Fundamentally, there are only two drivers of business value. The ability to generate returns on capital in excess of cost of capital, and the ability to grow. A thread breaking down these two elements 👇

#NotesFromMySlipbox In theory, in the long run, in the absence of moats, returns on capital will reduce to cost of capital. But in reality, many businesses manage to generate high returns for long periods of time. How do they do this?

If you were born after the 70s, you probably think of Intel as a giant that has always dominated the microprocessor industry. But late in 1979, it almost got knocked out completely. This is the story of Operation Crush, that planted the seed for Intel's massive success. 👇 It is also an object lesson in marketing - one that is much better understood today than it was then. That people don't buy products. They buy solutions to their problems. In Ted Levitt's words: people don't want to buy a quarter-inch drill. They want a quarter-inch hole.

A few days ago, @mysandz asked me for a list of my favorite books. As I started thinking about that, I realised there are at least two different categories. In one category are books which I really enjoyed reading. These could be works of fiction or even non-fiction that taught me something. The other category of books actually changed my world-view or my behavior. This thread has the list of books in that second category.

Over the last few years, quantitative value investing has been denigrated relentlessly. The main criticism is that in an intangibles-heavy world, using book value as a measure of a company's worth is misguided. That is true! But these criticisms make one flawed assumption. They assume that quant practitioners build value portfolios they way Fama and French first described them in 1992. No actual portfolios today hold stocks simply because of low p/b ratio. Why? Because accounting rules don't correctly capture the value of intellectual property.

Investors talk a lot about their investment process. Some of them are very good. But few ever break down their investment process into what I think are five major steps. As an investor, it is worth articulating what your process is for each of those five steps. An investment starts with "idea generation". Where do you get your ideas from? Screens...magazine articles...cloning? There are many possible sources and you don't have to choose just one. Having a well-defined list helps focus and also tracking where your best ideas come from.

Of late, there has been a lot of chatter that "value" is making a comeback after a decade of underperformance. While this is broadly true, there is a large amount of nuance that such a statement glosses over. In most circumstances, it doesn't matter. But if you are a quant investor, or an investor in a quant fund, understanding these nuances matters a lot. After all, not all large cap funds are the same. Why should all value strategies be the same?

Finally finished reading Kochland by @CLeonardNews. Took me 2 weeks to get through it but totally unputdownable. If I'd realised it was a 700 page tome before I picked it up, I might have shied away. Thank God I didn't.

1/n For one thing, it's brilliantly written. There's an excellent balance between giving us details about the various characters' history and sticking to the main points. This is in contrast to Ron Chernow - a brilliant writer in his own right. 2/n

After having read so much about how Amazon does not really lose money but constantly grows without reporting too much of a profit, I decided to finally take a dive into its financials over the last 15 years. In only about 20 minutes, my mind is already blown. 1/n #amazon I started at 2003. Their financial statements start with cash flows. I'm not sure if that's the US GAAP convention but if it isn't, right out of the gate it says something about management's priorities. 2/n