Lyall Taylor Profile picture
Equity Portfolio Manager of a small self-seeded fund, and author of The LT3000 Blog (https://t.co/g917pGowkP)
YJ Profile picture Daniel Anders Profile picture 4 added to My Authors
26 May
I'm so tired of reading references to an oil "price war" between Russia and Saudi Arabia. There has never been any such price war. What there actually was was simply a disagreement amongst OPEC+ as to best strategy for dealing with global oversupply (continued).
Saudi Arabia believed OPEC+ should cut production to reduce global oversupply. Russia believed this would merely encourage more shale production and would thus be futile long term, and believed high-cost marginal US shale producers needed to bear the burden of supply adjustment.
This disagreement has been ongoing for several years, and continued early into the pandemic. However, after it became apparent how severe the near term demand impact would be from covid-19, Russia acknowledged a need for output reductions given the extraordinary circumstances.
Read 6 tweets
7 May
Afterpay & its cheerleaders love to highlight that BNPL increases merchant sales.

The reality is that whenever consumers increase their aggregate debt levels, whether by CC, BNPL, or other means, merchant sales increase. But consumers' leveraging up is not a sustainable boost. Image
If you give someone access to $500 in credit they didn't previously have, and they go and spend it, their spending will of course increase by $500 in the short term. However, they have to pay the $500 back, so it will reduce their future consumption. It simply pulls sales forward
The only other way in which it can boosts merchant sales is if they take market share off other merchants that don't offer APT. This cannibalistic benefit will only last as long as BNPL is not widely available. 100s of coys now offer BNPL services and that point won't take long.
Read 9 tweets
6 May
There are two aspects to investing: return and risk.

After a long bull market investors tend to forget about risk & focus only on return. This one a key reason why value investing tends to go out of favour, because value investing places a lot of emphasis on risk reduction.
An emphasis on a margin of safety, scrupulously avoiding overpayment, and being humble/realistic about the degree to which you can foresee the future, seems unduly conservative during boom times.
However, when the shit eventually hits the fan, which given enough time it always does, certain stocks & investors loaded up in them can see losses of 50-90%, and investors are reminded about the importance of risk. Value investing tends to then come back in vogue.
Read 8 tweets
6 May
Great research on NEA.

This is why for most companies, profits are important. Profits validate the narrative management is spinning - they prove the coy has a product customers are willing to pay for in a competitive marketplace, that is priced above the cost of provisioning it.
Anyone can grow a company by throwing money around and signing on customers at a loss, hoping to upsell them later. It's called buying market share. It's as old as capitalism. Only in rare situations is profitless growth a sign anything of genuine value is being created/exists.
If you're willing to lose more money than your competitors, you will grow/take share. But it's not a sustainable competitive advantage to have price < cost. It's a fake competitive advantage that leads to fake/false price signals in the marketplace.
Read 4 tweets
6 May
Afterpay traded sub $100 today, almost 40% off its highs. The APT gif brigade seems to have vanished.

Valuation still in loon down. While label solutions offered by merchants will crush margins long term. ADS is one company offering this functionality to merchants (long ADS).
"I'd like to pay with APT"

"Did you know our membership card can offer you the same BNPL terms, but you get free points you can redeem for 1% off your next purchase".

"Ok cool that works too".

BNPL is just rebranded POS consumer finance. Will be rapidly commoditized.
Merchants have every incentive to switch to offering white labeled solutions. They save on 4-7% merchant fee charged by APT; control the data collection on their customers; and share in the financing economics. They will still offer external BNPL but steer customers off it.
Read 4 tweets
5 May
The world's total wind resources are 100TWy/y. Harvesting 100% of it would require we stop all wind blowing on earth (converting it to rotating wind blades) - not remotely possible. Global energy use is currently 19TWy/y, and will likely double in the next 30-50yrs.
You can therefore forget powering the world's economy purely with wind. Hydro resources are limited to 3.5 TWy/y, and are mostly already exploited. Anyone that suggests tidal as a possible solution - at just 0.3 TWy/y - knows laughably little about energy economics.
Energy resources across fossil fuels & uranium above are understated as they are only currently known/proved reserves & resources. We will find a lot more if and when there is a need and financial incentive to do so. But they will eventually run out/EROI will fall below 1x.
Read 8 tweets
2 May
How many people have given any thought to fact that credentialed climate scientists need climate change to be a thing to make a living.

For them to believe otherwise would be like a psychologist arguing there are no psychological disorders and hence no need for psychologists.
They have already self-selected into a profession - presumably because they are already environmentally conscious - and already have huge sunk costs in terms of their selected career path. They are pre-committed to a designated conclusion irrespective of the facts & evidence.
Stop being cowed by degrees. Anyone can get a degree. It really isn't very difficult. It doesn't mean you are right. It doesn't mean you're not emotional, political, or biased. Quality varies. Scientists argue with each other. Learn some science and it will demystify it for you.
Read 4 tweets
1 May
The effect of the covid-19 pandemic is detectable in GNW's long term care & life insurance mortality data.

For politicized topics where there is rampant misinformation, I always look for hard to fake real world data/evidence. Cuts through the bullshit.
Want to know whether the narrative around climate change is actually leading to an increase in extreme weather, for eg? Look at the cost of catastrophic insurance. Hard to fake. Lots of statistics can be manipulated. Some of them can't.
Don't focus on "studies" done by government bodies, academics, and NGOs. They are highly susceptible to bias, politicization & misinterpretation. Instead focus on data/evidence that emanates from real world experience that is hard to fake.
Read 4 tweets
29 Apr
This is a masterclass in how to bullshit about your performance numbers.

Translation: We ill-advisedly went into cash 12mths ago, underperformed a lot, and 6mths ago decided to jump back into market. We've recovered a tiny bit of what that ill-fated decision to cash up cost us. Image
I sniffed bullshit as soon as I read it. Dug up their numbers and sure enough: Image
I'm not going to give someone a hard time for making mistakes or underperforming. Investing is not easy and to err is human. But if you make mistakes and print bad numbers you really need to be upfront & transparent about it. Trying to bullshit & mislead people is not ok.
Read 4 tweets
23 Apr
US citizenship is arguably more of a liability than asset these days. 43% cap gains tax and that's on nominal gains. With the Fed determined to raise inflation to 2%, the real effective capital gains tax rate on a portfolio that generates 6% would be 76%.
The US is one of the only countries in the world that taxes by citizenship rather than residence & source. If you live & work overseas you still pay US taxes. And if you want to renounce your citizenship there are exit taxes and they ping you for another circa 10yrs I believe.
I would not accept US citizenship if you paid me US$5m to accept it.
Read 6 tweets
23 Apr
There are typically four phases to thematic growth stock cycles (thread):

1. Demand (D) > Supply (S). Top line growth strong; margins expand; stocks soar & multiples go to moon.

2. D=S. Competition rises but demand growth remains strong. Top line robust but margins plateau.
During 2, stocks will either plateau or drift slowly up, or during bubbles keep spiraling higher on flows/narrative.

3. S>D. Supply overtakes demand. Top line growth slows and margins suddenly weaken. Profits unexpectedly drop 50% or more, even with top line still growing.
Phase 3 can go on for many years. You'll start to see stocks drop 10-20% on profit warnings. They tentatively recover on buy the dip, but then give it back, and then derate another 20% on the next warning. They'll often end up down about 25-50% about 12 months into downturn.
Read 10 tweets
23 Apr
Redbubble's share price reaction yesterday shows investors may be starting to understand that "investing more through the P&L to drive growth" is in most instances the same thing as "margin compression due to growing competitive intensity forcing more investment/spending". (cont)
There is a time early in a company's life where more investment & temporary sacrificing margin to accelerate growth is justified. But there is also a time in a company's life where the returns & economies of scale should be starting to sustainably come through.
At this stage of the tech/software cycle, where software & platforms are already exiting the high growth phase and starting to mature, w growth set to slow down fairly dramatically from 2021, if you're still needing to cut margins, that's a profit downgrade, not "investment".
Read 5 tweets
21 Apr
If you can get pasted the shameless plug at 0.20 and an almost comical sprinkling of unnecessary arrogance, there are some useful insights here.

In my view, software (w exceptions) is going to become increasingly commoditized & deflationary this decade.

People are always paddling towards waves that are already breaking. They are too late, and the marketplace is crowded. Money is actually made by developing real competencies, being fortunate enough to be in the right place at the right time, and having a wave catch you.
The commoditization of software development skillsets also implies the commoditization of the value of software. Software gets easier to write every day, and thus easier to replicate and displace, while competing sources for our attention & entertainment will keep mushrooming.
Read 7 tweets
20 Apr
More than a little amusing - and perhaps an interesting cultural marker - to see side-by-side headlines about regulators continuing to roll out red carpet for a stupefying drug, while simultaneously pushing toward prohibition for a productivity-enhancing one/cognitive stimulant.
Disclosure - I am a smoker, though I of course often try not to be. Bad for my health, yes. But some of my best blog articles have also been written high on nicotine. With it I can write for 10 hours+ straight without breaks, as well work 16-18hr days with absolute focus.
I have "successfully" quit several times and can, of course, function perfectly adequately without it, but I have found that without it I lose some of my creative edge and have to settle for a lower level of productivity & creativity - well past the point withdrawal ends.
Read 5 tweets
20 Apr
Next time someone argues that something must be true because its published in a "peer reviewed academic journal", bear in mind the substantial academic fraud that has been uncovered in the social sciences where many famed studies have comprehensively failed to replicate.
Academic peer review is not thesis confirming, nor does it prove the presence of rigor or a lack of bias. It does not prevent academics from inventing/embellishing conclusions for fame/recognition, succumbing to confirmation bias, or targeting politically convenient conclusions.
The way peer review often functions in practice is to entrench an elite clique who get to define what is true in a way that suits their own interests, & prevent outside scrutiny from other disciplines. A good analogy would be Catholic priests being such guardians in prior eras.
Read 11 tweets
16 Apr
There is a common tendency for pharma companies to back out amortization of acquired intangibles from "adjusted earnings", and investors/analysts to quote the lower P/E multiples resulting therefrom, but this is a highly questionable practice (thread).
Unlike staples companies (like KO & PG), pharma companies' earnings lack very long term earnings duration. After LOE patent expiries, their earnings typically drop precipitously, and so they need to continuously replenish the pipeline & launch new drugs to offset the impact.
Ideally, they would do this purely through internal R&D, and some companies succeed at that. But in many cases, internal efforts are insufficient, as it is getting harder and harder to discover new novel & genuinely differentiated/innovative therapies.
Read 9 tweets
13 Apr
I've shared this old Buffett interview before (from 1985 I believe, and one of Buffett's first), but it recently turned up again in my YouTube feed, and it's such a great interview I thought it worth sharing again & offering a few quick thoughts (below).

One of the first things Buffett says is rule #1, don't lose, and rule #2, don't forget rule #1. This is a quote I've heard many times over the decades, but only fairly recently have I begun to really fully appreciate how fundamentally important this dictum is.
Every cycle, Buffett is widely criticized for "missing winners". This cycle, it's for "missing Amazon" etc. But that misses an important point: Buffett's approach/value investing is fundamentally about *avoiding the risk of overpaying* at all costs.
Read 12 tweets
26 Mar
Owning high quality but expensive stocks is great when multiples are rising. High returns & low biz risk - what's not to like? The Q is, how will investors react/behave if multiples start to decline and stocks go sideways/down for years. How long before ppl get tired of owing em?
Patience is in short supply in markets - due to both investor temperament and performance pressure. Most are unwilling/unable to hold stocks going nowhere/underperforming for years. People's perceptions & attitudes towards these stocks will change when multiples stop rising.
2-3yrs in, after years of stagnation, investors will start to see these stocks as dull/dead money, and start looking for cheaper stocks that have the opportunity for larger gains. Trends like this are self-reinforcing. This is how 10yr+ multiple derate cycles in quality happen.
Read 4 tweets
24 Mar
It's amazing what absurd things ppl will believe/argue when they emotionally want to be bullish. On Kuaishou below:
*User coverage is 90% but there is "room for platforms to increase user base". Infants perhaps? To not see saturation here is glass is half full in extreme.
(1/2) Image
*Average time spent is 67min per DAU, but this "could rise to 110min by 2025". It could also fall. There are only 24 hours in a day, and there will be more not less competition for our entertainment time in the future.

Really nutty stuff.

(2/2)
PS (3/3)
*Tiktok & Kuaishou have formed a duopoly, "although WeChat may muscle in". Just a casual remark in passing that "oh, and by the way it might not remain a duopoly, and might get a lot more competitive". But no need to worry, because there is no need to worry.
Read 5 tweets
17 Mar
A bunch of German municipalities have lost a significant portion of their deposits, which they parked with Greensill's now-insolvent bank. They did so because they wanted to avoid paying negative rates on deposits, & signed up for Greenshill's 0.1%.

wsj.com/articles/green…
Reaching for yield has always been dangerous/a problem. However, central banks have now created a situation where people/institutions are desperate for any means of avoiding their savings being whittled away. It would be surprising if this did not lead to negative consequences.
We actually now have a historically-unprecedented situation where the cost of capital is negative. Sitting on cash guarantees significant losses over time - nominal as well as real. It should not be a surprise that anything that generates a positive yield is in high demand.
Read 4 tweets
16 Mar
Great thread on banks. Agree with all/most. It is important that banks/financials/lending businesses are run by thoughtful risk managers, not growthy/marketing people. Many fintechs make me nervous for this reason. The former stand the test of time, the latter usually don't.
One of the repeating cycles you see is that after a bust where all the go-go aggressive banks/financials get wiped out, you'll eventually see a new cohort emerge arguing trad banks are too conservative/bureaucratic/slow moving; are leaving lending opportunities underserviced etc.
The actual truth is that those segments are usually underserviced because they blew up the last cycle's go-go cohort. And long term success in a leveraged biz like banking *requires* that you be conservative/bureaucratic/slow moving to make sure you don't make any big mistakes.
Read 5 tweets