Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
I hope you are having a fantastic week and you are looking forward to learning something!
In case you want to re-read the previous weekly notes, here is the link
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Without further ado, let’s start:
This version of the weekly post is slightly delayed because I worked on some earnings reviews. You can find my take on PayPal’s Q3 earnings here
On Cannibals
You might find some cannibals if you take your little boat to some remote island in the South Sea. My personal preference is for share cannibals. A share cannibal is a company that aggressively buys back its own shares. American Express is such a company and repurchased 14% of its outstanding shares in the last 5 years. To make this a bit more illustrative:
Warren Buffett has owned through Berkshire Hathaway 151,610,700 shares of American Express for many years now. These 151,610,700 shares represented 18.6% of all outstanding shares as of Q4/2019. Due to the large buybacks, the ownership share of Berkshire increased to 21.4% of American Express without buying a single share.
American Express is just like Visa and MasterCard a great company to own. These are the modern version of custom posts and they earn on almost any transaction you are doing online. This and the fact that American Express was trading at a cheap valuation was one of the reasons why I wrote about American Express in August 2023. If you invested back then, you are up a handsome 78% in a bit more than a year. Congratulations!
Coming back to Nick Sleep and Zak from the Nomad Partnership fund.
I found these nuggets in the most recent podcast from David Senra on these two superstars.
So I said after the doubling of the share price, it'd be easy for Zak and me to claim victory, high five and sell our shares in Amazon. In previous Nomad letters, we have argued that the biggest error an investor can make is the sale of Walmart or Microsoft in the early stages of the company's growth. We wonder, would selling Amazon today be the equivalent mistake of selling Walmart in 1980? And so he talks about, let's invert, let's invert the way to construct a portfolio.
The other way to construct a portfolio that's different from how other people do it is to invert and start at 100% weighting and work down. This is what founders do. He's really saying without saying, “What if you invested like Founders invest?” It's 100%. Sam Walton, 100% of his net worth was in his company. And he says, “Now we are not advocating all the fund in Amazon, well, just not yet at least.”
And here's the crazy thing. That would have been their best-performing decision, assuming you're going to put all your money into what you've already invested in. They didn't know it then, obviously, but the best-performing decision would have to do just that, allocate the entire fund to Amazon.
Because this point is so important, I will highlight it here again.
He says, the biggest mistake an investor can make is to sell a stock that goes on to rise tenfold, not from owning something into bankruptcy.
If you have identified a great company and you are confident in its future, then hang onto it. DO NOT SELL it, even if the stock price keeps increasing and you want to “secure the gains”.
If you do so, you will have first of all major taxes to pay (something you want to push out as late as possible), and second you are faced with the issue: Where do I invest that money now? Well, you just had a fantastic company right before your eyes.
You can find the great podcast episode here:
Morgan Housel
Morgan is one of my favorite authors. If you haven’t read his books yet, now is a great time. Here is an amazing post of the sentiment you hear very often. Either that stocks won’t go up, or they have gone up so much already, that you should not invest.
As a reader of this publication you know: It’s about the valuation of a single company, irrespective of what the stock market is doing. I will keep researching amazing companies at attractive valuations for you.
Beauty lies in the eye of the beholder
Crocs, famously known for quite ugly shoes is up to something. The increase in revenue since Covid is amazing. It looks like that many people got comfy in their (ugly) shoes and kept buying new ones. Partnerships with famous brands such as Disney most certainly helped as well.
IPO (Initial pain offered)
IPOs are tough business. The bride is the prettiest before she is being sold. To be fair, the chart is 1.5 years old, nevertheless, most companies are still trading far below their initial market cap. Just don’t try to be the guy/girl who believes that he/she can beat the market on IPOs. Just apply what you learned when flying in an airplane “Sit back, relax and enjoy the journey” and come back to these companies a year or two after the IPO. You then might have the chance to find a true jewel trading at an attractive price.
Forecasts
Forecasting is hard. To quote our grand master Buffett
Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.
Just ignore all the noise and focus on the underlying business. That will serve you a lot better (and save you a lot of pain). This lovely Bloomberg article rated the chance for a US recession 100% within a year. Well, it’s now 2 years later and there is still no Recession in sight. Maybe the recession just forgot to stop by.
While we are on the topic: Most financial coverage belongs in the category of entertainment, not financial advice. Treat it as such and you will have a better life.
One company to rule them all
NVIDIA has been an absolute monster in terms of performance in the last few years. To put things into perspective: NVIDIA’s market capitalization is now larger than the one of the total market cap of all stocks of Germany and Italy COMBINED! Tech truly rules them all.
Buying a better camera
As you might be able to guess based on the recent weekly posts, I am a huge fan of technological innovation. We are back in space, but this time we get a much better picture of Pluto. Until 2015, this was the clearest picture we had of the little dwarf planet.
Now we have this amazingly detailed video footage thanks to NASA's New Horizons spacecraft. Find the video here and be amazed: https://x.com/MAstronomers/status/1847050099261833483
It is also worth checking out the NASA website where you can see the location of the satellite and you can also see which other satellites are roaming through our universe on the way to new horizons.
https://science.nasa.gov/mission/new-horizons/
What is the past?
This little post made me think quite a bit. The past literally does not exist and is made up mostly in our minds. So be the best version of yourself, treat each day like a new chance and also learn from your past mistakes (here a version of the past really exists).
As the saying goes:
Today is the first day of the rest of your life
King for a king
I will end with this beautiful song which I can’t stop listening to. Take these 4 minutes for yourself and dive into this beautiful little story. Since becoming a father, the song hits on a different level.
Enjoy your week and keep investing in great companies.
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Invest at your own risk, this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
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