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Circle of Competence Issue #60


"Almost all good businesses engage in 'pain today, gain tomorrow' activities." - Charlie Munger


This weekend was Berkshire Hathaway's annual shareholder meeting. There will be plenty of fodder for discussion in the upcoming week, that is for sure! I will post a link to the replay when an official replay comes out.


WeWork files for IPO, joining list of cash burning companies (New York Times)

“We’re looking at building this business out, not just maximizing profitability over the next one to two years”

At what point in valuing a money losing business do market participants begin to wonder about the “long term vision” narrative and start wondering if it was ever true? Of course investors want companies to think long term. We want companies to make necessary investments in their products and services and employees. But at what point should investors demand that the enterprise be self sustaining? Some might argue at the beginning or close to it. Others are willing to subsidize its existence until it flips the cash flow switch to “on” later down the road. In studying tech the last few years, this has been the biggest question I have consistently come back to while trying to understand the industry from an investment perspective: what is an 'appropriate' way to invest in cash flow negative businesses with significant 'potential'? The answer seems to lay more in the qualitative analysis of the future market/industry dynamics than in the current financial fundamentals. However, it is still tough work for a fundamental value investor to base any sort of reasonable valuation on pure potential given the heavy cash bleed of many of the current tech IPOs.


TOP READ: It's time to look more closely at Modern Monetary Theory (Ray Dalio)

Microsoft, Slack, Zoom and the Saas opportunity (Stratechery)

China's massive belt and road initiative (Council on Foreign Relations)

The terrifying potential of the 5G network (The New Yorker)

Global diversification can be a lifesaver (Bridgewater Associates)

Student debt is keeping millennials from being entrepreneurs (Harvard Business Review)

Venmo has 40 million users, outnumbering most big banks (WSJ)

Banks, investors pile back into CDO's (International Financing Review)

SoftBank considers IPO for $100B Vision Fund (WSJ)


TOP LISTEN: John Foley, Founder of Peloton (How I Built This)

David Gardner discusses Under Armour, Planet Fitness, Oriental Education, Booking Holdings, and Intuitive Surgical (Rule Breakers Podcast)

Elad Gil on how to evaluate markets (Village Global Venture Stories)

Ted Seides interviews Matt Levine of Money Stuff (Capital Allocators)

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