continually evolve but these barriers to entry will remain the same. Although each one’s relative importance may fluctuate over time.

Important to understand them.

Barriers to entry = moat
1. Economies of scale:

Can be present in nearly every function of a business.

Forces entrants to come in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage.
2. Product differentiation:

Established firms have brand identification and customer loyalties which stem from past advertising, customer service, product differences, or simply being first into the industry.
Read 8 tweets
25 Feb
Love my self-imposed policy of not looking at the mkt until after lunch & then seeing the selloff continue.

Thinking in terms of LT exp IRRs helps lengthen one's time horizon when everyone else may be shortening theirs. Stock price targets are arbitrary and can be misleading /1
Rather than thinking a company is selling for x% below its estimated intrinsic value of $y, it is more useful to think about the exp return of the asset over its life. Instead think, “the expected IRR of the asset is x% over the next 10 years if purchased from today’s price.” /2
As the price rises, the future expected IRR falls, all else being equal. The opposite is true if the price falls. I know this may sound crazy, but I prefer buying stocks at lower prices than higher ones and this framework helps me do just that. /3
Read 5 tweets
18 Feb
1/ I think about this a lot

-7% of stocks provide ALL of total index returns

-60-70% of stocks underperform the index. Very few winners make up for the many losers

-40% of stocks provide negative absolute returns. Nearly half of stocks lose initial capital, ie worse than cash
2/ Results are consistent across industries. Tech & Cons Discr have higher loss rates; Cons Staples & Utilities have lower loss rates

Failure occurred for various reasons. Many companies suffered due to factors outside mgt control: exogenous factors. Below lists some reasons
3/ Here is a list of some of the token few winners from the 2014 report. Interesting to see which companies continued to perform well and others that underperformed or were disrupted.
Read 6 tweets
27 Jan
Many saying valuations make no sense & investors dont care about fundamentals

May be true in certain areas of the mkt where speculation appears rampant but just bc something sells for a high multiple doesnt mean its overvalued & investors arent considering future fundamentals /1
I recently started listening to @exponentfm from the beginning in 2014 bc for some reason I find listening to nearly decade old tech dynamics in my free time fun. Anyways, in 2015 they had a podcast discussing whether what looked like frothy "tech" valuations were in bubble. /2
Their conclusion was that "this time was actually different" than the dotcom bubble. "People always try to compare bubbles to 1999, but today's world is completely & utterly different." /3…
Read 14 tweets
19 Jan
It seems bizarre that $FB, one of the largest, most followed companies in the world could ever be "undervalued".

How could this happen? If the market were efficient, such opportunities would not exist. There simply is not free money lying in the streets...
So if $FB ends up being an attractive investment over the next 5-10 years from today's prices, what provided the opportunity and how could investors have known that it was an attractive opportunity a priori? What is the variant perspective? /1
Fact of the matter is nothing is 100% obvious before it actually happens. The future is unknown & not only is it unknown it is not a fixed outcome therefore the true intrinsic value of a company cant be known beforehand, which is exactly what makes investing so interesting /2
Read 13 tweets
8 Jan
Been working on Saga Partners' yearend letter. Still a work in process but thought I'd share a short snippet that I liked which discusses supply side vs demand side economics

From the section: Evolution of The Digital Economy & Value Chain Profits Turned Upside Down

1/ The traditional physical economy is organized around production and based on scarcity. It is the paradigm of supply-side economics and diminishing returns. Production takes place within the linear reasoning of the supply chain.
2/ Inputs are combined & manipulated until transformed into certain products. Name of the game is efficiency & scale gains. Controlling access to as much industry supply, resources, & distribution channels enabled owner of supply to charge premium prices & earn attractive profits
Read 9 tweets

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