PDF Report Archive
This page is an organized archive of selected PDF reports created from previous blog posts.
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Why We Choose Quality Over Quantity
Passively owning “the whole market” has become a popular investment strategy, and for a good reason. It is widely reported that the average investor dramatically underperforms the overall market. Using an index fund, and just trying to match the market, eliminates the uncertainty of deciding which investment idea might be the best. It also generally comes with low costs. For the average investor, it makes sense. But there is a benefit to including an actively-managed investment strategy as part of an overall portfolio.
A Timelapse of the Tech Sector
Part 1: Before the Internet
Before the Internet, changes in technology were primarily physical. As time passed, computing devices became smaller, cheaper, and easier to use. A summary of the different computer categories describes this change: from mainframe, to minicomputer, to microcomputer (personal computer), to “pocket computer” (and mobile phone). The company that forced the move to the next market was almost always a startup, but the previous market leaders were not always left behind; their influence on the research for these new markets helped to set the standard.
Part 2: After the Internet
After the Internet, changes in technology were primarily digital. While computers kept getting smaller, the main focus became how these computers connect with each other. Technology became more connected, more mobile, and more interactive. The physical components of a computer still had a place in the market, but they were overshadowed by the exponential growth in data; the most valuable technology was used for collecting data, analyzing data, and using data. The emergence of technology “platforms” defines this new world.
Part 3: The Future of Tech
The future of tech will be driven primarily by two major themes. Both are a continuation of decades-long trends: Faster Internet connection speeds will enable more devices to come online and create a more decentralized network. Faster, smarter, more efficient components will continue to make computers more powerful and more interactive.
The Evolution of the Video Game Industry
Part 1: Hardware
The introduction of each new group of consoles is divided into different generations on the basis of what technology they use and when they were introduced. Each new generation was a race to reach the best combination of price, game library, console features, and timing. Getting any of those factors wrong meant that the company would struggle, but the most important was the game library. Missing on the game library could mean failing out of the industry, but getting it right could lead to success that extends to multiple generations.
Part 2: Software
The story of third-party developers is complicated and constantly evolving. Thousands of developers have been formed, bought out, shut down, and re-formed again. And only four major independent game publishers/developers still exist today (in order of size: Activision Blizzard, Electronic Arts, Take-Two Interactive, and Ubisoft).
This is how they do business.
Part 3: The Future of Gaming
The future of video games will continue to build from the trends of the past. For consoles, this means creating the most attractive video game library. Game libraries are no longer made entirely with a physical shelf full of disks, but instead can simply be an account with a list of games associated with it. Digital downloads are also the future of the games themselves—selling the games through a digital distribution network has become the norm, but selling items inside a game is also a primary strategy that will never go away. No game is ever fully complete; it can be broken into thousands of pieces that are each sold individually, sometimes over many years.
But this main theme—a gaming industry that is more online and more digital—is overshadowed by the flashiest opportunity in the future of gaming: eSports.
Coronavirus Crash & Recovery:
Foresight and Hindsight in 2020
Getting prepared for a bad time always looks like a bad idea—until something bad happens.
Why We Didn’t Trade GameStop
(And Other Things We Don’t Do)
“The GameStop trade” is old news by now, but it was unique enough to represent a timeless explanation of what we try to avoid. We do not short sell. We do not use leverage or any type of derivatives. And we do not invest in “distressed” or speculative equities.
Why We Don’t Fear Inflation
There is wide agreement that consumers are generally hurt by high inflation, but does business really suffer from inflation? (Do rising prices hurt business?) This can be true if inflation is bad enough, but even this effect will be specific to an industry or an individual company. Some manufacturers will get squeezed if their costs go up faster than they can raise prices, but better businesses are able to raise their prices in line with rising costs. Good businesses should be able to raise their prices even faster than rising costs, while the best businesses are in a position to take a cut from transactions and benefit from inflation simply by the default of their existence. Moderate or high inflation is not a serious risk for a high quality company.
The Four Sources of Investment Mistakes
The hardest question for investors is asking how much of their returns come from skill and how much comes from sitting on the right side of a lucky trend. The answer doesn’t always matter. The most important thing is the willingness to ask that question in the first place. Because asking that question helps improve the investment process. And this is how I introduce pieces of psychology into my investment models. It’s how I think about thinking.
What I Like About Copart (and how I found it)
My research is qualitative and my focus is primarily on the big economic picture. I prefer to talk about industries more than individual companies, but this is a case where one company is so far ahead that it is the industry. And it’s my favorite type of industry—one that nobody ever thinks about. I found it, like most people, by accident.
What is the future of fintech?
The unusual economic conditions over the past few years have changed market perceptions and short-term business performance (in both directions), but the big long-term themes driving the fintech sector will continue to move forward. From that perspective, it seems like a good time to review some of these trends. There are three big ideas in fintech that I’m currently thinking about:
Cash or card
Online and mobile
Centralized or decentralized
What all three of them have in common is the increasing digitization of money and money transfer systems.
Online Clothing Retail & Resale
The future of retail is overwhelmingly considered to be “e-tail”, but it still needs to adjust to the fundamental desires of retail customers. Consumers are becoming more price-conscious, more socially aware, and more environmentally conscious.
These trends also exist in fashion, where a wave of recently-public companies has been capturing this part of the online clothing market. It’s a much earlier stage than where I normally look for new investments (I prefer to wait until after some of them go out of business or combine with each other), but there are attractive features to these businesses…
Three Times Crisis Created Opportunity
A few months ago, while watching a video about the history of an obscure piece of old technology, I noticed a news blurb that sounds unbelievable. In a 1997 issue of Computer World magazine, this highlighted quote caught my attention: “Since Amelio took over as Apple’s chairman and CEO, the company has posted losses totaling more than $1.6 billion.” … No one could have predicted what would happen next, and certainly no one at that time could imagine that Apple would someday become the largest company in the world.
Investing Through Antitrust Challenges
As investors, we can always hope to identify future antitrust targets—industry giants before they become giants—but we are most likely to find the companies that have already won. This is where regulatory risk becomes a real concern. What happens next? It may be similar to what has happened in the past.