Liberty

Ok, so you're agreeing with me that they don't have reinvestment opportunities through the cycle. I'm not saying it's the worst thing in the world, but it definitely should be taken into account when you look at what kind of returns they're able to generate, and you can't extrapolate from one period as if it would keep going on. If you have to spend many years with a large portion of your market cap sitting in cash earning nothing, it can't help but lower your overall returns (time value of money). Your obsession with absolute dollar amounts rather than relative amounts (ROIC, ROE, IRR) tends to hide rather than reveal what is going on. Book value per share at ALS was C$6.59 in 2009, and last Q, almost 10 years later, it was C$8.29. This isn't the stock valuation, this is the equity, so don't talk to me about it being a bubble valuation or whatever. In fact, the P/BV has actually gone up since then, from about 1X in 2009, 1.13x in 2012, 1.46x in 2014, to about 1.69x recently... An increase is normal since they converted some of their cash to cashflowing assets, but it shows that it's not like they've been creating a ton of value under the water line and a dropping multiple has been hiding it.

No. I'm talking about growth investments at high ROIC, not maintenance capex. You know, like when Texas Instruments invests in designing a new chip and then keeps selling it for decades at 60% gross margins or whatever. I know you're very happy with your mid-to-high single digit returns, but by your own logic, if commodity prices go back up, they'll probably be lacking re-investment opportunities because things will be too expensive, so looking at it from the point of view of the whole cycle - which includes the past decade - makes more sense than cherry-picking only what fits your narrative.

I'm not saying they are not reinvesting them, I'm saying the royalty itself doesn't have internal, organic reinvestment opportunities, unlike a lot of operating businesses. If they do re-invest the money in other things that have similar rates of return, then yes, they'll get that single-digit CAGR over time, but historically they haven't been able to deploy everything and have sat on a lot of cash for many many years, so it's hard to argue that they can - on average - reinvest everything.

Shows how Amazon is even more aggressive in ads than I thought. Most of their value comes from their product search, though, but I suppose that they have some pretty good info to target display/brand ads too. Good for them.

Napkin math: So you're saying at that rate it would take them ˜7.4 years to achieve "payback" (which is a fuzzy term that doesn't include expenses, but let's say we assume that 100% of revenue is FCF, which it isn't). That's a return of about 13.5% year (non compounded, since it's not reinvested -- it would be 9.8% CAGR). But since the coal stream will end at some point in the not-that-distant future, it shouldn't be valued as an open-ended annuity-like stream that can grow (can't just slap a multiple on it to capitalize it), but rather DCF'ed as a melting ice cube where a lot of the return is basically a return OF capital rather than a return ON capital. If you buy an operating business that yields 13.5% a year in FCF, you get that money, and then at some point in the future if you want, you can usually sell the business (and hopefully you have organic reinvestment opportunities at good ROICs). If it did well and grew and maintained competitive position, you can sell it for more than you paid for. If you have a royalty that returns 13.5% (non-compounded, and let's remember that this number is for revenues, not actual FCF) a year, but is known to end at some point, after a while you can't sell the royalty for more than you paid for, since there's left time left on the clock and less whatever the royalty is on left in the ground there. It's kind of like an option that is closer to expiration, on top of a mine with less ore left in it. So I'd guess the actual economic value accretion to a shareholder is probably somewhere in the mid-single digits.

https://www.washingtonpost.com/technology/2019/01/18/us-regulators-have-met-discuss-imposing-record-setting-fine-against-facebook-some-its-privacy-violations/

I posted the Barry Diller interview in the IAC thread, but he mentions Tesla in it:

That's basically been the consensus in this thread since 2011. I certainly hope it happens for shareholders.

The bigger surprise was the cut for SpaceX. Cash issues in the Elon sphere? Probably, especially after the Q4 that we saw, a lot of sources of capital probably got a little skittish. ¯\_(ツ)_/¯ It's also always hard with fast-growing companies to balance expenses vs growth vs profitability. Undershoot and you got problems, overshoot and you got problems. A company growing 5% a year can plan things out and keep it smooth pretty easily. A manufacturing company growing over 60%/year probably has a very hard task managing growth any way you slice it. I still think Elon needs to find some solid people to help with finances and ops.

Barry Diller interview: https://ca.finance.yahoo.com/news/influencers-diller-transcript-220748956.html

For certain things, specifically products, yes, it probably ranks very high. But there are other kinds of advertising. If you sell car insurance or house construction services, then Google is probably the place for you. If you want to do brand advertising, then maybe Facebook/Instagram/Youtube would be the preferred choices, etc. But it mostly depends on the ROI you're getting, so if you're advertising on a site that isn't ideal, but the auction prices are such that you get a better ROI, then you'll do that too. So maybe Amazon is more logical to advertise a widget, but if Google Adword prices for that keyword are much lower than Amazon, it might still be a better place for you specifically.

Musk letter to employees, cutting 7% of workforce: https://www.cnbc.com/2019/01/18/elon-musk-tesla-email-to-employees-about-job-cuts.html

There's nothing magic about royalties but they offer a very different return profile to either debt or equity. Debt gives you no (upside) exposure to the cycle or to mine life extensions. Equities give you both, but with (usually levered) downside exposure to the cycle. Royalties sit somewhere in the middle. You get exposure to the cycle and mine life extensions, but no operating or financial leverage and no exposure to rising costs. If you're skilled enough to be a countercyclical LOLR, then royalties offer a relatively high reward low risk profile compared to debt and equity. We're saying the same thing. But if you go back through this thread, there's always been a lot of excitement about royalties, claiming they deserve a 40-60x P/E like FNV or whatever, while they're in fact just a way to tweak the risk/return profile on capital deployed. If you're going to be a distressed investor, you can also pick up high-yield debt at significant discounts to par and get equity-like profile... In the end what matters is the returns on the capital and the ability to redeploy at attractive returns (since royalties don't offer a built-in reinvestment mechanism), and that's where I'm not yet convinced. If you can get high ROIC with royalties over long periods and with most of your capital, that's amazing, but it's easier said than done, apparently.

They certainly have a stronger network moat than other unicorns like Uber, since they have a global network and Uber has local clusters (when you're in city X, you don't care how many drivers they have in other cities, but when you're traveling, you could go anywhere so they need global inventory, and any competitor who wants to compete also needs global inventory).

He probably did more for most regular investors than anyone else. Sad news. Financial history will remember him for a long time.

That's what I thought the model was, be counter-cyclical, sit on cash to have it when others need it, etc. But that doesn't change that when you do that the royalty model isn't that different from debt or equity. If you're injecting capital when someone really needs it, you can usually get pretty good price and terms. Yet in recent years, despite us apparently being in a terrible time for commodities, I haven't seen such great deals, and I haven't seen such great IRRs from past deployments of capital. Hence my point that being so enamored by the royalty format can distract us from the fact that however you structure things, you won't get economics that are that different from other providers of capital for distressed situations, unless you're lucky (which can also happen with equity/warrants/etc). And just the fact that your lendees can get in distressed capital-starved situations in the first place shows that there's probably a decent amount of risk there.

Why did these mines sell these royalties? It's still just a way to raise capital, right? Why would the terms be so much better for the buyer than on other forms of capital? Please explain that to me. And I didn't mean non-producing junior miners, I meant people who are raising money to pay for their projects, wether capex for mine expansion or selling a piece of one mine to finance the building of another one. You took what I wrote too narrowly.

The situation with these red notices is crazy...

Sometimes insiders are smart and know something we don't. Sometimes they're just setting money on fire and making mistakes... ¯\_(ツ)_/¯

This is a common way to hook people in. When it was a tiny small cap, the dollar amount that went in was tiny, what you needed to move the needle was tiny... then it got much bigger, and that's when most people noticed it, but since then nobody has made anything. Used to be a common phenomenon with "hot" mutual funds. They get a great track record when they're small, money pours in, and then at the bigger size they can't perform like they used to anymore (or it was all just survivorship bias to begin with) and the dollar-weighted performance since inception is pretty mediocre even if the CAGR still looks good. One way to think about it is that some businesses are good at compounding money, and others have more trouble scaling up and redeploying ever larger amounts of capital. Another thing that I've been thinking about with Altius is the whole royalty model to begin with. It looks great when you think about it from the point of view of the merchant bank, but let's think about it from the seller's point of view. Why do you even sell a royalty to someone like Altius to begin with? It's just a form of financing to pay for your mine, right? You could also borrow from the bank or raise equity or sell preferreds. Why would you give away the store if you can do these others things? And if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right? Or if they can but would just rather sell a royalty anyway, do you think they'll sign conditions that are radically better than debt or equity? Why would a royalty have an expected return of 20% IRR for the buyer or whatever? You have to be lucky and the seller miscalculates, but that's a gamble too, especially since the people who are developing the project have a good chance of knowing it better than outsiders. That's why when I did some math, it seemed to me like Altius has often gotten single digit returns on the capital it put in for royalties, which isn't that far from debt or equity. It's possible to get lucky and get better than that, but it's also possible to get unlucky and get worse. If there's a huge commodity boom, the royalties will do better, and vice versa. Pretty equity-like, just with cashflows swaped for the possibility of capital gains (probably a good trade safety-wise, but still, not exactly a magical instrument that guarantees good returns)...

I picked 2007 because it was the earliest date, but I could've picked 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017... I've heard this one before. It's little comfort when the stock has been flat for over a decade while a lot of obvious companies have gone up multiples since then (even a behemoth like BRK has doubled since then) and both inflation and the CAD have further been headwinds. I think that if your thesis is the 1970s redux, it's speculation, not investment. As Buffett has said, when there's inflation, good businesses with pricing power do well, you don't need commodities.

Congrats, that sounds like an honest self-assessment, which is actually a very important skill to have as an investor (necessary though not sufficient). This line of work certainly isn't for everyone, like many other technical and stressful jobs (any surgeons in the house?). What kind of other things are you looking at? Completely different, or similar occupations? Good luck (and hard work) in whatever you do next.

People seem to assume that Malone is omniscient. He's very good, but he makes mistakes too. Same with LBTYA, which I'm pretty sure didn't turn out how he wanted to.

I think it's a case of: "It's great to have a good battle plan, but at some point you should look at the battlefield to see if it's working." When you have a stock that is trading where it was first trading in 2007, you have to wonder if there are easier ways to make money, even if on paper it sounds like a good model. Maybe it's all been a long down-cycle and there will be upswing at some point, but if it's outside the control of management, it's more speculation than anything else. And if what they've done in the past few years is the best that can be done in a downcycle (I remember the quotes from them about waiting for blood in the streets and such), then is it good enough? How high would it need to go, how fast, for you to make a good IRR on it? Don't even interpret all these questions as me necessarily being bearish on the stock. I'm more in the "too uncertain to be bullish" camp. I used to like the model, but it just hasn't performed very well, and since then, I've learned that commodity businesses (and their derivatives, which I consider this company to be) aren't for me. Maybe they'll hit a huge homerun soon, but that's fine. There are companies going up a lot every day that I don't own. I just have to focus on what I'm comfortable with, and waiting for capex-heavy mines to be built and commodity prices to go up isn't something I want to fill my mental cycles with.

FISV merger proposal details: https://investors.fiserv.com/static-files/084bd77f-a222-40aa-a7bc-f53834a3c702