To mark the launch of the Quality-Growth Investor Conference we have launched Quality-Growth Quarterly. We also publish Value Investor Digest which started in 2011 and is now in its 56th issue.
In the fifth issue of QGQ we feature a RenMac interview with Richard Chilton, a Visual Capitalist article on spending trends in the Film & TV industry, a Samantha McLemore interview in Barron’s, Bloomberg’s ‘Pret Index’ which measures the reopening of cities – plus 9 more articles from Joe Wiggins, Roger Lowenstein, the FT, Satya Nadella, Boston Consulting Group, Amazon, LGPS, James Anderson, Winton and others.
“I fundamentally believe that Alpha gets created with our portfolio companies, not by me. And I know that’s probably heresy to a lot of people because they want to be the Wizard of Oz behind the curtain, pulling and thinking they’re generating the alpha. But when you really look at successful investments in successful portfolios, a less is more company driven, Alpha is really where the big success lies. I was smart enough to buy Sherwin Williams at $69.71 10 years ago, and I was also smart enough not to sell a share. But the company really drove that Alpha.”
“As more competition enters the streaming market, producers are facing pressure to up their production value so they can keep their audience’s attention. In other words, because the stakes are getting higher, the cost of production is rising—especially for TV.
In 2020, the budget for an average TV series in the U.S. was $59.6 million, a 16.5% increase year-over-year. One of the most high-cost TV shows last year was WandaVision, a Marvel Cinematic Universe series that cost Disney approximately $200 million.”
“As I think about growth, there are the more proven secular leaders, like [Google owner] Alphabet [GOOGL], Facebook [FB], Amazon.com [AMZN], and Alibaba Group Holding [BABA]. Given their valuation, growth, and cash generation—and their competitive advantages—you can hardly find better long-term values. Facebook, for example, trades at about 21 times next year’s earnings, and crushed revenue-growth expectations in the most recent quarter. People expect that to decline, but it should still grow [revenue] around 20%.”
“…the company that has been making your iPhone for more than a decade is now ready to make your car as well. The advent of electric vehicles is turning the structure and inner workings of cars upside down. In the process, it is creating a much stronger fusion between two of the world’s biggest industries — autos and electronics.”
“Pret is providing weekly data to Bloomberg about its transaction volume across the U.K. on an exclusive basis to offer one measure of how the country is getting back to normal. Stores are grouped to show where consumers are reappearing after three lockdowns in a year. The figures compiled by Pret are a real-time gauge of the U.K.’s recovery from its worst recession in three centuries. The data showed, for example, that workers in London’s financial districts haven’t been as committed to travelling back into the office on Mondays as on other days of the week.”
“…the emergence of influential organisations such as LGPS Central, a £23bn pool of UK local government pension scheme (LGPS) assets…the majority of our time and efforts are spent developing mandates, selecting external managers for the assets that are managed externally and making sure we are picking the best ones on a multi-manager basis. We want to ensure the complementarity of the managers. Once we have done that, managers have the full delegated authority to manage within the investment mandate that’s structured around those particular asset classes.”
“If you asked a traditional active fund manager whether they could effectively replicate their investment approach in a systematic fashion they would almost certainly say no. They would likely cite the advantages of human judgement and the nuances of their process that cannot be captured in a purely quantitative system…Yet incentives and self-interest aside, developing a systematic replica of their fund or portfolio is exactly what every active fund manager should be doing. There is no better way of isolating the noise that impacts their own judgements or better understanding the often-ambiguous advantages that come from qualitative input.”
“Shortly before he died, John Bogle, who created the index fund, had a premonition of overreach.
Someday, he warned, a ‘handful’ of institutions might gain voting control over ‘virtually every large U.S. corporation.’ Someday came last month, when Engine No. 1, an environmentally committed hedge fund, nominated four dissident directors for the board of ExxonMobil. Engine No. 1 owned only 0.02% of Exxon, but it skillfully solicited the three largest index funds—Vanguard Group, BlackRock and State Street, who together own 20% of the oil giant—and also the largest state pension funds.”
“I sense a real opportunity, because in some sense what has happened is the other two [Apple and Google] ecosystems that are at scale, for their own internally consistent set of reasons, have conflated — at least in my mind — what is the platform and the aggregation layer with one set of rules. There’s no reason why there should be one set of rules. They can be dis-aggregated.”
“Baillie Gifford’s James Anderson says fund management must take some blame for lack of UK entrepreneurs. ‘Why have we not grown any giant companies? Of course I’m not expecting everybody to be like Jeff Bezos. But it seems to me there is a real problem here…Why is it that people are happy to take high pay for relatively undemanding things, but they don’t dream of creating these truly great companies?…I find that sort of depressing, and there must be so many different causes of it. Plenty of them are on my side of the fence. But something’s quite wrong, it seems to me.’ Britain needs ‘one or two individuals’ who can blaze an entrepreneurial trail, added Anderson. ‘When will some of these people suddenly occur?’”
“Big retailers are already racing toward a $100 billion high-margin annual revenue prize in retail media. Companies in other industries characterized by extensive customer interaction and deep first-party data—travel and tourism, for example—have a similar opportunity…Because of the interplay among customer data, closed-loop reporting, and real-world results that generate more and better data, the top players in retail media will soon crowd out the also-rans. They will be able to optimize ad targeting and messaging according to actual in-store and online sales (as opposed to proxies for those amounts) and outperform on return on advertising spend.”
“Fund managers in the UK are a bit upset. US private equity group Clayton, Dubilier & Rice made a 230p per share offer last week for supermarket chain Wm Morrison. The board rejected the bid on the grounds that it ‘significantly undervalued’ the firm. The market seemed to agree, pushing the share price of Morrisons up to 240p…you might ask why investors were perfectly happy to see it trading at 178p in the first place. Might it be that not enough traditional fund managers were holding many of the shares they now consider to have been much too cheap last week? Traditional fund managers like to think of themselves as a little contrarian — or at least to tell everyone that’s how they think of themselves. This is usually nonsense, something pretty firmly proven by not just the Morrison offer but others in the UK market this year. Private equity firms have now bid for 13 UK listed businesses since January 1. Why? Because that’s where the value is, the value traditional fund managers have left on the table.”
“I think the mistake people make is that you get so caught up that your don’t focus on…the sun will come up tomorrow, what goes down will come back up and that in crisis there’s opportunity and the deeper the crisis the greater the opportunity – and this is as deep a crisis as we have ever witnessed…when we get to the other side and the sun does come up and they [customers] want to be moving again that we’ve built incremental loyalty to what we had going in to the crisis.”
“Just Walk Out technology is made possible by a combination of computer vision, sensor fusion, and deep learning, and adds convenience to customers’ grocery shopping experience by giving them the option to come in, pick up what they want, and skip the checkout when they’re done. Anyone shopping at the new Amazon Fresh store can take advantage of the technology, which connects to customers’ Amazon account or credit card.”
“From this time ‘bubble schemes came out in shoals like herring from the Polar Seas’, illustrated by the fact that the number of bills coming before Parliament for forming new companies shot up from 30 in March to 250 in April. All manner of companies were ﬂoated…such as the Metropolitan Bath Company which aimed to pump seawater to London so that poor Londoners could experience seawater bathing, and the London Umbrella Company which intended to set up umbrella stations all over the capital. Many ventures, however, were arrant swindles designed to test investor credulity. Such examples include the Resurrection Metal Company, which intended to salvage underwater cannonballs that had been used at Trafalgar and other naval battles, and a company (possibly a parody) which was set up ‘to drain the Red Sea, in search of the gold and jewels left by the Egyptians, in their passage after the Israelites.’”