1/ Most fun for me is an operating business. In a business you don't have the luxury of no cash flow planning or not understanding return on capital in addition to growth of NTM sales. Pretend proxies for that can only be ignored until they can't. Only unforgivable sin = no cash. Image
2/ Charlie Munger: “We have the same problem as everyone else: It’s very hard to predict the future."

Seth Klarman: "An unresolvable contradiction exists: to perform present value analysis, you must predict the future, yet the future is not reliably predictable."
3/ When I hear: "We can't do a DCF because the results can vary," I know that the person: 1) has not run a real business; 2) doesn't know how to run a business; or 3) knows but is pretending it doesn't matter.

If running a real business was easy, everyone would be wealthy.
4/ Can the future be predicted with certainty? Never. The future is a probability distribution. Deal with it. Pretending is pretending. Some parts of the future are more predictable than others. Think in terms probability and focus on having a sound process. Find tailwinds.

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More from @trengriffin

14 Jan
1/ Me: "My worst nightmare is somebody I love is in trouble and I can’t help them. That’s the point of having money. That’s the point of having strength. That’s the point of preparing yourself. I’m always ready to do that, because I couldn’t live with him myself if I couldn't." Image
2/ "Start a company, you've got to be brave. Write a book, you've got to be brave. Paint that painting behind you, you've got to be brave. You must be willing to say: 'This is my painting.'"

There is a transcript of this podcast that is out today at: infiniteloopspodcast.com/tren-griffin-w…
3/ "If you give children opportunities to make mistakes and do things, they will be independent. When they go to college and through life, they're going to make great decisions. If you truly love them, do that. The downside is they're not going to call you often. Do it anyway."
Read 4 tweets
4 Jan
1/ Is Sweetgreen selling a subscription or is it instead a membership program?

Is there a difference? Does Costco sell a subscription ?
2/ One of my 25iQ blog posts is about a meal service provided by Rovco which enables its customers to have fresh bass delivered to them twice a week. A Bass-o-Matic subscription service creates an obligation to purchase delicious bass, not just a discount. 25iq.com/2018/01/20/sup…
3/ A subscription is at its core an arrangement with a customer that creates a periodic contractual commitment. 25iq.com/2018/08/11/how…

If a consumer uses a loyalty card or a mobile app to pay is that a subscription?

Is paying for time limited discount card a subscription?
Read 6 tweets
30 Dec 21
1/ In 1994 I said to Bill Gates that while network effects can be beneficial, the phenomenon can easily disappear because the factors that sustain them are brittle. We were talking about AT&T losing network effects.

Bill responded to me by saying "That's why I worry so much."
2/ At the time (1994) our friend Craig was selling McCaw Cellular to AT&T, which was buying mobile assets since it believed it could save the long distance business. AT&T (the long distance co. now gone) not understanding network effects was ironic given who first described them.
3/ Each question is different

a. Do you have a moat? (The test is based on math)
b. What created the moat (eg, supply or demand side scale economies)?
c. What value does the moat protect? (Google a lot vs Twitter not so much)
D. How long will the moat last (CAP)?
Read 7 tweets
26 Dec 21
1/ Ray Dalio to Tyler Cowen who cites random walk macro literature:

"The market is like a poker game. I’ve played for over 50 years. It’s a zero-sum game relative to what’s priced in, and the smart people take money away from those who are less smart.” conversationswithtyler.com/episodes/ray-d…
2/ Dalio: “That’s the way it works. I wouldn’t be in the business — I wouldn’t be on your podcast,  unless that was true. There are many people who write finance papers, and there are people who make money in the markets. I can’t speak for those who are writing finance papers.”
3/ Ray Dalio argues that three big phenomena happening now are particularly important:
a. Zero interest rates with actions to finance debt;
b. The internal conflict between left and right, rich and poor a political polarization; and,
c. The rise of China.
Read 26 tweets
20 Dec 21
1/ "There's only one thing we know for sure and that’s the stock price. So then reverse engineer what has to happen for that thing to make sense and then try to judge whether that sensible. ...lay bare the underlying assumptions and then debate them." ritholtz.com/2021/12/transc…
2/ "If you invest in your business and you’re earning exactly your cost of capital, growth doesn’t make any — doesn’t add any value whatsoever. And so earnings growth can be good, it can be bad, it can be indifferent. ...Free cash flow is the number we try to keep our eye on."
3/ Tangible assets are capitalized on the balance sheet showing up in the income statement as depreciation. "By contrast, intangible investments are fully expensed [which means] earnings are a lot lower than they would otherwise be."

This accounting mistake is your opportunity.
Read 4 tweets
19 Dec 21
1/ What's the best way to determine which business is creating the most value below? Growth is beneficial if cash inputs in early years of a business don't exceed the discounted value of the cash those assets will generate in later years. The more that happens, the better it is.
2/ The numbers in the previous chart are from @jaminball. They provide clues to the amount and timing of cash flows into and from the business, but they aren't the only clues available. My approach is to evaluate the growth on a bottoms up per customer basis via unit economics.
3/ The value of a business is the sum total of the value of present and future customers. The more micro my focus (eg, what is the value of a customer?) the less I am guessing about an uncertain future. What a real world customer is worth right now is the starting baseline value.
Read 11 tweets

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