Liberty

People have been saying things like this since the very first page of this thread (I know, I've read it all as a project last year). It's been "cheap" or "turning the corner" all the way down 90%+. It could very well spike up tomorrow, but at this point it's clear that this wouldn't be because the value was predictable but rather a gamble on volatility/noise/luck. Some things belong to the "too hard" pile, IMO.

I've held MIDD since 2005. I've sold a lot along the way and added back on dips, but I've had some amount of MIDD in my portfolio for over 13 years. I really cleaned up when they aquired Turbochef and CHEF was trading as if the acquisition was not going to happen (this was right after the financial crisis and a lot of announced mergers where being cancelled), I bought a ton of CHEF and even converted most of my MIDD to CHEF only to get it back and then some after the acquisition. I had held MIDD for a while by then and knew that MIDD had the cash and that they would go through with the acquisition even if the market was skeptical. What I like about MIDD is its CEO Selim Bassoul. He's a serial acquirer, only unlike most CEOs who try to do this, he makes it work every time. He is a master of making acquisitions work, integrating the companies, finding synergies, and getting them to add to earnings quickly (most of the time in under a year). He's been doing this again and again, multiple times per year, successfully at MIDD since (IIRC) 2003 or so. It's definitely a bet on management. It's not like everybody in that industry is doing that well.

MIDD's an interesting one. I passed on it many years ago (2011?) because I wasn't sure about a few things, and then looked at it go multi-bagger. I haven't really looked at it in a while. How would you describe what you like best and dislike most about it these days, if you want to share?

New acquisition: https://www.businesswire.com/news/home/20181101005749/en/

Someone was just saying this exact line in GE thread. However how can you identify it early on that management is bad and to avoid it? Looks like in the oil business, 90% of the companies or more have management who are looking for themselves. It helps to fish where the fish are. When you look at ranking of industries by ROIC over time, O&G is barely above zero, with high cyclicality and debt and generally bad and promotional management. So you almost have to be lucky just to break even. But I think what keeps people hooked is the cyclicality... Sometimes it'll rip up like crazy and everybody's getting rich all of a sudden, but all that can go away pretty quickly and for long periods, and because of the debt, high capex and operating leverage, it cuts deep. It could start again tomorrow and make a bunch of traders a lot of money, who knows?

I think it's just a bad business that has been good at selling hope, there's always a rainbow over the horizon, "look at this cherry-picked metric or that cherry-picked metric, doesn't it look good?" "If we can just sell this asset or get this oil price or whatever, we'll be golden", "forget about everything in the past, we're starting again from scratch and this time it'll be good!". That's what it seems to me at a glance, but I haven't spent much time on it.

What a tough business... Oil has gone from the low 40s to a recent peak in the mid 70s in the past 12 months yet this thing has fallen almost 50% from its peak at 1.85 near the beginning of the year. Crazy amount of D&A too... EBITDA margin TTM is around 13%, but EBIT margin is -60.2%. Capex has been higher than cash from ops since 2013... And it was a $46 stock a little over a decade ago. So a 46x reverse multi-bagger. Reminds me of The Frackers. Some industries just are really good at destroying shareholder capital (while usually making management rich). With this level of volatility, I'm sure those who are good at trading can do something with it. I struggle seeing how long-term investors can find confidence, though, since commodity prices are unknowable, and even when they're going up it doesn't mean that a highly-levered-to-the-commodity business will do well. Maybe I'm missing something, which is why I keep revisiting commodity stocks once in a while (I try to learn from both what I like and what I dislike).

It must be a huge market. It looks like Mattress Firm has a store (or sometimes 2) on every street in every city in America. I'm curious how any Amazon shareholders rationalize this kind of business practice as good. They would rather undercut 3P retailers selling mattresses on their platform (likely AWS or potential AWS customers as well) and instead sell low margin mattresses. It seems like the former is a better business model (higher margin) and wouldn't be viewed by the regulators as anti-competitive. It's like Amazon is trying to not make money. I know the online mattress companies typically have a sales portal through their website as well, but most people go straight to Amazon to check reviews. To know we'd have to know more variables. If they think they can sell a lot more Amazon brand mattresses than the 3P vendors would because of the lower prices and because of the brand, then the lower margins can be compensated by turnover. I just had a quick look at the margins of Purple, one of those mattress startups, and right now they're at 44% gross margins, up from the 23% in 2015 (so I don't know if they'll keep rising). Seems like there's a bunch of "your margin is my opportunity" in there for Amazon to have really good prices yet keep pretty high margins, especially if they know they can get to scale really quickly because of the existing transferable brand recognition and distribution.

Each chapter is about the important work done by various agencies that most people know little about, and the last 1/3 was about NOAA and weather services. I thought it fit well in the book. "....yet the government still manages to function." Of course, all the people doing the actual work at the bottom of the pyramid are still there. The point is that it's directionless and getting less prepared for problems if/when they come, and that many of the people that were put in charge have no idea what they're doing.

Q3: http://s21.q4cdn.com/813101928/files/doc_financials/2018/2018/Q3/3Q18-Earnings-Release.pdf I posted a few things about it in this thread:

Traditional media relied on local distribution monopolies to make money. Facebook relies on the network effect (people go on the site because other people are on the site), so it's a lot more important to keep barriers to entry low (no fees).

A year of brain damage for both longs and shorts, to end up in basically the same spot...

voluntarily under-earning right now because they're investing in things that will have good returns in the future Couldn't help but think of Sears and the 'voluntary' losses we all read about. Tough to value when that is the story. Except if you think about it a second longer, it's not the same thing at all.

Is that worse than going into investment banking or consulting? The best minds are working on ads that help finance all the infrastructure that is running almost everything people do on the internet. When you zoom out a bit like that, it doesn't sound as bad...

https://www.reuters.com/article/us-bausch-health-valeant-sentencings/ex-valeant-philidor-executives-get-prison-for-fraud-idUSKCN1N42EP GOOD

Q3: https://investor.fb.com/files/doc_financials/2018/Q3/Q3-2018-Earnings-Presentation.pdf So FB increased headcount by 45% and capital expenditures went from $1.76 billion to $3.34 billion and they still had 42% operating margins? Anyone think they'll keep doing that every year or maybe they'll get back to operating leverage and margin expansion in the future?

Q3: https://s2.q4cdn.com/242125233/files/doc_financials/2018/Q3/3Q18-Earnings-Presentation.pdf EPS up 36% FX-neutral.

You could do that, but would that be a better way to value it? With more thinking, I think you can do better than that. For example, by how much is each of these companies voluntarily under-earning right now because they're investing in things that will have good returns in the future? I think each are to a certain extent, but Amazon is the king of that, taking the old Malone TCI approach of not having earnings today (though that's changing a bit) to have more growth and more earnings tomorrow, rinse and repeat. What if Amazon decided to target growth of 10% (which would put it higher than most retailers) and just let everything else fall to the bottom line? Fewer AWS price cuts, fewer investments in new FCs and new countries and new devices and services and software and such, just optimize for earnings? How much would they earn? That's unknowable, but you can take some guesses that are probably closer to the truth than just looking at current P/E, which is depressed by large investments in things that won't pay today (like large investments in India, large capex for AWS, large investments to bring 1-day delivery to more markets, food delivery to more markets, building new software products (AI, databases, ML, etc).

"Nearly half of US stocks are now down more than 20% from their 52-week highs"

Because China basically started from nothing and was fairly hostile to foreign companies in this industry, while the rest of the world already has existing payment rails that work well.

The dynamics under the surface mean that top line growth will decelerate as bottom line growth accelerates (unless they can keep finding new things with good ROIC to invest into). As e-commerce slows down (there's still a lot of runway, but it'll slow down), Amazon will have to invest less into it (fewer new FCs, fewer new countries to enter and invest at a loss for a while, etc). Also, 3P +FBA is becoming a bigger fraction of ecomm, and it's a lot more profitable than 1P, while at the same time also reducing top line growth (because, unless I'm mistaken, Amazon only counts its take on 3P in revenues and not the gross amount). This helps the bottom line. AWS is rapidly becoming a larger part of the total, and it is very profitable. Good for the bottom line. Advertising is growing very rapidly and is very profitable, good for the bottom line. Subscriptions (Prime) won't grow fast forever, but over the past few years they are up a lot, and very profitable highly recurring revenue. Good for the bottom line. In short: Low margin segment isn't growing as fast, but its margin should improve, while all the higher margin segments have been growing fast and are now very material.

Why should we forget the fact that AMZN 3P is a better business than eBay and that it is growing much faster? My reading is he's just being conservative and not giving it a higher multiple.

I think they'll keep buying back stock rather than pay down debt if it remains depressed and interest rates don't massively spike. Malone ran pretty levered back when interest rates were much higher than today and still created tons of value. I think that as long as interest rates rise because real rates are rising (ie. the economy is doing better), there's not much danger on that front.

https://stratechery.com/2018/ibms-old-playbook/

I've finished it. Glad I read it. Maybe a bit overlong (like most non-fiction books), but important-enough stuff to make it worth reading. As I said earlier, I already thought sleep was very important, but I was under-estimating it a lot... And now notice a lot more of the crazy things that our society does that are extremely counter-productive (financially, health-wise, etc).