It’s Saturday, and it’s time to compound our knowledge.

Hope your week was productive - or at least not a complete mess.

It’s been a while since the last letter - I know.

There’s a good reason: a lot of work behind the scenes.

Over the past few months, I’ve been rethinking strategy and building something bigger. I’m still heading toward creating my own investment fund - but with a twist. The idea is to combine Private Equity and Public Equity strategies in a single vehicle. In other words, we acquire medium-sized, cash-flowing businesses - and then redirect that cash into long-term, undervalued public assets.

In last year, we’ve closed two deals, and now have two companies in the portfolio. We’re building a real holding company - brick by brick.

So I’ve decided to share more openly along the way.

Let me know in the comments what you’d like to hear more about in this newsletter.

And if you want to talk more in-depth or discuss ideas - just drop me a message.

Now - let’s get to this week’s letter.

📚 In today’s letter:

Learning

• Private Equity + AI automation: a compounding engine in disguise

• Strategic thinking through the lens of extreme leadership

Books & Ideas

• Extreme Ownership by Jocko Willink

Video Insights

• Kevin O’Leary on the difference between operators and dreamers - and how discipline built a multi-million-dollar portfolio

🧠 Learning

Private Equity + AI automation - where discipline meets leverage

Let’s talk real strategy.

The traditional PE model is changing.

Instead of chasing flashy tech startups, more firms are now acquiring mature offline businesses – logistics, retail, healthcare services, manufacturing – and unlocking value through AI-driven operational improvements.

Here’s what the data shows:

• According to Bain’s 2025 PE outlook, operational improvement overtook financial restructuring as the top value-creation driver in over 70% of mid-market deals.

• WEF reports that AI is already used by 80% of PE firms in portfolio monitoring, margin analysis, and cost optimization – especially in asset-heavy offline businesses.

• McKinsey notes that applying AI to inventory management, procurement, and workforce scheduling in physical businesses can lead to 15–25% EBITDA margin improvement in 18 months.

• Even giants like Blackstone are building AI playbooks not for VC tech, but for HVAC suppliers, car repair franchises, packaging plants – companies with cashflow, but bloated ops.

So what does this mean?

The model looks like this:

Buy a solid offline business → Apply AI tools to reduce waste, optimize logistics, forecast demand, streamline HR and support → Reinvest profits or scale horizontally.

Whether it’s automating a dental chain’s appointment system or optimizing a courier fleet’s route planning, AI gives you leverage in places the market ignores. And that’s exactly where value investors thrive.

This might be the compounding engine of the next decade:

• Real-world revenue

• Existing customers

• Low digital efficiency = room for growth

• AI-powered margin expansion

• Quiet, boring, profitable

As Munger said: “The big money is not in the buying or selling… but in the waiting.”

Just make sure you’re waiting inside a business that prints cash while AI cuts its costs.

📘 Books & Ideas

Extreme Ownership - Jocko Willink

A book about Navy SEALs and battlefield command might not seem like the obvious place to learn about investment leadership… but stick with me.

Willink’s core idea: you own the outcome, whether you caused it or not.

• Business missed KPIs? Your fault.

• Bad acquisition? Your research wasn’t deep enough.

• Integration failed? You didn’t set expectations.

This mindset - full accountability, zero excuses - is what separates good operators from reactive founders. It’s also what separates good investors from headline-chasers. Because when you treat each investment like a business you’re running, you stop tolerating sloppy decisions.

This book helped me stop chasing narratives and start asking:

Would I want to run this company if I had to?

If the answer is no - it’s probably not worth buying.

🎥 Video Insights: Kevin O’Leary on Leadership, Investing, and Focus

🎥 Watch full video

I recently revisited this firecracker of an interview with Kevin O’Leary, and wow - it’s a crash course in strategic thinking, investor mindset, and ruthless execution. Here are the key insights:

• Signal vs Noise

  Steve Jobs taught him this: if it’s not one of your top 3 tasks for today, it’s noise. Jobs ran his day like a military campaign - and expected everyone around him to do the same. Kevin applies that to every CEO he backs.

• Operators win, dreamers stall

  O’Leary looks for entrepreneurs who don’t just have an idea - but know how to execute. His best-performing founders? Realistic goals. Clear burn rate. Small, efficient teams. Surprisingly, most of his top exits were led by women, due to stronger retention, execution, and internal discipline.

• Know your numbers or get out

  Gross margin, CAC, break-even month - if a founder doesn’t know them cold, Kevin walks. Why? Because execution without data is just guessing. And capital doesn’t compound on guesses.

• Wealth = Discipline + Boring Assets

  His mother built a portfolio of dividend-paying blue chips and long-term telco bonds. Same allocation strategy for over 50 years. Never more than 5% in a single stock. Never more than 20% in a sector. When she passed, the portfolio outperformed most hedge funds.

Let that sink in:

A middle-class single mother outperformed institutional investors with discipline, patience, and zero noise.

💭 Final thought

Not everyone wants to scrape gum off the floor - and you shouldn’t have to.

But if you’re still chasing the next “AI pre-seed disruptor”, maybe take a step back and ask:

What would it look like to invest like an operator?

To buy a business that’s already working.

Let’s talk about something that’s both essential and often misunderstood: cutting costs in your business.

Don’t worry – this isn’t about penny-pinching. Instead, we’re focusing on strategic moves that free up resources for growth and innovation while keeping your business running smoothly.

Why Cost Savings Matters

Warren Buffett nailed it when he said, “Do not save what is left after spending, but spend what is left after saving.”

In business, this means ensuring every dollar you spend delivers value. Ignoring inefficiencies – whether in your operations, supply chain, or even tech stack – is like carrying water in a leaky bucket.

By identifying and addressing those leaks, you create opportunities to scale smarter, not harder.

The Power of Cost Savings Analysis

Cost savings analysis is your secret weapon. Think of it as your roadmap to smarter decisions.

Let’s say you’re debating whether to upgrade your equipment or stick with what you have. A cost-benefit analysis (CBA) gives you a clear picture of:

• The real ROI (return on investment).

• Hidden inefficiencies that drain resources.

• The long-term impact of your choices.

It’s not about slashing budgets recklessly – it’s about redirecting funds toward what truly drives value.

Lessons From the Greats

Charlie Munger, Buffett’s right-hand man, often emphasizes clarity in decision-making. It’s not just about knowing what you want to achieve, but also what you want to avoid.

For example, Deloitte’s research shows that companies aligning cost strategies with their overall vision can cut costs by 20-25% without sacrificing quality.

The takeaway? Smart cost savings isn’t just about spending less – it’s about spending wisely.

Smarter Spending Starts Here

If you’re ready to rethink your approach, here are three simple but effective ways to get started:

1. Understand Your Spending Habits
   Break down your costs. Fixed vs. variable, direct vs. indirect. Where are inefficiencies lurking?

2. Leverage Technology
   Automation tools, expense tracking apps, and cloud-based software can help you streamline operations and save money.

3. Engage Your Team
   Your employees often know where resources are being wasted. Their insights can be your biggest cost-saving asset.

The Bigger Picture

Cost savings is more than a financial exercise – it’s a mindset. Every dollar saved is a dollar that can be reinvested into your people, your technology, and your future growth.

Remember, cutting costs doesn’t mean compromising quality. Done right, it’s about building a leaner, smarter business that’s ready to adapt, innovate, and thrive.

So, what’s one area in your business you’d like to streamline? Hit reply and share your thoughts – I’d love to hear from you.

Until next time,

Eugene Alexeev

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Let’s kick things off with a topic that doesn’t always make the headlines but has a massive impact on a company’s future - CEO succession planning.

Think of it as the ultimate long game. If you’re like me, you know that in value investing, we’re all about picking companies that are here for the long haul, and who’s in the driver’s seat matters more than we sometimes realize.

So today, I want to talk about why it’s crucial for boards to be ready for the day their top leader hands over the reins - planned or not.

We’ll dive into why this matters, how legends like Buffett and Munger view succession, and highlight some real-world cases where the right (or wrong) transition shaped a company’s future.

Why CEO Succession Matters

When we’re thinking in decades, not quarters, CEO transitions become critical. Even within the S&P 500, CEO tenure averages barely six years, and turnover has been steadily climbing.

According to PwC’s latest survey, nearly one-third of boards admit they aren’t giving CEO succession planning enough focus - despite it being one of their most critical responsibilities​.

Imagine letting one of your best assets - the company’s leadership - go unmonitored. Risky, right?

For Warren Buffett and Charlie Munger, one key factor is stability and continuity.

They look for companies where leadership transitions are seamless, often internal, and where the new CEO has grown alongside the company’s culture and long-term goals.

Research shows unplanned CEO successions can cost companies an average of $1.8 billion in shareholder value​(pwc-how-the-best-boards…).

No surprise, then, that investors want succession plans that are not just “in the works” but fully operational.

Case Studies: Lessons from Top Companies

Not every CEO transition goes smoothly, and the results can be dramatic. Consider Yahoo’s appointment of Marissa Mayer.

The market initially reacted positively, but a lack of strategic fit soon led to significant stock declines and ultimately, the sale of its core business to Verizon.

Compare this with Microsoft’s careful handover to Satya Nadella. Since Nadella took over, Microsoft’s stock has more than quadrupled, driven by his clear vision for cloud expansion and long-term innovation.

There are also companies like Apple, JPMorgan Chase, and Procter & Gamble that showcase the impact of well-planned successions.

When Tim Cook took over from Steve Jobs, Apple’s board had a meticulous plan in place to ensure smooth continuity.

JPMorgan Chase, meanwhile, has built a strong talent pipeline under Jamie Dimon, who has consistently groomed potential successors, balancing internal growth with fresh perspectives.

What to Look for in Succession Planning

The best boards don’t just wing it. They have documented plans, emergency backups, and a clear approach to balancing internal and external talent.

Companies with proactive succession planning follow nine core practices, according to PwC, which include ensuring a strong and diverse candidate pool, staying data-driven in evaluations, and maintaining a robust pipeline of potential leaders​.

With so many potential pitfalls, these best practices are no longer just recommendations - they’re essential for keeping companies on track and avoiding costly leadership missteps.

The Takeaway for Long-Term Investors

Next time you’re evaluating a company, take a moment to consider their approach to CEO succession. Even the best business strategy can fumble if there isn’t a strong leader at the helm during a transition.

Look for companies that are planning not just for today, but for years down the line - those are the ones that have real staying power.

Until next time, keep those long-term goals in sight!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Today, I’ve got some fresh updates that are worth a closer look. Let’s dive straight into what’s happening in the world of IT and investments.

2025 Banking Outlook: Deloitte Report

Deloitte recently published its 2025 outlook for the banking industry, and the message is clear: banks are facing a low-growth, low-interest-rate environment.

• Despite the challenges, banks are focusing on tech modernization and non-interest income growth to sustain profitability.

• With inflation cooling and interest rates dropping, strategies are shifting toward credit - especially mortgages, which may benefit from these lower rates.

• For Investors: The key point here is how banks are leveraging technology, particularly AI and automation, to stay competitive. These investments in IT could shape major opportunities in 2025.

Read more from Deloitte’s report here.

Amazon’s Q3 Earnings Highlight AWS Growth

Amazon’s latest quarterly results outperformed analyst expectations, with AWS proving to be a powerhouse in the AI era.

• Amazon reported $158.9 billion in revenue, exceeding the average estimate of $157.2 billion.

• AWS operating income soared 50% year-over-year, reaching $10.4 billion. Revenue in the unit rose 19% to $27.5 billion, underscoring the demand for cloud and AI services.

• For Investors: With Amazon’s heavy investment in AI infrastructure, AWS’s generative AI business could become a major growth driver. It’s a “once-in-a-lifetime opportunity,” as Amazon’s CEO puts it, signaling strong potential for long-term value.

Read the full story here.

Leadership Shift at Shutterstock

Shutterstock has announced that former Getty Images CFO will step in as the new finance chief.

• Jarrod Yahes, the current CFO, will be leaving for another role, while Rik Powell will take over as CFO starting November 1.

• In Q3, Shutterstock reported record revenue of $250.6 million, a 7% year-over-year increase, bolstered by the recent Envato acquisition, which doubled Shutterstock’s subscriber base.

• For Investors: With the Envato acquisition, Shutterstock now reaches a larger market, diversifying into digital assets and positioning itself for future growth.

Powell’s background in digital media finance could mean strategic moves in expanding Shutterstock’s offerings.

Check out the full article here.

Thanks for reading Think and Invest! As always, these insights are here to keep you in the loop, not as financial advice - just food for thought.

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Today, we’re diving into the heart of CEO promises and long-term plans – the stuff that gets true value investors excited. Why?

Because these are the areas where the philosophies of Buffett, Munger, Pabrai, and Spier shine, helping us spot the companies that aren’t just chasing short-term numbers but are focused on building real, lasting value. Let’s get started!

The Role of CEO Promises in Value Investing

When CEOs talk about sustainable growth, they’re showing us a roadmap of what their company aims to become.

For us value investors, these promises are clues, telling us whether a company is worth our attention. As Warren Buffett puts it, "It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

So what are we looking for? Let’s break it down with insights from the value investing greats:

Long-Term Vision - CEOs who have their eyes set on the long game are the ones we value investors admire.

They’re not swayed by quarterly reports; instead, they’re thinking years, even decades, ahead. Buffett has always focused on this, choosing businesses that show durable competitive advantages and that reinvest in growth over time.

Solid Management - Mohnish Pabrai, known for his “copycat” investment style, emphasizes that the right management team is essential.

CEOs and management teams who know how to lead through both good and challenging times are invaluable.

Pabrai himself often quotes Buffett’s friend and partner, Charlie Munger, who once said, “Smart people are everywhere; disciplined people are rare.”

Clear Risk Strategy - Risks are part of the game, but the real winners are the ones who see risks coming and plan accordingly.

Munger would probably add a humorous warning here: “If you’re not looking out for pitfalls, they’ll find you.”

As value investors, we want CEOs who acknowledge and manage these risks with a calm, steady hand.

The Art of Transparent Communication

Clear communication from a CEO isn’t just about throwing around buzzwords or boasting about success. Value investors like Guy Spier, who paid to dine with Buffett for firsthand insights, know the importance of CEOs who speak honestly. Spier values CEOs who share both achievements and failures openly, building trust with shareholders.

Here’s what transparent CEOs bring to the table:

Regular, Honest Updates - No sunshine and rainbows here; real value creators offer the full story. CEOs who communicate their goals, risks, and challenges foster an environment where investors can see the big picture.

This McKinsey’s report shows that companies with transparent, regular updates are more likely to attract loyal, long-term investors.

Stakeholder Focus - Long-term companies know their success isn’t just about shareholders; they’re also thinking about employees, customers, and communities. (more about it in this report) reveals that companies that consider stakeholders tend to perform better. It’s not just a PR move; it’s part of creating sustainable, all-around value.

Behaviors That Drive Sustainable Value Creation

What do value investors love in a CEO? The ability to follow through with strong, consistent strategies. Here are three key behaviors we look for in long-term value creators:

Investing in Strategic Priorities
Long-term companies put serious capital into what counts: R&D, top talent, and growth initiatives.

For instance, Microsoft’s early bet on cloud computing, despite its risks, is now paying off as the company commands a significant market share.

As McKinsey points out, long-term investments often correlate with higher revenue growth and greater shareholder returns.

Dynamic Capital Allocation
CEOs who aren’t afraid to reallocate resources are more likely to generate steady returns.

Walmart’s omnichannel strategy is a great example; they doubled down on tech and logistics, turning the initial investment into long-term growth.

Companies that keep capital moving where it’s needed – whether that means acquiring new assets or exiting old ones – are those that create lasting value.

Prioritizing All Stakeholders
Companies focused not only on profit but on their employees, customers, and communities often end up more resilient.

Guy Spier has emphasized this point, highlighting companies where leaders recognize the long-term benefits of happy employees, loyal customers, and a healthy environment.

CECP’s findings on stakeholder value indicate that companies prioritizing stakeholders often enjoy better overall performance.

Learning from Value Investing Masters

For some extra inspiration, let’s look at a few favorite principles from our value investing heroes:

Warren Buffett - Buffett teaches us to look for companies with a “moat” – a competitive edge that protects their market share over the years.

When evaluating a CEO’s promises, ask yourself: does this plan make their moat wider? If yes, it’s a promising sign.

Charlie Munger - Known for his sharp insights, Munger warns against the temptation to follow market trends without a solid business rationale.

His advice? Look for CEOs who are “rational, not fashionable.”

Mohnish Pabrai - Famous for his high-conviction bets, Pabrai reminds us to invest like it’s all or nothing.

He once said, “Heads I win, tails I don’t lose much.” CEOs who think in terms of “big bets” with limited downside risk are the ones worth watching.

Guy Spier - A fan of Buffett’s approach, Spier looks for ethical, transparent management.

He values CEOs who talk straight and avoid corporate jargon, a rare but crucial trait.

Wrapping Up: CEO Promises Are More Than Just Words

In the end, CEO promises are about more than just hype. They’re indicators of a company’s future, telling us whether they’re in it for the short game or building something with staying power.

As always, remember that value investing is about looking beyond the surface – real, sustainable value takes time, consistency, and a focus on fundamentals.

Thanks for sticking around for this one! Until next time, keep learning, stay curious, and don’t hesitate to dig deeper into the businesses that catch your eye. See you in the next letter!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Today, let’s break down the nuanced metrics that give a sharper valuation edge - the internal drivers and operational KPIs that truly signal enduring value.

No fluff here, just the metrics that matter for a comprehensive assessment.

Core Financial Indicators: Precision Over Growth Alone

First off, the fundamentals - revenue and profit - are essential, but context matters. Sustainable growth trajectories, especially in revenue and margins, indicate robust economic health.

Revenue Composition & Consistency - Rather than merely tracking revenue size, examine its consistency across cycles and composition across product lines or regions.

Stability, paired with moderate, predictable growth, suggests reliable cash flows, enhancing valuation stability.

Profit Margins and Margin Expansion - Gross and net margins that consistently widen are key. Margin expansion points to both pricing power and cost discipline.

A high and stable margin profile often reflects competitive advantages, operational maturity, or strong customer loyalty.

Free Cash Flow (FCF) - As any seasoned investor knows, FCF is essential.

Beyond absolute FCF, the FCF yield relative to enterprise value can illuminate how much actual cash a business is generating for every dollar invested.

Businesses with high FCF relative to their market cap are better positioned for reinvestment, debt servicing, and shareholder value generation.

Operational Performance: Efficiency as an Asset

To gauge a company’s capacity to scale while retaining quality, focus on advanced operational efficiency metrics.

Cycle Time Optimization - Cycle time measures the speed from production start to end.

Lean cycle times indicate streamlined processes, minimized bottlenecks, and can even reflect effective supply chain management - all critical for companies looking to maintain cash flow velocity.

Throughput Rate - Throughput is an essential KPI, particularly in tech and manufacturing.

A higher throughput rate speaks to the company’s ability to handle peak demand while balancing cost efficiency.

For a company scaling its physical or digital products, throughput management directly impacts unit economics.

Inventory Turnover and Working Capital Efficiency - The relationship between inventory turnover and working capital management provides insights into cash flow stability.

High inventory turnover without compromising on working capital efficiency signals healthy demand and agile management - a distinct competitive edge.

Revenue Per Employee - In tech-driven or service-heavy industries, revenue per employee is a granular indicator of productivity.

A high metric here reflects effective employee utilization and strategic workforce investments, both of which factor into the valuation of operationally lean businesses.

Customer Economics and Retention: Sustained Value in Loyalty

Customer loyalty and value metrics give insight into potential revenue stability and predictability over time.

1. Customer Lifetime Value (CLV) vs. Customer Acquisition Cost (CAC) - The CLV-to-CAC ratio is a core metric of customer economics, with an ideal ratio indicating long-term profitability. Companies with a high CLV-to-CAC ratio achieve payback on customer acquisition efficiently, suggesting scalable unit economics.

2. Net Promoter Score (NPS) & Customer Retention Rate - High NPS and retention rates point to brand equity and customer loyalty - key for valuation given the compounding effect of recurring revenue and customer advocates. With NPS, higher scores mean reduced dependency on marketing spend and more organic growth.

Advanced Metrics for Institutional-Grade Analysis

Here’s where we get into the metrics that can offer a true edge when evaluating more mature firms.

Return on Invested Capital (ROIC) - ROIC remains a top indicator of a company’s capital efficiency.

Companies consistently generating ROIC above their cost of capital suggest they’re managing capital wisely - an attractive feature, especially for firms reinvesting in high-margin ventures or asset-light expansions.

Economic Moat Analysis - Warren Buffett’s concept of an “economic moat” underlines competitive durability.

Moats can be intellectual property, network effects, or operational efficiencies that discourage competitors and preserve market share.

In sectors with rapid innovation cycles, the presence of a moat can be a prime factor in justifying higher valuation multiples.

Earnings Quality and Earnings Persistence - Look for sustainable, recurring earnings rather than one-off boosts.

High-quality earnings correlate strongly with FCF, suggesting that reported profits are not being inflated by non-operational gains.

Persistent earnings, particularly those from core business functions, translate directly to higher valuation consistency.

I trust this gives you a well-rounded framework for analyzing the internals that often separate truly high-value investments from the rest.

As always, thanks for reading - and here’s to making those numbers work in your favor.

Catch you in the next one!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Let’s cut straight to it - strategic investments in mature IT companies are where the smart money is. Why?

These companies offer stability, growth potential, and long-term security. Let’s break down some key insights from the latest reports in the IT value investing space.

Thanks for reading Think and Invest! Subscribe for free to receive new posts and support my work.

News Section

📰 BlackRock’s Q4 2024 Investment Outlook
BlackRock’s latest report paints a picture of an economy on the brink of major transformation.

With AI taking the lead, it’s becoming clear that this isn’t just a passing trend but a fundamental shift in how industries operate.

Whether it’s logistics, energy, or manufacturing, those investing in AI infrastructure are setting themselves up for long-term success.

What value investors should note:

• AI as a game-changer - We’re not talking about flashy tech, but about how AI is quietly reshaping entire sectors, making them more efficient and cost-effective.

• Practical implementations - Think smart factories, automated supply chains, and energy management systems. These are the areas where AI is truly making its mark.

• Strategic positioning - Companies that are ahead of the curve in adopting AI-driven solutions will gain a major competitive advantage, making them prime targets for long-term investment.

Read the full BlackRock report here

📰 Simon-Kucher’s Trends for 2024
While AI continues to dominate headlines, Simon-Kucher’s 2024 report looks at how different sectors are leveraging this technology in more nuanced ways.

It’s not just about automation or cutting costs - industries like healthcare and financial services are using AI to deliver better, more personalized experiences to their customers, all while staying competitive in an increasingly crowded marketplace.

What value investors should note:

• Personalization over automation - In sectors like healthcare, AI is enabling personalized patient care and diagnostics, while in financial services, it’s all about providing tailored solutions to meet specific client needs.

• Targeted innovation - Financial institutions are using AI not just to automate but to innovate, particularly in areas like customer engagement and service delivery.

• Sustainable growth - Companies focusing on leveraging AI for scalable and personalized solutions are likely to see sustained growth, making them attractive long-term investment options.

Explore Simon-Kucher’s full report here

📰 Trends 2024: What You Need to Expect for Your Sector
Simon-Kucher’s comprehensive report also identifies sector-specific trends for 2024.

While AI remains a central theme, this report takes a broader look at how businesses across industries - from consumer goods to industrials - are adjusting their strategies in response to the shifting economic landscape.

It’s not just about tech anymore; businesses are focusing on commercial management, growth strategies, and better consumer segmentation.

What value investors should note:

• Consumer sector evolution - 2024 will see companies in the consumer sector moving from stability-focused strategies to more growth-oriented ones, leveraging data to understand and cater to key segments.

• Financial services adaptation - The financial sector faces ongoing interest rate challenges, but personalized customer engagement through AI will play a key role in navigating this landscape.

• Industrial innovation - In the industrial space, companies are shifting towards profitability by focusing on efficiency and tech-driven operations, but with a strong emphasis on rethinking traditional value propositions, especially in response to changing regulations.

Read more on Trends 2024 here

That’s it from me for today! Hopefully, these insights got you thinking about where things are headed in 2024.

Keep an eye on those tech giants and industries making big moves with AI and innovative strategies. There’s a lot of potential out there if you know where to look.

Thanks for reading Think and Invest! Subscribe for free to receive new posts and support my work.

Let’s stay connected, and feel free to share your thoughts - always happy to discuss!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Today, we’re diving into something that doesn’t get nearly enough attention – hidden costs in investing.

Trust me, these sneaky little expenses can really take a bite out of your returns if you're not careful.

But don't worry, by the end of this, you'll know exactly what to look out for and how to handle them.

Here’s what we’re going to break down today:

• Hidden Costs in Private Equity

• Hidden Costs in Stock Investing

• Buffett and Munger’s Take on Hidden Costs

Ready? Let’s get into it.

Hidden Costs in Private Equity: The 'Not-So-Free' Lunch

Private equity has its appeal – who doesn’t love the idea of owning a piece of a company on the rise? But there’s more to it than just the allure of potential profits.

Hidden costs can quietly eat away at your returns. Here’s what you need to watch out for:

Management Fees:
Typically, private equity funds charge around 1.5% to 2% of committed capital annually. Here’s also another report which can help you to understand the situation.

Over the life of a fund (often 7-10 years), that can add up to a substantial amount. It's like a slow leak in a tire – you won’t notice it right away, but eventually, it’s going to leave you stranded on the side of the road.

Carried Interest:
This is the performance fee fund managers take once they hit a certain profit target – usually about 20% of profits above a set threshold.

It's not always included in the upfront cost estimates, so it can be a bit of a surprise if you're not keeping an eye on it.

Monitoring and Transaction Fees:
Think of these as the 'small print' fees – covering everything from travel expenses for board meetings to the costs associated with buying or selling portfolio companies.

They can sneak up on you, quietly chipping away at your returns.

But the real kicker? Many private equity firms aren't exactly transparent about their fee structures, which can make it tricky for investors to get the full picture.

Hidden Costs in Stock Investing: Not as Cheap as It Seems

Stocks might feel like a simpler investment compared to private equity, but they’ve got their own set of hidden costs lurking beneath the surface.

Brokerage Commissions:
Every time you buy or sell stocks, you’re paying a fee. It might seem small at $5 or $10 a trade, but for active traders, these costs can pile up faster than you think.

Expense Ratios:
If you’re investing in mutual funds or ETFs, you’re paying for the privilege.

Actively managed funds can charge 1% or more, while passive funds are generally cheaper, but these fees add up over time and slowly eat into your returns.

Bid-Ask Spread:
This is the difference between what buyers are willing to pay for a stock and what sellers are asking for it.

You end up paying more when you buy and receiving less when you sell – a hidden cost that doesn’t show up in any fee breakdown but definitely impacts your bottom line.

Buffett and Munger on Hidden Costs

Now, you’re probably wondering – what do Warren Buffett and Charlie Munger have to say about these hidden costs?

Well, like with most things, they keep it simple: keep your costs low and stay aware.

Buffett’s philosophy is straightforward: “The lower the costs, the greater the net returns.”

He’s a big fan of low-cost index funds for that very reason – minimal fees mean more of your money stays invested and working for you.

He’s always been a critic of high management fees, especially when they don’t bring any added value.

Munger, never one to mince words, often jokes that people pay for what he calls "helpers" – consultants, advisors, brokers – who often don’t provide much real value for the fees they charge.

In his view, the less you pay out in unnecessary fees, the more you can keep in your pocket.

For Munger, it’s all about focusing on the long-term gains and avoiding being "penny-wise and pound-foolish."

Both Buffett and Munger emphasize one thing: always be aware of what you’re paying for, and make sure those costs are justified by real value.

They’d tell you to keep your eyes wide open and avoid getting caught off guard by hidden fees that quietly erode your returns.

Final Thoughts: Keep Your Eyes Open

At the end of the day, investing is about the long game. And part of that game is making sure you know where your money is going.

Hidden costs, while not flashy or exciting, can quietly eat away at your returns over time. It’s all about staying vigilant and not letting these little fees chip away at the big picture.

As Buffett says, "Price is what you pay, value is what you get." Keep an eye on those fees to make sure you're getting the value you expect.

Until next time - keep learning, stay curious, and don’t let hidden costs catch you off guard!

Catch you soon,

Eugene Alexeev

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Hope your week’s off to a great start - maybe you’ve already had that first cup of coffee? If not, don’t worry, I’ll wait... Alright, let’s dive in!

Today, we’re gonna geek out on something that’s more than just an academic curiosity - Japanese Management Accounting.

Sounds heavy, but trust me, it’s packed with some solid gold for us value investors.

I know, you’re thinking, “Wait, what does accounting have to do with my investment strategy?” Well, it turns out, a lot.

Japanese management accounting isn't your typical number-crunching snoozefest.

Instead, it’s all about long-term goals, smart integration with production, and good old teamwork (something that sounds very Buffett-esque, right?).

Let’s get into it.

Focus on Long-term Goals

Forget short-term metrics that can mess with your head.

Japanese management accounting is like Buffett’s mantra - focus on the long game.

These folks look past quarterly reports and keep their eye on the bigger picture, just like us value investors.

It’s all about continuous improvement and not getting distracted by the daily noise (Buffett would be proud).

Integration with Production Systems

You’ve probably heard of Just-In-Time (JIT) production or Total Quality Control (TQC).

These systems aren't just buzzwords - they’re tightly woven into how Japanese companies manage costs and efficiency.

And if you’re thinking, “But I don’t run a factory,” don’t worry.

The principles apply to any business trying to scale without unnecessary waste.

Cultural Influence on Accounting

Here’s where it gets even more interesting.

Japan’s collectivist culture (think teamwork on steroids) plays a big role in their management accounting.

It’s less about individual performance and more about shared responsibility.

Kinda makes you rethink the way we approach teamwork in business, doesn’t it?

Now, I don’t want to get too academic here, but if you’re really curious, there’s a great read on this topic from HarvardBusiness Review that dives deeper into how these accounting practices give Japanese companies an edge.

Go ahead and check it out if you’ve got the time.

A Quick Detour into Hitachi’s Playbook

Here’s a fun nugget for you.

Hitachi - you know, the electronics giant - has a unique take on how to allocate overhead costs.

Unlike their American counterparts, who love using direct labor hours (which sometimes leads to questionable decision-making), Hitachi focuses on cutting those hours to improve overall costs.

Sounds simple, right?

But the real trick is how they blend automation and standard parts to make their products more cost-effective.

For more on how this plays out, take a look at this summary from MAAW.

It’s a quick read, and trust me, it’ll give you some fresh ideas.

Japanese vs. American Accounting: The Showdown

What’s fascinating is how Japanese management accounting isn’t just about the numbers - it’s about aligning accounting practices with long-term corporate strategy.

You see, while American companies might zero in on short-term profits, the Japanese are obsessed with market shareand product quality.

That means their accounting systems are more than just about cost-cutting - they’re about influencing employees to continuously innovate.

Kinda makes you wonder if we’re doing it wrong, huh?

If this piqued your curiosity, you might want to check out this detailed piece.

It really lays out how Japanese companies have been able to stay competitive by using these principles.

What’s the Takeaway for Investors?

So, how does all this tie back into value investing?

Well, if there’s one thing Buffett, Munger, and even Pabrai keep preaching, it’s this: look at the long-term value of a company - not the shiny stuff happening today.

Japanese management accounting does exactly that.

It helps companies focus on innovation, efficiency, and long-term value.

And as a savvy investor, that’s exactly what you should be paying attention to when deciding where to put your capital.

Before I sign off, here’s a thought to chew on: whether you’re investing in companies like Apple, which embraces trends but sticks to its core, or smaller tech firms that need to adapt fast to survive, always keep your eye on the fundamentals.

Japanese management accounting teaches us that it’s the underlying processes and long-term vision that count.

That’s it for today! Hope this gave you a little something extra to think about as you navigate your week. As always, keep learning, stay curious, and don’t forget - it’s a marathon, not a sprint.

Catch you next time!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

It’s Saturday, so let’s compound our knowledge with some fresh insights. In today’s letter, we’ll cover:

• The Boeing Situation: How value investors can analyze red flags and potential opportunities amidst the strikes.

• Book Recommendations: Some powerful reads to sharpen your value investing mindset.

• Podcast Picks: A curated episode to keep you inspired.

Let’s dive in!

Boeing's Current Situation: A Value Investor’s Perspective

Boeing is currently navigating through a perfect storm of challenges.

Since September 2024, nearly 33,000 machinists have been on strike due to dissatisfaction over wages, pensions, and working conditions.

This strike has halted production on key aircraft models, including the 737 MAX and 777X, further complicating the company’s financial situation.

On top of that, Boeing is already burdened with nearly $60 billion in debt and has been put on a negative credit watch by S&P, signaling potential downgrades if the strike persists.

The company is reportedly considering a $10 billion stock sale to raise cash and address the mounting financial pressure, which could dilute existing shareholders' equity.

These events have caused Boeing's stock to drop over 40% this year, bringing it to multi-year lows.

While the situation may seem bleak, value investors - following the principles of Warren Buffett and Charlie Munger - might see this as an opportunity to acquire a stake in a company that dominates the aerospace industry, albeit with significant near-term risks.

Analyzing Boeing’s Situation Through a Value Investing Lens

Value investing, as championed by Buffett and Munger, revolves around identifying strong companies facing temporary challenges but with enduring moats and long-term potential.

Boeing, despite its current troubles, still holds a dominant position in the aerospace industry.

The large backlog of over $400 billion in orders speaks to the strong demand for its aircraft.

The aerospace sector’s high barriers to entry - requiring advanced technology, regulatory approvals, and massive capital investment - are key factors that support Boeing's long-term moat.

However, one of the fundamental principles of value investing is to avoid businesses with poorly managed risks and uncertainties.

Boeing's handling of past safety crises, such as the 737 MAX, and its current struggles with labor disputes raise red flags.

Moreover, the possibility of issuing new shares to raise cash could dilute existing shareholders, reducing the upside potential for those entering at these depressed prices.

Conclusion: What to Watch as a Value Investor

Here are key factors a value investor might consider when evaluating Boeing as an investment:

• Debt Load: Boeing’s nearly $60 billion in debt and the potential for downgrades by rating agencies due to the prolonged strike are critical factors. How the company manages this debt will be crucial for long-term stability.

• Stock Dilution: The reported $10 billion stock sale could dilute existing shares, which may lower the potential returns for new investors.

• Management Quality: Warren Buffett avoids companies with poor management. Boeing’s handling of past safety issues and current labor negotiations will be a test of leadership.

• Backlog of Orders: Boeing’s $400 billion in future orders is a significant positive. The ability to deliver on these orders, once the strike is resolved, could boost the company’s recovery.

• Barriers to Entry: Boeing’s moat is strengthened by the high barriers to entry in the aerospace sector, making it a potential long-term winner once the short-term challenges are resolved.

• Market Sentiment: With Boeing’s stock down 40%, a contrarian investor might find opportunity in the company’s current depressed valuation, especially if sentiment shifts.

Book Recommendations

Poor Charlie's Almanack

This collection of Charlie Munger’s wisdom is a treasure trove of timeless investing lessons. It’s packed with insights into decision-making, psychology, and the long-term thinking that Munger is known for. If you want to sharpen your mental models and think more critically, this is your go-to book.

Sam Walton: Made in America

Sam Walton’s autobiography is a no-frills account of how he built Walmart from the ground up. It’s an inspiring story of hustle, simplicity, and relentless focus on serving the customer. You’ll learn a lot about business fundamentals and the importance of sticking to your core values.

The Magic of Thinking Big

This one isn’t just for investors; it’s for anyone looking to unlock bigger opportunities in life. It teaches you how to cultivate a mindset that allows you to dream big and achieve more, which is a perfect complement to long-term investing. Think big, act bold.

Podcast Recommendations

Dubai 2040: Insights on Future Growth with Eugene Alexeev and George Gabriel

In this episode of Value Investing Talks, we dive deep into the long-term investment potential of Dubai, exploring its ambitious development plan leading up to 2040. Our guest, George Gabriel, an expert in real estate and global investment trends, shares why Dubai continues to stand out as a prime destination for investors, particularly in commercial and residential real estate.

Key discussion points include:

• How Dubai compares to global cities like New York, London, Hong Kong, and Monaco in terms of return on investment.

• Why Dubai remains a lucrative market for real estate investment, even in the face of global uncertainties.

• Key insights into Dubai's future growth and what this means for investors looking at long-term opportunities.

• Opportunities and risks that investors should be aware of in Dubai's real estate sector.

• Current trends and strategies that can help investors maximize their returns in this rapidly evolving market.

Listen to this episode on your preferred platform:

• Spotify

• Apple Podcasts

• Substack

That’s it for today! Keep learning, stay curious, and enjoy the process. There’s always something new to discover in the world of investing, and who knows, the next big opportunity might be hiding in plain sight.

Catch you next time!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Key discussion points include:

• How Dubai compares to global cities like New York, London, Hong Kong, and Monaco in terms of return on investment.

• Why Dubai remains a lucrative market for real estate investment.

• Key insights into the future of Dubai's growth and development.

• Opportunities and risks for investors in Dubai's real estate sector.

• Current trends and strategies investors can utilize to maximize their returns in this region.

For further details, including George’s presentation on Dubai's development, make sure to check the links below:

• Think & Invest Newsletter: thinkandinvest.com

• Eugene Alexeev's LinkedIn: linkedin.com/in/evgeniyalexeev

• George Gabriel's LinkedIn: linkedin.com/in/george-g-a2a42822

• Investor's Kit & Presentation: Download Here

Disclaimer:

• All information in this episode reflects my own experience and is not financial advice. It is provided for educational and entertainment purposes only.

Hope you're doing well! I’ve got some interesting updates for you today that I think will give you something to chew on.

Let's dive straight into some news, and I’ll break down what’s going on.

2025 Banking Outlook: Deloitte Report

Deloitte recently published its 2025 outlook for the banking industry, and the message is clear: banks are facing a low-growth, low-interest-rate environment.

Despite the challenges, banks are focusing on tech modernization and noninterest income growth to sustain profitability.

With inflation cooling and interest rates dropping, banks are expected to shift their strategies toward credit, particularly mortgages, which are set to benefit from lower rates.

What to Watch: For investors, the emphasis is on how banks are leveraging technology to stay competitive.

With more banks investing in AI and automation, the IT space is becoming crucial for their operational efficiency.

Keep an eye on how these investments play out in 2025 as it could present new opportunities for growth. Read more from Deloitte’s report here.

Coca-Cola Partners with Microsoft for AI and Cloud

Coca-Cola recently announced a five-year partnership with Microsoft, where they’re committing $1.1 billion into Microsoft Cloud and its generative AI capabilities.

This collaboration aims to enhance Coca-Cola’s global operations, from supply chain management to customer service, using AI-driven solutions like Microsoft’s Azure OpenAI Service.

The deal marks a significant step in Coca-Cola’s digital transformation, focusing on AI innovation to drive efficiency and discover new growth areas.

What to Watch: This partnership is a prime example of how even non-tech companies are investing heavily in IT to stay competitive.

For investors, it signals that AI is becoming an essential tool for traditional industries. Watching how companies like Coca-Cola implement these technologies can provide insights into broader market shifts.

Check out the full story here.

McKinsey’s 2024 Technology Trends Report

According to McKinsey's latest report, the enterprise adoption of frontier technologies like generative AI and electrification is skyrocketing.

Generative AI has seen a 700% increase in interest from 2022 to 2023, with substantial investment across multiple industries.

The report highlights that while some sectors faced slowdowns in 2023, AI and renewables have thrived, with companies pushing these technologies from experimental phases to scaling them for broader use.

What to Watch: Generative AI is rapidly becoming a staple for businesses looking to innovate.

For value investors, this trend offers a glimpse into where future growth might come from as more companies scale their AI initiatives.

Keeping track of how leading firms adopt and integrate AI solutions could be key in identifying long-term opportunities.

Read more about McKinsey’s findings here.

That’s all for today! Hopefully, these insights spark some thoughts as we head into 2025. Just a friendly reminder—none of this is financial advice, but it’s always good to stay in the know!

Catch you later!

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Hope you’re doing well and getting through the week smoothly. Today, we’re going to dive into one of those topics that might seem like a snoozefest at first – GAAP (Generally Accepted Accounting Principles) and why they matter in value investing.

Yeah, I know, not exactly the stuff that makes your heart race, right?

But here’s the thing: understanding GAAP and why Warren Buffett and Charlie Munger, the investing legends we all admire, are so critical of it, can actually be a game-changer when it comes to value investing.

Let’s break it down, no fluff, just the good stuff – and don’t worry, I’ll try to keep it as entertaining as accounting talk can be (bear with me, please!).

Buffett and Munger's Love-Hate Relationship with GAAP

So, what’s the deal with GAAP? It’s supposed to be the gold standard of accounting, right?

But here’s where Buffett and Munger come in – they’ve been around the block a few times and have some strong opinions about it.

In their eyes, GAAP is kind of like looking at a company through a foggy window.

Sure, you can make out some shapes and get a rough idea of what’s going on, but you’re not seeing the whole picture

They argue that GAAP, while giving us a structured way to look at financials, often hides the real performance of a business.

Take amortization and depreciation, for instance. These are non-cash expenses that GAAP insists on including, but for value investors like Buffett and Munger, they’re not always useful in figuring out how a company is actually doing.

It’s like looking at your bank account balance but ignoring the cash you actually have in your pocket.

Buffett has often been heard saying something like, “I don’t care about amortization and depreciation. They’re not real cash expenses.”

He’s more interested in something called operating earnings – which is basically how well the business is running day-to-day.

Think of it like checking under the hood of a car. You’re not just interested in the paint job (GAAP earnings), you want to know if the engine (operating earnings) is still purring like a kitten.

Now let’s talk about EBITDA – oh boy, here’s where it gets juicy. Buffett absolutely hates this metric.

He thinks it’s completely misleading because it skips over important costs like depreciation and taxes, which can give you a way-too-rosy view of a company’s profitability.

In his own words, “EBITDA is like telling someone you’re losing weight but conveniently forgetting to mention you still eat a tub of ice cream every night.”

Okay, maybe that’s not a direct quote, but you get the idea. He’s just not buying it, and neither should we.

GAAP and Why It Matters to Us (AKA, Why Should You Care?)

So you might be thinking, “Alright, cool, but what does this have to do with me and my investments?” Well, I’m glad you asked.

The real key takeaway here is that not all numbers are created equal. GAAP gives us a starting point, but if you really want to understand a business, you’ve got to dig deeper.

Instead of focusing only on GAAP earnings, think about cash flow and the long-term health of the business.

Buffett and Munger have spent decades preaching that cash is king, and for good reason.

If a company is bringing in consistent cash flow, that’s a good sign it can weather a storm. GAAP earnings?

Those can be manipulated (not always on purpose), but cash flow doesn’t lie.

Take it from Buffett: he doesn’t care about short-term fluctuations in earnings. He’s focused on the long haul, and that’s what we should be doing too.

So, when you’re evaluating your next investment, don’t get caught up in the accounting smoke and mirrors – look at how much cash the business is actually bringing in.

The New School of Value Investors – Pabrai, Spier, and Lu

Now, let’s not just take Buffett and Munger’s word for it. There are other heavy hitters in the value investing world that echo these sentiments, and they bring their own spin to the table.

Let me introduce you to Mohnish Pabrai, Guy Spier, and Li Lu – three of the sharpest minds in value investing today

Mohnish Pabrai is known for keeping things super simple. He’s famous for his advice to stay within your circle of competence.

In other words, don’t invest in stuff you don’t understand. It’s like going to a restaurant and ordering something in a language you don’t speak – you have no idea what’s going to end up on your plate.

Pabrai’s strategy is to focus on a few businesses that he knows inside out, and it’s worked wonders for him.

And then there’s Guy Spier. He’s not chasing every flashy new stock on the market. No, Spier is more about cash flow and long-term stability.

Like Buffett and Munger, he knows that GAAP numbers only tell part of the story, and he’s always on the lookout for businesses that can generate solid cash flow even during tough times.

He’ll hold onto a company for years, waiting for the real value to shine through, and that patience pays off.

Finally, Li Lu, who’s often called “the Chinese Buffett.” Li Lu is all about intrinsic value – that’s the real worth of a company, not just what it’s trading for on the stock market today.

Like Buffett and Pabrai, he’s also a fan of concentrated investing. He’s not out there buying up every company under the sun.

Instead, he’s focused on a handful of companies that he believes are massively undervalued, and he knows them inside out.

What About the Big Business Titans?

Let’s pivot for a second and talk about the big guys: Jeff Bezos, Jack Ma, and Pony Ma. These titans are running some of the largest companies in the world, and they have a slightly different take on GAAP.

For Bezos, it’s all about cash flow. He couldn’t care less if Amazon posts a huge GAAP profit or a small one – what matters to him is how much cash is coming in.

And that’s what he’s been preaching for years. When Amazon was growing like crazy but showing little profit, people thought he was nuts. But Bezos knew that in the long run, cash flow is what keeps the engine running.

Jack Ma and Pony Ma (no relation, by the way) are similar. These guys understand that in the tech world, traditional GAAP numbers don’t always capture what’s really happening.

User growth, engagement, and ecosystem health are the real drivers of long-term success for companies like Alibaba and Tencent. GAAP is important, sure, but it’s just one part of the equation.

Wrapping It All Up

So, here’s the deal. If you’re serious about value investing, you’ve got to go beyond the surface-level numbers that GAAP gives you.

That means focusing on things like cash flow, operating earnings, and long-term growth potential. Look at the company’s fundamentals, not just what the accountants are telling you.

And one more thing – this isn’t me giving you investment advice. These are just some ideas to chew on as you think about your own strategy.

We’re all on this investing journey together, learning as we go. So grab a coffee, dig into those financials, and remember to keep it simple.

Until next time,

Eugene Alexeev

•All information in the article is sharing my own experience and is not a financial advice. It is only for educational and entertaining purposes.

Happy beginning of the week - let’s kick things off with something you’ll enjoy. You know how much I love talking value investing, right?

So today, we’re diving into two things: the rise (and fall) of WeWork and how trends play into value investing - whether they should, or shouldn’t. Grab your coffee; this one's good!

In today’s letter, we’ll cover:

1. Case Study: WeWork - A cautionary tale or a hidden opportunity for value investors?

2. Trends vs. Value Investing - Should you pay attention to trends, or are they just noise?

Case Study: WeWork - A Cautionary Tale or Hidden Opportunity?

So, WeWork. Yeah, remember them? Shared workspaces, trendy offices, overpriced kombucha? Well, in November 2023, they filed for bankruptcy, again proving that you can’t just sprinkle buzzwords and hope for the best.

But hang tight, because WeWork’s story is far from over. They just inked a restructuring deal with their senior lenders - SoftBank, Yardi Systems, and a few others - securing $450 million in fresh financing.

Pretty bold move for a company that’s been on life support, right?

Here’s the kicker: their restructuring wipes out around $4 billion of debt. Yup, $4 billion! And the lenders?

Well, they’re taking control of the company, with Yardi Systems becoming the new landlord in town. Meanwhile, SoftBank is hanging onto a minority stake, possibly upping their game later.

Classic soft landing - don’t you think? Now, from a value investing perspective, this is where things get interesting.

On the surface, WeWork might seem like a textbook case of what to avoid - a company with a history of reckless expansion, poor governance, and unsustainable cash burn.

But does this restructuring create a new opportunity? Let’s break it down.

Debt Reduction: The restructuring plan wipes out a massive $4 billion in debt. For any value investor, seeing a cleaner balance sheet is a good sign.

Reducing liabilities opens the door for more manageable operations moving forward. But here’s the question: even with a leaner debt load, can WeWork actually generate consistent free cash flow?

That’s the core metric we’d be looking at. Debt restructuring alone doesn’t make a business fundamentally strong - it only buys time.

Ownership Shift: Yardi Systems, a real estate technology firm, is taking the reins. From a governance standpoint, this could be a positive development.

New leadership, especially one grounded in the real estate space, might introduce a more focused operational strategy.

However, there’s still a lack of proven profitability in WeWork’s model. For value investors, a management change isn’t enough - we need to see how this will translate into earnings and, more importantly, value creation over time.

Leaner Operations: WeWork is slashing its operational footprint, going from 650 locations down to 337, focusing on its strongest markets (U.S. and Canada).

This downsizing could help stabilize costs and make the business more nimble. But for any potential value investor, the question is: can WeWork turn those remaining locations into a profitable, cash-generating machine?

Historically, they’ve struggled to monetize their assets effectively.

In essence, while this restructuring might give WeWork a fighting chance, it’s still a high-risk play.

There’s no clear path to consistent profitability yet, and without strong fundamentals, even the cleanest balance sheet won’t create value in the long term.

Buffett’s golden rule applies here: "It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price." WeWork may not yet fit the "wonderful company" mold.

Trends and Value Investing: Do They Mix?

Now, on to something we’ve all asked ourselves: Should we really pay attention to trends when investing in companies?

If you’re a Buffett or Munger fan like me (and if you’re not, you should be), you probably already know where this is headed.

Buffett always says: “Ignore the noise.” And by noise, he means the daily headlines, trends, or what’s “hot” right now.

He focuses on understanding the intrinsic value of a business - its cash flow, competitive advantages, and management team.

Trends? Eh, not so much. And he’s done pretty well by sticking to that.

Munger would probably crack a joke about how investors get distracted by shiny things - like tech buzzwords.

But both agree on one thing: successful investing is about digging into the business, not riding the trend train.

Sure, trends can boost a company in the short term, but if the fundamentals are weak, it’s like putting lipstick on a pig.

That said, can trends play a role in how you scale your business? Absolutely. Companies that can adapt and ride the wave of evolving technology without losing sight of their core strengths tend to come out on top.

Take Apple, for example. They’ve embraced every trend - AI, AR, you name it - while keeping their product ecosystem strong.

But would you invest in them purely because AI is hot right now? No, you invest because Apple prints money, has a killer brand, and a loyal customer base.

Trends are a bonus, not the core reason.

For smaller or mid-sized companies, though, trends can sometimes be make-or-break. If you’re not adaptable, you could end up like BlackBerry - remember them?

Yeah, they didn’t see the iPhone coming. But the key takeaway here is that trends should inform strategy, not dictate your investments.

Look for companies that have the agility to evolve and strong fundamentals. You can’t ignore the economics inside the business.

And that’s it for today, my friend! Hopefully, this gave you something to chew on for the week ahead.

As always, keep learning, stay curious, and don’t be afraid to dig a little deeper into the businesses that catch your eye.

Catch you in the next one!

It’s been a while since my last update, but here we are, keeping the momentum going, step by step. Hope you're having a great weekend! Let’s get that compounding started - this time, it’s all about knowledge.

In today’s letter, we’ll cover:

• Overdiversification: Is owning 1,000 companies with a small capital base really a good idea?

• Book recommendations: A few gems you might want to add to your reading list.

• Podcast picks for when you need some insights on the go.

Let’s dive in!

Overdiversification: How Much is Too Much?

Lately, I’ve been chatting with a few folks - some who stick to just five stocks in their portfolios, while others have 20, 40, even 60.

What really stood out to me was how differently they approach diversification. Diversification’s a popular topic, right? But is more always better?

While exploring this question, I noticed that some investors don’t diversify at all, while others spread themselves thin by owning a little bit of everything.

For those just starting out, there’s some interesting data suggesting that a highly concentrated portfolio can sometimes deliver better returns - assuming, of course, the right stocks are chosen. But hey, no guarantees here.

You might be wondering, “So, how does this help me?” Easy there, cowboy - we’re getting to that.

The thing is, too much diversification can sometimes dilute the impact of your best investments. If you own a tiny slice of 100 companies, it’s hard to feel like you’re really in the game with any of them.

It’s like trying to juggle too many things at once; you could miss the chance to dig deeper and really understand the businesses that matter most.

For example, in my own portfolio, I’ve chosen to focus on two businesses that bring in steady cash flow. Is that enough? It depends. If they’re just coasting along, maybe not.

But if they’re out there acquiring other companies, it’s a different story. Think of a business with 100 acquisitions - it’s almost like a mini-portfolio on its own.

Even Warren Buffett has pointed out that “diversification is protection against ignorance.”

What he’s saying is, if you truly understand the businesses you’re investing in, there might be less need to spread your capital across dozens of different stocks. It’s all about knowing where your strongest convictions lie.

Of course, this isn’t a rule - just a thought worth considering.

Ultimately, there’s no one-size-fits-all approach. It’s all about what makes you comfortable and aligns with your own goals.

Book Recommendations

What It Takes: Lessons in the Pursuit of Excellence

This one’s a bit of a heavier read, but stick with me. I’m still working through it, but it’s a real eye-opener on how M&A (mergers and acquisitions) looks at a higher level.

We always see companies saying, “We acquired X” or “We merged with Y,” but there’s so much more to it. Behind the scenes, it’s all about moving parts - teams negotiating, lawyers drafting pages of contracts, and numbers being crunched.

It’s like a giant, complicated puzzle, and this book gives you a front-row seat to see how it all fits together.

Crazy Rich Asians

Now, I know what you’re thinking. “Seriously? This isn’t exactly a finance book.” And you’d be right. But hear me out: understanding investing isn’t just about numbers - it’s about people, culture, and psychology, too.

And this book gives you a glimpse into Chinese traditions and the mindset of the ultra-wealthy. Call it a crash course in understanding how the ‘Crazy Rich’ think.

You know, even Charlie Munger said understanding different cultures and behaviors can give you an edge. So, consider this your fun homework.

AI 2041

Who doesn’t love a good discussion about AI? I’m a fan - not because it’s trendy, but because of the real impact it’s having. AI’s not perfect (yet), but we’re getting there.

This book takes you on a journey into what our AI-driven future could look like by 2041, backed by scientific reports and stats.

So, grab some popcorn, get comfy, and dive into a world where algorithms might know more about us than we know about ourselves. Sounds exciting, right?

Podcast Recommendations

Value Investing Talks – Episode 9: Rahul Ramaswamy on Creative Accounting in Investing

One of the old episodes of my value investing podcast where I dived into the art (and sometimes dark art) of creative accounting.

Companies often present their financials in a way that looks “just right” - but as investors, we’ve got to know how to see beyond the surface.

In this episode, we dig into how to spot those little tricks that make everything seem rosier than it is. Give it a listen and let me know what you think. Here’s the link: Podcast Episode.

That’s it for now, my friend! Keep learning, keep exploring, and most importantly - keep enjoying the journey.

Investing doesn’t have to be a grind, and it’s not all spreadsheets and reports. There’s a whole world of insights and stories out there, and who knows, the next big idea could come from the most unexpected place.

Catch you in the next one!

By the way, I’ve just launched a referral program to help spread the word and get more people involved.

And to make it even more exciting, I’ve prepared some awesome prizes for those who invite the most people.

You can find all the details and leaderboard info here: https://www.thinkandinvest.com/leaderboard.

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In todays letter

• Learning: Staying Calm in Investing

• Books, podcasts recommendations

  • Atomic Habits

  • The Art of Being Unreasonable

  • Against the Odds

• Events recommendations

Staying Calm in Investing

Successful investing requires patience and a long-term perspective. Buffett famously said, "The stock market is designed to transfer money from the Active to the Patient." His strategy revolves around buying high-quality businesses at reasonable prices and holding them indefinitely. This approach reduces the stress of market fluctuations, as the focus is on the underlying value of the business rather than short-term price movements.

Mohnish Pabrai, inspired by Buffett, follows a similar strategy. Pabrai emphasizes the importance of understanding a company's intrinsic value and buying when the market offers a discount. He often refers to this as "Heads, I win; tails, I don't lose much." This mindset allows him to remain calm, knowing that his investments are grounded in solid research and valuation.

Guy Spier, another disciple of Buffett, believes in the importance of an investor's environment. He moved to Zurich to create a more serene and distraction-free setting, which he credits with improving his investment decisions. Spier also advocates for limited activity, suggesting that less frequent trading can lead to better outcomes and a more composed demeanor.

Examples and Facts

• Warren Buffett: Over his career, Buffett has consistently outperformed the market. From 1965 to 2023, Berkshire Hathaway's compounded annual gain was 20.1%, compared to the S&P 500's 10.5%. His calm and patient approach during market downturns has been a significant factor in this success.

• Mohnish Pabrai: Pabrai Funds have generated impressive returns by following a value investing philosophy. Since inception, his fund has delivered an annualized return of approximately 16%, doubling the performance of the S&P 500 over the same period.

• Guy Spier: In his book "The Education of a Value Investor," Spier details how changing his environment and limiting his exposure to market noise have improved his investment results. His Aquamarine Fund has achieved a solid track record by adhering to these principles.

Practical Tips for Staying Calm

• Focus on the Long Term: Understand that investing is a marathon, not a sprint. Short-term market movements should not dictate your investment decisions.

• Buy Quality and Hold: Invest in high-quality companies with strong fundamentals. This reduces the need for frequent trading and helps you weather market volatility.

• Limit Market Noise: Reduce exposure to constant market updates and news. This helps maintain a clear and focused mindset.

• Stay Informed but Detached: Keep up with market trends and company news, but avoid emotional reactions to daily price changes.

Staying calm in investing is about maintaining a long-term perspective, focusing on quality, and reducing exposure to market noise. By emulating the strategies of successful investors like Buffett, Pabrai, and Spier, you can cultivate a calm and patient approach to your investment journey.

Books, podcasts recommendations

Atomic Habits

"Atomic Habits" by James Clear explores how small changes in behavior can lead to significant personal and professional growth. The book emphasizes the power of incremental improvements and practical strategies for habit formation.

Key takeaway

For investors, the book's insights underscore the importance of consistency and discipline in investment strategies. Applying the principles of small, consistent actions can lead to substantial long-term gains, suggesting that investors should focus on developing and maintaining positive financial habits.

The Art of Being Unreasonable

"The Art of Being Unreasonable" by Eli Broad highlights how unconventional thinking and a willingness to challenge norms can lead to remarkable success. Broad shares his experiences and strategies for achieving extraordinary results by defying conventional wisdom.

Key takeaway

For investors, Broad's approach suggests the value of questioning standard practices and considering unconventional investment opportunities. Embracing a mindset of calculated risk-taking and innovative thinking can potentially lead to higher rewards and unique investment advantages.

Against the Odds

"Against the Odds" is the autobiography of James Dyson, detailing his journey of relentless innovation and perseverance that led to the creation of his iconic vacuum cleaner. Dyson shares his challenges, failures, and eventual success in revolutionizing household appliances through engineering and design.

Key takeaway

For investors, Dyson's story highlights the significance of resilience and continuous innovation in achieving long-term success. This underscores the importance of supporting companies and entrepreneurs who demonstrate a commitment to overcoming obstacles and driving technological advancements.

Thank you for the reading and see you next time!

In todays letter

• Learning: The Pareto Rule in Investing

• News insights

  • WhatsApp Unveils AI Tools for Business

  • Starbucks Revamps Food Strategy

  • Wipro Wins $500M Deal, Shares Soar

• Key takeaways from interview w/ Jensen Huang, Founder and CEO of NVIDIA

The Pareto Rule in Investing

The Pareto Rule, or the 80/20 principle, states that 80% of outcomes come from 20% of causes. In investing, this means that a small number of investments often drive the majority of returns. Understanding and applying this principle can significantly enhance your investment strategy by focusing on the most impactful factors.

Why the Pareto Rule is Important in Investing

1. Focus on High-Impact Investments: By identifying the investments that yield the highest returns, you can allocate your resources more effectively.

2. Efficient Portfolio Management: Concentrating on a few high-performing assets reduces the complexity of managing a large portfolio.

3. Risk Management: By recognizing which investments contribute most to your portfolio's performance, you can better manage risk and ensure stability.

Applying the Pareto Rule in Investing

1. Identify Top Performers: Regularly review your portfolio to identify which investments are driving the majority of returns.

2. Reallocate Resources: Shift capital from underperforming assets to those with higher returns.

3. Monitor Market Trends: Stay informed about market trends to identify new opportunities that could become high-impact investments.

Real-World Examples from Value Investors

1. Warren Buffett: Buffett's investment in Coca-Cola is a classic example of the Pareto Rule in action. He invested $1 billion in Coca-Cola in 1988, and by 2021, the investment had grown to over $22 billion, highlighting how a single high-impact investment can drive significant returns.

2. Charlie Munger: Munger emphasizes the importance of investing in high-quality companies. His investment philosophy is centered on finding a few outstanding businesses and holding them for the long term. One of his key investments is in Costco, which has consistently outperformed the market and contributed significantly to his portfolio's success.

3. Peter Lynch: Lynch managed the Fidelity Magellan Fund from 1977 to 1990, achieving an average annual return of 29%. He applied the Pareto principle by focusing on a small number of high-growth stocks that drove the fund's exceptional performance. Lynch often highlighted how just a few of his stock picks were responsible for the majority of the fund's gains.

Applying the Pareto Rule in investing helps you focus on the investments that matter most, driving higher returns and simplifying portfolio management. By studying the strategies of successful value investors like Buffett, Munger, and Lynch, you can learn to identify high-impact investments and make more informed decisions.

By focusing on a few key investments, you can achieve substantial returns and build a more resilient portfolio. Remember, the key to successful investing is not to spread yourself too thin but to concentrate on what truly matters.

News insights

WhatsApp Unveils AI Tools for Business

Meta has launched AI tools for businesses on WhatsApp, marking a significant shift in its strategy to monetize the messaging platform. The tools aim to enhance ad targeting and customer service through AI-driven solutions.

[📝Full article]

Key takeaway

For investors, this development indicates Meta's strategic push to generate revenue from WhatsApp. Keeping an eye on the company's quarterly earnings and market adoption of these new tools can provide insights into the potential financial impact and guide investment decisions.

Starbucks Revamps Food Strategy

Starbucks is shifting its food strategy by expanding its variety of baked goods and leveraging its scale to obtain better pricing from suppliers. This move aims to enhance customer offerings while maintaining cost efficiency.

[📝Full article]

Key takeaway

For investors, Starbucks' strategic focus on optimizing sourcing and improving efficiency, particularly during peak hours, indicates a proactive approach to addressing recent financial challenges. Monitoring these initiatives' impact on revenue and customer satisfaction can provide insights into the company's recovery and long-term growth potential.

Wipro Wins $500M Deal, Shares Soar

Wipro's stock surged 4.69% to Rs 482.60 after securing a $500 million contract from a leading US communication service provider. The deal involves providing managed services and industry-specific solutions over five years.

[📝Full article]

Key takeaway

For investors, this significant contract win demonstrates Wipro's strong market position and potential for future growth. Keeping track of the company's execution of this deal and its impact on financial performance will be crucial for assessing long-term investment potential.

Key takeaways from interview w/ Jensen Huang, Founder and CEO of NVIDIA

Here are five great takeaways from the video with Jensen Huang:

1. Importance of a Clear Mission: Huang emphasizes the importance of having a clear mission for the company, which for NVIDIA was to build computers to solve problems that normal computers couldn't. This mission drove the company to focus on innovations like computational drug design, weather simulation, robotics, self-driving cars, and artificial intelligence.

2. Adaptability and Resilience: Huang highlights the necessity of adapting to changing circumstances and resetting the company's focus when needed. An example is when NVIDIA had to pivot from their initial vision of 3D graphics for video games to accommodate new standards like Direct3D, which led them to develop new technology and enter different markets.

3. Focus on Creating Technology and Markets: NVIDIA's success is attributed to its strategy of not only creating new technology but also the markets for it. This approach has defined NVIDIA's role in various cutting-edge fields, ensuring their technology had practical and impactful applications.

4. Commitment to Core Beliefs: Huang discusses the importance of sticking to core beliefs and continuously seeking early indicators of future success. This commitment helps maintain focus and motivation, even when immediate market evidence is lacking, as seen with their early investments in deep learning and artificial intelligence.

5. Empowering Employees and Flat Organization: Huang believes in empowering employees by maintaining a flat organizational structure and being transparent. This approach allows employees to understand the context of their work, make informed decisions, and contribute effectively to the company's success. He also stresses the importance of no task being beneath anyone, reflecting his own experiences and values.

[🎥Full video]

Thank you for the reading and see you next time!

Today, let’s dive into an intriguing and often overlooked area: special situations investing.

But before we start, I'd like to ask you which topics are most interesting to you. Which should I delve deeper into, and which should I discard? Your feedback is invaluable

In todays letter

• Learning: Hidden Investment Gems: Special Situations Explained

• News insights

  • 15 Future Business Security Trends

  • Vietnam's Lab Market: Trends and Future Insights

  • May Update: Latest in Poultry Business

• Key takeaways from interview w/ Sallie Krawcheck

Hidden Investment Gems: Special Situations Explained

Special situations investing refers to opportunities created by unique circumstances that can lead to significant investment returns. These situations are often driven by corporate events such as mergers, acquisitions, spin-offs, bankruptcy, or restructuring. The goal is to capitalize on these events before the broader market recognizes their value.

Why Consider Special Situations?

Many renowned investors, including Warren Buffett, Benjamin Graham, and Joel Greenblatt, have successfully employed special situations strategies. These opportunities often offer asymmetric risk-reward profiles, making them particularly attractive for savvy investors.

Types of Special Situations

Here are a few common types of special situations with real-world examples:

• Mergers and Acquisitions: When a company is acquired, the acquiring company usually pays a premium over the current stock price. For instance, in 2020, Analog Devices acquired Maxim Integrated for $21 billion, leading to significant stock appreciation for Maxim’s shareholders.

• Spin-offs: Companies often spin off a part of their business to unlock value. An example is the 2011 spin-off of Kraft Foods Group from Kraft Foods Inc., which created substantial value for shareholders.

• Bankruptcy and Restructuring: Investing in distressed companies can be highly profitable if the company successfully restructures. For example, after its 2009 bankruptcy, General Motors re-emerged as a profitable entity, rewarding those who invested during its restructuring phase.

Finding Special Situations

Here are some tips to uncover these hidden gems:

• Stay Informed: Regularly read financial news and industry reports to stay updated on corporate events.

• Use Specialized Tools: Leverage tools like Bloomberg Terminal or Capital IQ to track corporate actions.

• Follow Insider Activity: Monitor insider buying and selling activities as they can provide clues about upcoming special situations.

• Analyze SEC Filings: Pay close attention to SEC filings such as 10-Ks, 10-Qs, and 8-Ks for hints about potential special situations.

A Buffett Example

Warren Buffett, renowned for his investment acumen, has frequently capitalized on special situations. In the 1950s, he invested in Sanborn Map Company, which had a hidden asset: a valuable investment portfolio worth more than the company's market capitalization. Buffett bought shares, gained control, and then sold off the portfolio, unlocking significant value for shareholders.

Investing in special situations requires keen observation, deep analysis, and a bit of courage. But with the right approach, it can lead to exceptional returns.

News insights

15 Future Business Security Trends

The article outlines 15 future trends in business security, highlighting advancements like AI video surveillance, smart door locks, and biometric high-security protection. These technologies aim to mitigate security threats cost-effectively through innovations such as AI-led data alerts and remote management of smart security services.

[📝Full article]

Key takeaway

For investors, these trends indicate a growing market for advanced security technologies, suggesting potential investment opportunities in AI, cloud security, and biometric authentication sectors. Staying informed on these developments allows investors to capitalize on the rising demand for innovative security solutions in an increasingly digital and connected world.

Vietnam's Lab Market: Trends and Future Insights

The laboratory market in Vietnam is experiencing rapid growth, driven by rising investments and increasing demand from industries like pharmaceuticals, chemicals, and biotechnology. With an expected compound annual growth rate of 6.7% through 2029, advancements in AI, smart technology, and regulatory reforms are key factors fueling this expansion.

[📝Full article]

Key takeaway

For investors, this growth signals a lucrative opportunity to invest in Vietnam's laboratory market, particularly in companies involved in AI, biotech, and smart security technologies. Staying updated on regulatory changes and technological advancements will be crucial for capitalizing on this emerging market's potential.

May Update: Latest in Poultry Business

The May business update for the global poultry industry highlights significant developments, including the European approval of Nutrase P for poultry feed, Aviagen's Rustic Gold bird receiving RSPCA approval, and TPI-Polytechniek launching a new ventilation inlet. Other updates include collaborations aimed at improving farm management, Lubing's 75th anniversary, and Nuqo's expansion into India.

[📝Full article]

Key takeaway

For investors, these updates indicate robust growth and innovation in the poultry industry, with opportunities in advanced feed additives, animal welfare-certified products, and technological enhancements in farm management. Staying abreast of regulatory approvals and technological advancements will help investors identify promising investment opportunities in the evolving poultry sector.

Key takeaways from interview w/ Sallie Krawcheck

Here are five key takeaways from the video featuring Sallie Krawcheck:

1. Ellevest and Women-Focused Investing:

   • Sallie Krawcheck founded Ellevest to address the unique financial needs of women, recognizing that traditional financial services often do not cater specifically to them. Ellevest offers services for women from their first investment to managing millions of dollars, focusing on goals-based investing rather than market outperformance.

2. Impact of Women's Financial Independence:

   • Investing in women leads to broader community benefits. Women are more philanthropic, more inclined to invest in climate change and impact investing, and tend to spend more on their families. Increasing women's financial power has a positive cascading effect on society.

3. Contrarian Approach and Success on Wall Street:

   • Krawcheck's success on Wall Street was largely due to her contrarian approach. She gained recognition for making bold calls that went against the grain, earning her the title of the "last honest analyst" on Wall Street. This approach helped her turn around major financial institutions like Smith Barney and Merrill Lynch.

4. Women and the Great Wealth Transfer:

   • Women are set to inherit a significant portion of the wealth accumulated by the baby boomer generation due to their longer lifespans and high divorce rates. This wealth transfer is expected to give women the majority of economic power in the coming decades, which Krawcheck believes will lead to a "feminization of wealth" and positive societal changes.

5. Challenges and Rewards of Entrepreneurship:

   • Transitioning from leading large financial institutions to founding a startup, Krawcheck describes the experience as both fun and terrifying. The early days of Ellevest involved high volatility and the constant threat of failure. However, the impact of empowering women financially and the potential to change their lives makes the endeavor deeply rewarding for her.

[🎥Full video]

Thank you for the reading and see you next time!