Investment Writings

  • Industry analyses
  • Macroeconomic outlooks
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Generative AI: Inference, Agents, and Return on AI

While much attention has focused on model training and discussions of “Stargate” data centers, inference workloads are poised to take center stage. About six months ago, LLMs faced criticism for “hallucinations” and their lack of Type 2 thinking—their inability to think critically and reliance on “one-shot” responses. With the recent ChatGPT Strawberry and o1 releases, however, a new picture is emerging. This shift is due to increased inferencing compute. Rather than providing rapid, one-step responses...

Generative AI: The Operating System of the Future Part 1

The rise of Generative AI has ushered in a new era: the mass production of intelligence. Intelligence, unlike the products of previous general-purpose technologies, has unlimited demand. Intelligence drives innovation and efficiency. Chat GPT was the big bang of Generative AI. Within two months, it had 100 million users, making it the fastest growing application in history. VC Investments in Gen AI have increased by almost 400% in 2023, reaching almost $30B. Gen AI and LLMs are in the lexicon of almost every management team today.  The appetite for Generative AI-driven workloads, such as large language ...

The Evolution of Data Centers

Traditionally, Data Centers have gone unnoticed, humming in the global background powering things such as Google's searches and Netflix streaming videos. However recently, data centers have taken the front seat due to Generative AI Revolution and advances in High Performance Computing. Jensen Huang, CEO and founder of Nvidia, forecasts that within the next four years, expenditures on data center equipment for AI workloads will reach an estimated $1 trillion.With the tsunami of AI demand for compute and storage, the data center industry faces a pivotal challenge. The vast majority of existing data centers are structured around CPU-based servers, which are..

Berkshire Hathaway: Why Shareholders Could be Vulnerable

Berkshire Hathaway, under the leadership of Warren Buffett since 1965, has traditionally relied on two primary value drivers: a substantial investment portfolio (now ~380 billion in size) known for its market-beating returns and a collection wholly-owned businesses (subsidiaries). Historically, Berkshire's stock consistently outperformed the S&P 500; however, since around 2008, the S&P has slightly outperformed Berkshire's stock. Berkshire Hathaway should officially de-emphasize the importance of its investment portfolio by selling down positions to reduce concentration, greatly increase diversification ...

Semiconductors and Computing Independence

Semiconductors. The oil of the 21st century.  In 2022 more than 1 trillion microchips were manufactured, roughly 130 chips for every person on earth. Semiconductors have taken the front seat as supply chain issues brought industries to a standstill in 2021, geopolitical tensions have increased, and AI has hit an inflection point. Although the US makes up a large part of semiconductor demand, China became the largest user of semiconductors in 2021, buying chips to the tune of $190+ Billion. Although the US still dominates in the design and equipment segments, its manufacturing capacity market share has decreased ....

Risk – Part 1, Risk Taking

We run an internal concentrated equity portfolio and will always have a significant long bias for the simple reason that markets go up over time. We believe that if a country protects private property and allows its people to benefit from their hard work and creativity, then a stock market index that is reflective of the country’s underlying economy will trend higher over time. Despite this belief, we do not advocate for being fully invested at all times-- no equity portfolio is immune from large market sell-offs.  Given markets are out-of-equilibrium systems prone to booms and busts, being fully invested is an inferior strategy to...

The Decade Ahead for Infrastructure, Energy, & Chips

We delve into three bills that were recently passed representing the largest public infrastructure spending program in US history. First, we summarize the impacts of these bills, along with the emerging trends that will result. Over the last couple of years, the Biden administration passed three Acts: The Infrastructure Investment and Jobs Act (‘IIJA’), the Inflation Reduction Act (‘IRA’) and the Chips Act (‘CA’). Collectively, these represent almost $1T dollars, the largest public infrastructure spending program in US history. The primary intention of these Acts is to upgrade the...

The Dangerous Disconnect Between Stock Valuations and Buybacks

We want to address a problem that has gone largely unacknowledged in capital markets conversations: The widespread prevalence of buybacks and their potential to erode ongoing shareholder value. It is almost universally accepted that buybacks are a way of “returning value to shareholders.” While intelligent buyback strategies do indeed benefit ongoing shareholders, poor buyback strategies are far more common and have the opposite effect. They destroy shareholder value. This predicament arises because most management teams lack a systematic approach to assess the true value of their company's stock...

The Importance of Working Capital

Aside from being a measure of a company’s liquidity and financial health, working capital is a window into the efficiency of a company and may also serve as a signal of competitive advantages. It is useful to think of working capital as a support mechanism for revenue; for every dollar of revenue, a certain amount of capital is needed for support. It is analogous to the pillars supporting a bridge, the more pillars are needed the higher the load of the bridge. As investors, we care about the cash flows a business generates and understanding working capital helps us better forecast those cash flows...

The Fed, An Investor’s Guide | Part 2 LOLR vs BOLR

Since its inception in 1913, the Federal Reserve has had the ultimate responsibility of functioning as a Lender of Last Resort (LOLR). Since then, this LOLR function, along with the rest of the Fed's toolkit, has undergone a quantum leap in evolution (see conceptual illustration below). Furthermore, functions that have traditionally not been associated with the Fed, like Buyer of Last Resort (BOLR), have been implemented but to our knowledge practical attempts to educate market participants on the differences between the two has been lacking...

Corporate Governance Signals and Effects

What is corporate governance? How does one discern good corporate governance from bad? Why should an investor even care about governance? Corporate governance is the checks and balances that attempt to enable ethical behavior, proper decision-making, and accountability; Management is accountable to the board, and the board is accountable to shareholders. Good corporate governance incents managers to act as responsible owners of the company, taking a long-term view of the business and threading the tension between using capital for the business versus distributing it back to shareholders. As passive...

The Metallurgical Coal Industry

Coal. It conjures up images of smokestacks and rampant pollution. One would imagine that given the push for renewable energy and clean power, the coal industry is on its last legs and about to exit the manufacturing stage. The reality is that global coal consumption is at the highest it has ever been and growing. What is occurring is a bifurcation between the more developed countries and the less developed ones in their coal consumption. Figure 1 below illustrates this disparity. Due to environmental and regulatory pressures, more developed countries have been phasing out coal, using cleaner energy sources...

The Fed, An Investor’s Guide | Part 1 Quantitative Easing

In recent years, the Federal Reserve has played an increasingly important role in our economy and financial markets. "Fed Watchers," including journalists and investment professionals, dedicate their careers to predicting and gaining insight into the Fed's actions and statements. It seems odd that in a market-based economy, so much focus and importance are placed on what is effectively a government institution. The Fed's dual mandate, which has remained unchanged for almost 50 years, is to promote maximum employment and stable prices. Despite this, the Fed's influence has grown significantly...

The Sim Racing Industry

Simulation racing is an e-sport that simulates motor car racing such as those seen in F1, Nascar, and World Rally championships.  Sim racing can be played either solo or against others and a player can have anything from a basic setup (all you have is a keyboard/controller) to a complete rig as seen in Figure 1. This includes a cockpit, steering wheel, pedals, gear shifter etc. Sim racing has become more prevalent as it has transitioned from a niche video game to a legitimate e-sport. Sim racing is the nearest a game is to the real sport due to its tactility and immersion. In 2019, a sim racer beat a Formula E champion in a real...

The Specter of Inflation

Due to the CPI-inflation we are experiencing today, market participants are starting to draw strong parallels with The Great Inflation period from 1965-1985 (“TGI”). It is always a point of suspicion for us when the foundation for a market narrative is based on comparing the contemporaneous period to only a single period in history. A full treatment of the differences in periods involves a lot of work and it is often, instead, more tempting to run with the quickest explanation to support one’s fears. We hope to provide a proper comparison of the periods and explain why inflation will not persist in the current environment as...

The Litigation Finance Industry

Litigation Finance is a burgeoning industry that is turning legal claims into an asset class. An easy way to understand litigation funding is through an example; if someone or a company wants to sue another party due to patent infringement or another reason, but they lack the funding, they can go to a third party funder who will provide non-recourse financing. If the plaintiff wins, the third-party funder gets a pre-determined portion of the proceeds. Litigation funding has appeal to both parties; the plaintiff takes less risk and has potential upside while the funder receives attractive IRRs that is also non-market correlated. If litigation funding is so appealing...

The Waste Management Industry

Our goal in this paper is to understand the domestic Waste Management space and crystalize a perspective on investable trends and companies. More specifically, we provide the backstory to key trends and link these trends to underlying companies poised to benefit. At the end of the article, we segment the different classes of players to help as a reference when reading. We hope this will be useful for the investor seeking to advance their knowledge of the Waste Management space while developing perspectives on potential investment opportunities...

China’s Evergrande Crises?

The media is having a field day with Evergrande's 300-billion dollar debt overhang. Bull markets and easy access to debt will inevitably lead to the unproductive extension of credit and this has been China’s cocktail for quite some time. Market participants have been discussing China's debt problems for years as their GDP has slowed while their debt levels have rapidly risen- not the best combination. These facts assisted with troubling anecdotes of overbuilding, property bubbles and ghost towns have led the media to purport that the day of reckoning is near and that Evergrande could be the next Lehman Brothers...

The Lease to Own Industry

The BNPL industry has caught a lot of attention recently with firms like Afterpay and Affirm commanding nose bleed valuations. What hasn’t got as much attention is BPNL’s lesser-known cousin, Lease to Own (LTO). This industry is geared towards sub/non-prime customers who typically have a credit score below 650 or have no credit score at all. This is about 40% of the US population with an industry TAM of around 50B. Historically the industry was dominated by brick and mortar Rent to Own (RTO) players such as RCII and Aarons, who bought furniture/other items wholesale and then leased those items from their stores...

Trends, Cycles, and Beanie Babies

We wrote about why macro is important for stock pickers in our last post. Part of this involves an understanding of the forces that drive demand for the product or service of an underlying firm in our portfolio-- this is a necessary ingredient for us to form conviction. In this discussion, we share with you how we define a trend, other forces that are often confused with trends, and finally how this knowledge translates into portfolio positioning. Webster defines the word “trend” as a “general direction in which something is developing or changing.” Since this definition is far too vague for any practical use in the investing world...