Circle of Competence Issue #44

December 28, 2018

Quote of the week: “The two most important days in your life are the day you are born and the day you find out why.” - Mark Twain.

 

 

FOOD FOR THOUGHT

 

Book Review - The Worldly Philosophers

 

I finished a copy of Robert Heilbroner's The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers this week after it was recommended by a friend of mine (H/T John W.). Overall, it gives a concise treatment of the history of great economic ideas from Adam Smith's Invisible Hand to Marx's Communist Utopia to Keynes'  General Theory on money and employment. This is a great read for those looking for a solid introduction into the philosophical and historical contexts of the great economic ideas and thinkers from Adam Smith onward. I would venture as far as this - before reading Smith's Wealth of Nations, Marx's Communist Manifesto, or Keynes' General Theory, read the chapter on each economist to paint the landscape in which each work took place. 

 

I would love to hear from some subscribers on their latest and greatest Holiday reading!

 

 

Market Cycles Update

 

I wrote about my thoughts on the current market cycle back in issue 33 and issue 38 so I wanted to update these two posts with a couple more thoughts. 

 

- the Federal Reserve has increased fed funds rate to 2.5% as of December 19th, the highest rate since April 2008. 

- Stock markets around the world are nearing bear market territory after their December selloffs

- The Dow just experienced one of the worst performances in December on record

- 10 year minus 2 year treasury curve is at a very modest 20 basis points, up from around 10 basis points late last week, hovering above an inversion

- The majority of the S&P 500 stocks are in or near bear market territory

 

As I told one person lately, Santa may have brought buying opportunities instead of a rally this year! 

 

A few questions I've been thinking about relative to the latest market developments include:

 

- Where do you see opportunities in the stock market?

- Are we nearing an economic recession in the next 1-2 years?

- What industries are poised for a slow down from overleverage or other economic/capital markets reasons?

- What other data should I be watching? 

 

 

John Malone's lecture on strategic finance

 

This week, Neil shared with me an incredible lecture given by one of Buffett's favorite capital allocators, John Malone of TCI and Liberty Media, to Denver's Daniels School of Business on strategic finance. In this Q&A session, he goes in depth on some of his biggest deals and touches on topics ranging from the pitfalls of vertical and horizontal integrations, media assets and tax shelters, optimal leverage, and big deals gone wrong. Malone begins a great discussion on the pros and cons of tracking stock structures at 1:09, which is very applicable to the next section, DVMT's tracking stock buyout.

 

 

Dell goes public

 

This week, Dell IPO'd stock that began trading at $46/share and DVMT stock was bought out with a combination of a large dividend paid by VMWare and Dell issued stock. It has certainly been fun watching the deal develop since July. Although one could have made a small profit on the arbitrage opportunity, I can't shake the feeling that minority shareholders were strong-armed into leaving money on the table even though the deal price was sweetened to $120/share.

 

I'd be curious if anyone feels differently on the deal from a shareholder perspective?

 

 

Have a great week!

- Benton & Neil

 

 

ARTICLES

 

- John Malone's lecture on strategic finance

 

- Is China's economy now the top dog globally? (Bloomberg)

 

- Another look at China's shame engine applied to consumer credit

 

- How to get the middle class ready for the great robotics wave (Brookings Institute)

 

- iTunes - a case study (Jerry Neumann)

 

- Classic excerpt from Seth Klarman's 2009 letter to investors 

 

- Dell is going public - again (SDX Central)

 

- Jim Pattison, Canada's Warren Buffett (Bloomberg)

 

- Collaborative Fund's lessons learned in 2018

 

- Offshore wind energy assets are starting to heat up as costs per kilowatt-hour drop

 

- Key themes from Hunter Walk on Homebrew's latest investment exit, BuildingConnected

 

 

PODCASTS

 

- NEW PODCAST - Private Equity Funcast - The Messy Marketplace interview w/ Brent Beshore

 

- a16z podcast w/ Brian McCullough on how the internet happened 

 

- Q4 mastermind discussion on The Investors Podcast


- Closing 75 deals in your first year by modeling successful entrepreneurs (BiggerPockets)

 

 

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