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Circle Of Competence Issue #11

Department of Letters

Charlie Munger's (Wesco Financial Corp.) 1983 Letter to Shareholders

I came across a full collection of Charlie Munger's Wesco Financial Letters (1983-2009) online in PDF format and have begun reading them. In the 1983 letter, Charlie gives some great insight on how savings and loans institutions worked back in the 80's. I find it interesting how competitors were taking extreme risks to borrow short and lend long in an interest rate environment as volatile as theirs was in the early 80's (think about how interest rate peaked at 15.6% in 1981). This is foreign to most of us in the 21st century since rates have been artificially hovering just below 3% for the last 10 years. It is also interesting to note his investment in the steel warehousing and specialty metals production business given his emphasis on buying companies with moats

Google 2017 Letter to Shareholders

Google 2017 Annual Report

Wonderful businesses like Google don't come around often. Though they are trading at roughly 30x trailing free cash flow, if shares were to trade lower moderately to significantly, I would love to own this. Top line growth of 20%+, 'Other Bets' revenue growing at over 50%, free cash flow of ~$25B, fantastic returns on tangible capital, virtually no long term debt ($7B vs. $150B shareholder equity), and a monopolistic hold on the digital ad market with global room to grow.

One interesting note (see Note 14 in the 10-K) was the negative effect of the new tax plan enacted by Congress which resulted in a $10B one-time provisional charge due to a 15.5% tax rate charged on accumulated foreign earnings not taxed in the US.

Highlighted Company: Exor

Exor (John Elkann) 2009 Letter to Shareholders

Very interesting to learn about the history of the Agnelli family and how John Elkann combined IFI (started by his grandfather) and IFIL into the Exor Group. I have highlighted this company's letters in previous week's reading. However, I wanted to learn more about their formation and evolution as a family holding company so I went to the archives for their 2009-2012 letters. The Agnelli family essentially controls Exor with 51% owners