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Great investment skew often looks like:
"Value Downside + Venture Upside".
Often, these have a declining high-quality Legacy business (Value) obscuring an emerging Future business (Venture).
1/n
"Value Downside + Venture Upside".
Often, these have a declining high-quality Legacy business (Value) obscuring an emerging Future business (Venture).
1/n
These transitions have 3 Phases:
1) Decline: for a period, the net result is decline, as Legacy shrinks faster than Future grows
2) Flat: Legacy's shrinkage & Future's growth net to near zero
3) Grow: Future begins to outstrip Legacy, revealing itself more fully
2/n
1) Decline: for a period, the net result is decline, as Legacy shrinks faster than Future grows
2) Flat: Legacy's shrinkage & Future's growth net to near zero
3) Grow: Future begins to outstrip Legacy, revealing itself more fully
2/n
If the transition is real, each of those phases offers meaningful real return, moving from potentially explosive returns early, to longer-term compounding.
Generally, risk lowers as you migrate through.
3/n
Generally, risk lowers as you migrate through.
3/n
The transition is rarely smooth. Doubt & lack of patience can hit for extended windows.
Likewise, the stock occasionally gets ahead of business reality, causing periods of doldrums.
4/n
Likewise, the stock occasionally gets ahead of business reality, causing periods of doldrums.
4/n
I call Phase 2 the Swimming Duck phase: stillness at the surface, but furious action beneath.
In this phase, there is a de-risking, because the Future business starts to show signs of "inevitable".
5/n
In this phase, there is a de-risking, because the Future business starts to show signs of "inevitable".
5/n
I love Swimming Ducks - TotalCo is not yet growing on net (& often still trades at a value multiple), but the Future business has become quite real. It may only be 20%-40% of the total pie, but it's growing rapidly, ideally with a better economic profile than Legacy.
6/n
6/n
Example 1:
US Cable is in Phase 3 now, with broadband as the Future, already dominating. Broadband has a LONG remaining runway, while video & wired phones shrink.
$CHTR is a 10x over nine years (20x trough to peak), but you would have experienced long periods of doldrums.
7/n
US Cable is in Phase 3 now, with broadband as the Future, already dominating. Broadband has a LONG remaining runway, while video & wired phones shrink.
$CHTR is a 10x over nine years (20x trough to peak), but you would have experienced long periods of doldrums.
7/n
Example 2:
MoneyGram ($MGI) may be in Phase 2. Perhaps it's even better, because its Legacy may not decline for some time and its digital TAM is massive. It's still proving itself out.
[These are not advice; just thoughts]
8/n
MoneyGram ($MGI) may be in Phase 2. Perhaps it's even better, because its Legacy may not decline for some time and its digital TAM is massive. It's still proving itself out.
[These are not advice; just thoughts]
8/n
I'm always hunting for:
Phase 1s to put on my watchlist;
Phase 2s to go deep on;
Phase 3s are for riding.
If you think of any companies that are in this Legacy-to-Future transition, let me know what you think and why they fit.
Thanks!
[end]
Phase 1s to put on my watchlist;
Phase 2s to go deep on;
Phase 3s are for riding.
If you think of any companies that are in this Legacy-to-Future transition, let me know what you think and why they fit.
Thanks!
[end]
