Liberty

Interview with Eric Schmidt. Some interesting anecdotes: https://medium.com/cs183c-blitzscaling-class-collection/cs183c-session-8-eric-schmidt-56c29b247998

How many people are injured and killed in road accidents? I think it'll have a decently big impact on healthcare and insurance over time...

Is it just me or does it seem like a bit of a juvenile response? I mean I read the Valeant letter, there seemed to be some data in there (maybe not as much as the Senator wanted but some) - at a minimum they must have partially answered some of his questions? Or am I misreading this? I'm not sure she could be expected to say anything else, really.. Do you think Valeant could have written anything that would have made her go "Ok, great, thank you, that's all I wanted." I'm sure she's genuinely concerned about this issue, though I'm not sure how much time a senator has to devote to learning about a company (I'm sure staffers have given her a folder full of NYT and WSJ pages with highlighted lines about 'raising drug prices at a 48% CAGR for 8 years'), but it's also in very large part politics. That's why Pearson had to point out american jobs and other stuff irrelevant to the matter at hand.

Holmes was on CNBC talking about the WSJ piece: http://www.cnbc.com/2015/10/15/theranos-ceo-fires-back-at-wsj-i-was-shocked.html

I'm pretty sure that even if Holmes was a quarter as smart as she seems, she would have made sure to calibrate her tests against other already established tests from other labs. It seems unlikely that all her tests are so bad that everything is completely outside of normal ranges (and far into unbelievable levels on some tests, like the piece claims), even after thousands, of not millions of tests done. And if that was the case, they wouldn't have come out of stealth mode, submitted tests to the FDA, etc, they'd have kept tweaking things. The more time passes, the more I realize that business is war. There are billions on the line, and the media is one of many weapons to be used to attack. I can't know if what Theranos claims is true, but they seem to be attacked by anonymous sources and quotes by fake doctors, their data and offers for demonstrations seem to be ignored, etc. Maybe that's all false, but it's not so hard to believe that many journalists won't let facts stand in the way of a good story, or are friendly with businesses they've been covering for years and are receptive to these "tips". It's like some of the things that I'm seeing in the Valeant attacks. Some journalist wrote with a straight face, and little context, that "Since 2007, Valeant’s drug prices have grown by a compounded annual rate of 48%". Really? 48% CAGR for 8 years? So VRX's drugs now cost 23x what they did? I don't know, maybe Theranos is all a big fraud. Or maybe the incumbents are trying to damage it and slow it down, because if Theranos can do what they claim, any time the old guard can gain, any doubt they place in the minds of potential customers will be worth billions over time...

Pearson's letter to McCaskill: http://online.wsj.com/public/resources/documents/valeantpdf.pdf

The company's response: https://theranos.com/news/posts/statement-from-theranos We'll have to wait and see if there's really something rotten with the company or if this is just attacks by the incumbents who can expect their revenues to evaporate if Theranos is successful in the long-term...

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Provides-Update-Regarding-Government-Inquiries/default.aspx

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR). One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period? Another way to look at it: how often IBKR can give you a stroke or a heart attack because something is screwed up? You might not survive to enjoy your cumulative difference. Never had a problem with them. Ymmv.

Buy 5000 shares of GM (where price execution will be equivalent due to high liquidity). IB : $25 Etrade: $9 Buy those in more than 2 orders and IB is cheaper, though.

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR). One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period?

http://basehitinvesting.com/thoughts-on-fastenal/

If they had just paid back debt instead of the dividends they would have had even greater flexibility in the future. Especially for investors that have to pay taxes on the dividends that was a bad decision. (and for future investors it was bad, too.) For the investor that was not taxed for whatever reason it is like taking on unnessary leverage. Would you take a 6% loan in the current environment to invest in the stock market? The special dividends were mostly (90% for the last one, iirc) classified as "return of capital", so taxation was pretty efficient. These guys act like public "private equity". The leverage is part of their model, and accounts for a lot of the value created in the past decades. If you're waiting for them to pay down the debt, it probably won't happen. Just like Malone wouldn't pay down the debt at his cable companies. I'm sure leverage levels will keep oscillating over time, though.

That's what I meant by reinvestment: Internal + M&A. I think there's a balance between how much they spend on M&A + internal growth and how much they return. That's how it worked out since IPO, and the results have been fine. There are thousands of businesses they could potentially buy, many of them private and family controlled. Some they are just waiting for the owners to want to sell. If for a while they don't find enough things that are ready to be bought and that meet their criteria and they don't want to delever, they'll do a dividend or buybacks. Maybe some years the pipeline will be more active and they'll use all their capital on M&A, and maybe at some point the debt situation will be less attractive and they'll delever. I think that flexibility is great, and I trust that they'll allocate their capital where it gets a good return. I think the regulatory risk is real, but I see a similarity with the pharma world: The FAA, like the FDA, has a huge incentive to keep things very onerous, because the career risk is with letting through something bad rather than in blocking something good. Safety and public perception matters a lot more than price; nobody wants to see a plane crash because regulations were loosened up or because some airline tried to save a few bucks on a cheaper part (which is also why TDG focuses on parts that are relatively cheap compared to the total costs of operating a plane -- you might pick a different type of engine if one vendor offers you a deal that will save you millions, but you probably won't switch to a different valve or actuator that costs a few hundred bucks... it wouldn't even show up in the bottom line after the rounding error).

Not to split hairs, but TDG can't reinvest all the cash that they generate, hence the big special dividends and sometimes the share buybacks. It's possible to imagine that the per-share value would grow at 15% for a while (including dividends) without having the absolute dollar market value of the company grow nearly as quickly. Meanwhile, if it's true that hundreds and hundreds of millions of people in Asia, South-America, and eventually Africa will become able to afford flying, the aerospace industry as a whole will become quite a bit bigger than it is now. TDG's relatively size might go up, but I don't think it has to be nearly as dramatic as you say.

Interesting peak inside one of Apple's labs (that's rare, but the company has slowly been opening up under Time Cook): https://medium.com/backchannel/exclusive-why-apple-is-still-sweating-the-details-on-imac-531a95e50c91 Gives an idea of how much attention to detail goes into the stuff... half of the article is about the sound made by a new mouse's bottom surface.

Their leverage oscillates a lot. I think it can be misleading to look at it near a peak and extrapolate it forward. They've been as low as 3x in 2009 and they reached their all-time highs recently, but the average since IPO is probably closer to 4-4.5x.

On thing to keep in mind about the debt: They've returned a lot of capital via special dividends (which are totally discretionary), so if they hadn't done those, they could have done the exact same number of acquisitions and reinvested the same amount in the business over the past 10 years but have a significantly lower debt load. In other words, it's not entirely 'structural' debt that was required to build the company, but rather an opportunistic way to optimize the capital structure (Howley believes debt is mispriced, so he's taking advantage). Granted, it's not as conservative as some would like, but the cashflows are very reliable, the debt appears well structured (not my area of expertise, though), and they've proven over the years that they can delever pretty quickly if they need to.

Great introductory post, Larry, welcome to the board! :D If you have any questions about CSU or anything else, feel free to private message me here or on Twitter and I'll do my best to help. Out of curiosity, have you gone down the John Malone rabbit hole yet? (or is a spiderweb a better metaphor?)

Apple's privacy policies are very different from Google's. I don't think they'd have a problem on that level. Their business model simply isn't based on gathering as much private information on its users, and in fact in the past year they've started using privacy as a selling point.

Elizabeth Holmes interviewed by Maria Shriver at the Vanity Fair conference: http://youtu.be/Qeb_OVOX0NQ Looks like the incumbents (looks like) are playing rough. She says that they had to send legal letters to certain people pretending to be physicians and talking to the media about Theranos, talking about tests that they have no records of ever doing... If you go to the VF youtube page, you can see other videos from the same event (Elon Musk, John Malone, etc).

Musk tweeting about what he said in Germany:

It is definitely hard, but the main problem for the incumbents is that they have HUGE sunk costs in the old technology and that to properly sell EVs, you need to say how much better they are than gasoline cars. That's why they hold back and do it half-heartely. Tesla is an EV pure-play, as would be Apple when it comes to cars, so that has its advantages.

Liberty, at 58:00, I ask Russo about his third largest position, Mastercard and how it compares to Visa. Very good! I haven't had time to listen to the whole talk yet, but I'm looking forward to what he has to say about that. Thank you for asking the question! Finally had a chance to listen to the whole thing. His answer to your question was very interesting, and it certainly makes me look at the difference in margins between V and MA in a different light. Now what I'd love to find out more about is how effective the reinvestment at MA is, which seems to be a hard thing to judge from the outside... Again, thanks for asking the question.

Exactly. Making unicycles might be a niche business, but it doesn't mean that anyone who wants to make unicycles can't just come in and sell its own... The main way that operating in a niche protects you is that the market is likely too small to interest the big sharks. If you're operating in a $5m software end market, chances are that Microsoft won't care about coming in to compete with you...but there might be plenty of other small fish fighting for that corner of the market if it's profitable and there are no barriers to entry.