SuperCom withstood two long decades of disastrous managerial administration. Ordan Trabelsi, son of the former CEO, was leading the US division; he took it from $0 to $6-10M in sales in less than a decade. The division seems to have operated profitably, winning several electronic monitoring deals and had done a very lucrative acquisition in 2016. All this while the parent company was struggling.

Ordan takes over as CEO in 2021 and turns the business around. He discontinues legacy activities and focuses the business on the public safety industry - electronic monitoring for public offenders and related products. In 5 years, he secured deals with 10 governments in the EU (Sweden, Germany, Romania), achieving a 65% win rate in national gov tenders; secures gov with Israel, 35+ county-wise deals in the US, and a state-wide deal with Arizona.

Much of the business SuperCom is getting is repeat business from these customers. The company has managed to scale up from $100k deals in Lithuania to $10-$35M deals among the mentioned national governments.

The business’ economic profile changed materially. 60-80% of their revenue is ‘recurring,’ for these are 1-10-year contracts, and I’d estimate equilibrium gross margins to be in the 55-70% range.
The underlying business has grown at a 10yr CAGR of 50% and excluding a huge deal impact, it grew ~40% in 2025. RPOs increased from $16M in Dec 2024 to $55M in Dec 2025 and 39% of the $55M are getting recognized over 2026, meaning baseline revenue is $21.7M. It’s likely that they grow at 25-50%.

A $17M deal with Sweden (4th with them) was announced in March. Management mentioned in the call there’s room to materially increase size. Another one was announced with an undisclosed national government (according to my dd, maybe England - worth $10-$100M). And Arizona happened in late 2025.

The business is doing extremely well from an operational, p&l standpoint. Balance-sheet-wise, debt got reduced by ~$10M in 2025 and book value increased from $11M to $43M, though shares outstanding increased from 2.2M to 5.4M (more on this later).
The issue lied/s in the mismatch between the narrative, the accounting, and management’s actions.

What’s happening at an accounting level - Why I struggled with it

The margin of safety embedded in the business price largely originates from the $25M in receivables. At first, I thought A/Rs were bound to decline because a large portion belonged to the legacy business linked to African governments. As those got off the books, AR’s quality should rise and so should collectability. But receivables continue to mount up. I didn’t understand what was going on.

Management mentions the US as a pure ARR business, likewise for Israel. And I thought about the classic SaaS model, where you provide the service and get paid on a per-month basis. Otherwise, it could be a HaaS model, where you own the hardware, hold it in your balance sheet, and get paid per month as well. But none seem to explain their accounting.
Management doesn’t speak about Europe’s model in a SaaS way.

Further, in 2025, SuperCom reported US sales of $6.8M and $6.9M in Israel.
So, if 70% of revenue is recurring, and you earn that much in the US and Israel, how is it that products sales were $21.4M in 2025 and services sales were $6.4M?

In addition, my understanding is that management sells the thesis of buying the equipment and leasing it out on a daily rate. To that effect, they hold $3M in PPE that’s located in Israel. However, no PPE is to be found in the US or EU.

Some things I still ignore, but I think it all comes together as follows:

• In EU, the government buys the hardware (ankle bracelets) and SuperCom stays as software provider for the length of the contract. But govs typically pay for the whole thing over the length of contract.

  • This is the opposite to the typical SaaS deferred revenue. SuperCom finances governments’ purchase, creating a disastrous cash economics model. SuperCom spends millions upfront to build a hardware they get paid for over time. For reference, FCF has been systematically negative, being ~$-8M in 2025.

• In the US they partner with local distributors, who go around bidding on county-level contracts. Same deal - SuperCom builds and ships hardware, and stays as SaaS provider. Payment terms here are better, quicker - ARs don’t build up so much.

• In Israel, they own the hardware and lease it at a per-day rate. Thus, here they charge for the equipment lease + SaaS platform.

Management reported that each offender signifies an average $2,900 ARR. And I suspect this is a fully blended average, among the 3 models.

In the last 20F, SPCB split receivables into 2 components. I first thought the long-term part (~$9M) was the residual of African bad debt, but at a second glance, part of it might be the hardware shipped for the large EU contracts that will get paid over time. The ~$15M which remained current might be truly current now.

The question of management

I struggled like hell to understand their lease-based accounting and different economic models. Management doesn’t speak much about how it all comes together and they refer to a somewhat unified version of the story. Even though they might say EU is more front-loaded, specifics aren’t given on the how or why. It’s likely that this is a byproduct of me needing more training in accounting and not their fault.

Some other accounting-related things caught my eye:

• $5.2M in patents held for sale since at least 2021. This constitutes a large part of the $37M in current assets.

• They recorded provision for credit losses related to the legacy business of $1.8M, $1.2M, 1.4M in 2025, 2024, 2023 respectively. Total allowance for bad debt sits at $17M and I haven’t seen their estimate or opinion of how much of currently held receivables are from the legacy business.

• Company reported $3.75M in net income for FY 2025, but $2M in tax benefits in Q4 and debt forgiveness gain of $4M in Q1.

  • Company is doing well on the p&l but management doesn’t speak much about the cash flow statements.

Of insider Ownership

1. In Dec 2024, management owned 196,000 shares (9% of outstanding).
   And, as of Dec 2024, 40k options were outstanding with a weighted average exercise price of ~$50-$70 per share.

2. As of Dec 2025, 31k options were outstanding; exercise price of ~$3 ?

3. As of April 2026, management owned 54k shares (<1% of total).

   1. In April, a form 3 was filed for Ordan. He now owns 268k options with an exercise price of $0.0033?

      1. Same for Barak Trabelsi. Now owns 201k options, same exercise price.

I don’t know what happened. Two possibilities: (i) management sold their equity at a loss and granted themselves “free” options; (ii) they exchanged their equity for options after finalizing reverse splits and exchanges of debt to equity. I can’t find the pertinent filing explaining all this; (ii) is more likely.
In any event, Ordan currently holds some ~4.8% of shares outstanding, similar to what he owned 2 years ago.

The dilution risk

SuperCom was essentially destined for bankruptcy. Ordan inherited a large legacy business which had customers who didn’t pay and was based on large one-off deals. He’s about to fully finalize the turnaround, but it was a ride.

Multiple debt-for-equity exchanges occurred over the past few years, mostly at premiums over share price. Notably, the January 2025 conversion was for $4.374M in debt for 100,000 shares ($43.74 per share). This also pushed the maturity of the debt to 2028 and accrues interest to be paid full at maturity. In August, $2.59M in debt was converted into 225,000 shares ($11.5 per share).

Same story with subordinated notes. SuperCom converted ~$17M of subordinated debt into common shares. Warrant issuance accompanied some of the conversions.

A portion of the former was done to clean up the balance sheet and avoid bankruptcy. However, I suspect another part was destined to fund the company’s growth, given the terrible cash economics of the business. If they manage to land another $20-$50M contract, it’s not obvious they can fund it with cash on hand without leaving SuperCom in a fragile position. Thus, equity issuance remains a possibility.

In addition to this, SuperCom had to do two reverse splits to remain listed on the Nasdaq exchange. A one-for-ten in November 2022, and a one-for-twenty in August 2024. The latter wasn’t mentioned in company PRs nor earnings call, but a 6-k got filed and confirms it.

Final Remarks

Conclusively, it’s a mess. I’m inclined to think Ordan is doing whatever he could to keep the business alive. It’ll be interesting to observe how he plays his hand hereafter. The business remains burning cash. Everything will be determined by the quality of their receivables.
And it’ll be interesting if people get surprised by the company’s 2026 p&l.

Disclosure: This is not a recommendation to buy or sell any security. I may own a position in some of the securitie(s) discussed. In addition, so much going on that I might’ve missed something; this is just the result of my dd and opinion.

"That's one thing we've never talked about here, but I spend more time looking at balance sheets than I do income statements... There are things that are harder to hide or play games with on the balance sheet."
("Wall Street tends to do the opposite") - Buffett

I'm currently reading Part 6 of Security Analysis, where Graham thoroughly goes over how important it is to look at the book value of a business because:

• It tells you how much capital is invested in it - how many dollars you're paying per $ of capital investment

• Shows you the capital structure - (complicated? share trend, securities outstanding and seniority (costs), etc)

• Estimate of liquidation value (margin of safety?)

• % of assets that are intangible, especially goodwill.

• Write downs? Did they do this once to fuel future earnings?

And so on.
Graham already says in 1940 that people stopped looking at balance sheets to focus on income accounts. Management can lie everywhere, but it's way easier to do so in income statements. Just assume a new method for inventory or d&a, recognize sales that haven't occurred, capitalize expenses instead of including them in g&a, and you self-manufacture high margins.

The accounting department can become a great profit center.

Balance sheets show you a business's history. They show buried mistakes. How long have receivables been outstanding? Are they really current assets? Did they overbook sales? Are they recording bargains on m&a or always paying in excess of book value? how much in leases till end of contract? is net ppe stable (capex cancels out depreciation)?

Sure, new economy companies live on intangibles, outsource manufacturing/production, and ROICs are as fat as they've ever been. But is growth coming at the expense of dilution? What is that growth worth if a dominant position is likely to be lost?

Sometimes, instead of just looking at headline numbers, you can look at the balance sheet and find out that a business might be trading at:

Mkt cap of $40M and EV of $50M ($10M net debt).
But the business has $25M in highly-likely-to-collect-receivables. Maybe total current assets of $50M with total liabilities of $25M. How much does the price you're paying for the business change after just one glance?

It’s true that there are not as many companies trading below liquidation value as there were 70 years ago. The more businesses I research, the more I think a margin of safety is mainly derived from a deep balance sheet analysis rather than some vaguely guessed continuation of the earnings trend.

Ignoring the balance sheet is the result of decades of focusing on business quality and leaving the price question aside. Book values don’t mean much in the digital economy, and most coverage is fully focused thereon. Old economy industries and business models were left behind by the media. Those that actually require CapEx to grow or hiring more people to increase their customer base.

Antique investment principles still apply, and there’s no reason why these businesses wouldn’t do well in the future. On average, I’m inclined to suspect that this is where purchases with a margin of safety can be found.

Just some thoughts. Hope they triggered more.

Best, Giuliano
giulianomana@0to1stockmarket.com

We all just hear people say how GDP growth will continue, how the rate of growth might even go vertical, and all these things.

And I just wonder, how is that even possible?

I’ll use VERY rough numbers.

Say that:

- There are $2tn in circulation. (The Physical Anchor)

- M2 is $20tn. (The Ledger)

- US GDP is $30tn. (The Output). 1.5x M2.

- US debt markets worth $50tn. (The Promises). 1.6x GDP

- S&P’s market cap is $60tn. (The Expectations). 2x GDP and 3x M2.

- US real estate market is worth $80tn. (The Collateral).

$2tn in circulation is holding up all of that economic activity and theoretical wealth.

How can one envision a world where theoretical wealth’s growth continues to outpace the actual money that’s out there?

That’s why busts hurt so much, and they’ll hurt increasingly more as the gap between “reality” and “theoretical” broadens.

The reason why people say GDP will grow indefinitely is that “new, better products will come along. Productivity will be enhanced. Etc”

Sure, but what if future technology and businesses, by the nature of competition, have lower profit margins than nowadays? How does this translate into market returns?

And what if you create a better solution for a $100bn market but you end up destroying the previous $500bn inefficient one?

Will the $400bn just go somewhere else? I don’t think so. I would think $400bn in theoretical wealth vanishes. And how do you start filling all these gaps? If it happens at one level, it’s likely happening at many levels.

How do you keep economic growth when you have such destruction?

People will quote Schumpeter and say it’s what has happened all throughout history, but I don’t know if that’s so right.

There’s such a gap between theoretical wealth and real wealth that the only way you continue to patch things is by either maintaining the gap or increasing it.

And how do you even increase it when you are this stretched?

Of Market Returns

Market returns have systematically outpaced economic growth for 2 reasons:

• Multiple expansion: Expectations / a more favorable view of the future.

• Margin expansion: SP&500 profit growth has outpaced GDP growth.

To think about this pragmatically, what happens if a company comes along and displaces the iPhone?

Apple is worth $4tn and generates $110bn in profit at a 27% margin. What if the contender’s technology is so efficient that the end-product can be sold at $100-$200? And what’s more, what if the competitive ground goes actually crazy and profit margins are not as high as Apple’s?

In this scenario, what if the TAM not only gets compressed, but also much less profit gets derived therefrom. At what multiple of earnings could that trade? The company might end up being worth $500bn or $1tn.

In history, new technology made complicated, expensive things more accessible and cheaper to everyone. And let’s imagine that accessibility will continue to expand, as there’s still room for penetration in total population. But what happens in the meantime? What happens while new-company profits catch up with Apple’s? I suspect current theoretical wealth either temporarily or permanently vanish.

And regarding the second bullet point, how far can profit margins even go? How can EPS continue growing at 8-12% (?) while actual output grows at 2%?

Personal Commentary

I don’t really know how to tackle this. I know I’m missing a lot, however. If you’ve some idea that could help think about it, I’d be more than happy to hear it.

Feel free to reach out: giulianomana@0to1stockmarket.com

The Great Gatsby

Peak literature.

The Intelligent Investor

This is the second time I study this. Masterful work and overview of the investment field. Sound ideas to approach it.

Silent Spring

Environmental consequences of our abuse of fertilizers and why our mistreating the earth is hurting ecosystems. (1970s)

The Grapes of Wrath

There’s an idea in the preface I’ll forever remember: ‘I’m assailed by my own ignorance. No one knows how ill-suited and lazy my mind really is aside from me. I constantly combat this’. (Steinbeck - Nobel laureate). At times, this book cuts deep.

Lessons from the Titans

How little gains in efficiency, better operations, and getting the broad picture right can lead to huge success. You don’t need to create the iPhone to do well in business. Similar to The Outsiders.

The Screwtape Letters

A very clever way to write about how to live well and not drift toward hell. Can’t remember many details though.

Built From Scratch

Best business biography I’ve ever read. All of the ideas I might’ve read about, these guys applied to build a $300bn company. An astounding number of insights as to how to sensibly run an organization.

The Art of Power

Amazing individual and politician. Potential role model in so many ways. Extremely cultivated and likeable person, deep thinker across the board, and a doer.

The Life and Selected Writings of Jefferson

I needed to dive deeper into his ideas. His writings give a sense of how much he cared and thought about matters related to the soul. Jefferson reminded me of Oppenheimer.

A Man for All Markets

Brilliant individual, but I didn’t like the writing. Some ideas I can’t get out of my mind: (1) Tweaking a problem slightly can turn it from impossible to possible; (2) Education is software for the brain; (3) “If I don’t have an edge, I don’t play.”

The Snowball

This lets you see other sides of Warren. An extremely calm, erudite appearance hides a high-energy, highly ambitious and tough-to-deal-with individual.

The Power Law

An account of Silicon Valley’s history. A number of insights on how different VC firms and investors have approached it, and how founders view of VC firms has changed over time. I don’t remember much detail.

The Days of the Revolution

History book covering what led to the independence in Argentina. I didn’t like it at all.

Made in America

Sam Walton was among the best past-century entrepreneurs. Extremely hard working and thoughtful person. An interesting idea: when everyone was saying that Walmart was destroying local stores, he reframed it as saying that Walmart was winning because it was actually saving money for consumers. ‘Those stores were destined to perish’.

Buffett Letters (2002)

I read slightly over a decade of Buffett’s letters. Astonishingly instructive in investing and accounting matters.

The Paradox of Choice

Why options for everything have tended to increase and why that paralyzes us. Unnecessary book, nothing new and it’s already old.

The Double Helix

The process of discovering the Double Helix in DNA. Watson describes the journey; 2-yr long rollercoaster of emotions. Reminds me of what Feynman spoke about.

American Prometheus

The Manhattan project, WWII, occurred less than 100 years ago. What a group of coordinated geniuses can accomplish. How fragile things really are.

Magicians of the Gods

What if history has been misinterpreted? What if things started earlier? Are we missing out on important insights just because of complacency and human bias?

Slaughterhouse-Five

Never connected with Vonnegut.

Norwegian Wood

This hurt. A young girl’s boyfriend commits suicide. She’s a deep thinker and feels pain so within her she can’t escape it. Tries to fall in love and it unleashes a chain of sorrow she can’t bear.

Animal Farm

Quite clever. How politicians race against one another. How crowds are fooled. How vanity and mischief creep in at the top. Nowhere near 1984.

Lessons of History

This book pleasantly surprised me. I thought its thesis of ‘summarizing history and drawing lessons therefrom’ was impossible to execute well. They surprised me.

One thing that stuck: There’s a newcomer politician who argues in favor of going with a win-win deal with a rival nation. The old general goes on to say, ‘Son, you’ve learned nothing from history’.

White Nights

I think I read this for the third or fourth time. I don’t know, still can’t understand.

The Scientists

Starting with Copernicus (?), Gribbin goes on to tell the story of how science progressed, how ideas were formed, and who were the thinkers. Thesis is amazing; execution was bad.

Ice Age

Great account of how interglacial cycles occur. Big idea in here: Identify the 3 factors that move the needle. In climate change throughout millennia, it was: eccentricity of the orbit, tilt of the axis, axial precession (?).

Leonardo Da Vinci (Isaacson)

Astounding individual. Peak curiosity and talent well cultivated. Depicts how far people can go. Breadth of interests and how to intersect them. How to use Drawing for thinking purposes.

Leonardo Da Vinci: The Complete Works

Works of art, some notes from his journals, and drawings.

Punctuated Equilibrium

Amazing thesis, disastrous execution. Thesis: Darwin was right, but wrong. Evolution is not linear nor gradual; it happens in a few concentrated periods of time.

The Gulag Archipelago

‘To stand up for the truth is nothing: for the truth you have to sit in jail.” An account of a survivor from the Russian Gulags in the 20th century. Deeply disturbing, though half of it was something like a trial, which got boring.

The General Theory of Employment, Interest, and Money

I’m more inclined to think Keynes was crazy in what he posited, yet his approach was extremely sensible and correct: ‘We’ve been stagnated, we don’t know how to get out of this mess [depression], we need new ideas’.

Anna Karenina

I was expecting a masterpiece, and I think that was my mistake. Has many bright moments, indeed extremely bright some, but nothing crazy. Last chapter hit the hardest: there was this guy who was a deep thinker and momentarily got the grasp of what everything meant. But every time he tried to rationalize it or think it through, he lost that grasp. It takes courage.

Richer, Wiser, Happier

Good to get a sense of how great investors think and act. But Munger, Buffett, and Graham have influenced them all, so after reading these, there’s not much new.

Unfinished Reads

• Elements of Chemistry Left it half-way through after I drifted outside of science.

• Faust I occasionally return to this, but I haven’t read any literature in a while.

• Call Me Ted Ted Turner autobio, started it this past week.

“If [Tom] Murph[y] should elect to run another business, don’t even bother to study its value - just buy its stock”

I’m coming to a very firm impression that all great investors say one thing and dismiss another that’s equally true or even truer. Warren articulated this idea of ‘you want a great business because, one day, a fool will run it. But if it’s a really good business, the fool won’t destroy it.’

To a large extent, the premise is sound. Now add to it his other idea, namely that ‘when a manager known for his reputation of brilliance tackles a company known for terrible economics, the latter prevails.’

The investment community had no option but to conclude that business > manager. This seems to me as an increasingly fragile thesis. Anecdotally, in Warren’s biography, Alice writes about how Coke’s moat almost vanished over a 5-year period. The exceptional, indestructible business was brought to its knees after a CEO change.

John Morgan and the Transferability of Skills

In the 90s, Winmark (resale stores franchise) was almost bankrupt. Morgan came in and changed the business model. The company used to focus on selling merchandise to franchisees and John turned it into a royalty business.

What remains on my mind, however, is not Morgan’s genius decisions. John had previously successfully founded and exited an equipment leasing operation. And when Winmark stabilized, he brought that capability to his new business. Morgan single-handedly built a leasing business unit within Winmark and quickly scaled it to $40-$50M in assets, and $10-$20M in sales.

Just because John Morgan was there, Winmark’s shareholders benefited in a two-fold manner: (i) they earned extra profit (otherwise nonexistent); (ii) they had a profitable, high-ROIC avenue for capital deployment. After his retirement, new management discontinued the leasing business, fully acknowledging it was John. Winmark now returns most cash flow.

The market tries to consider everything when pricing an asset, which includes people. Fundamental business skills are transferable. When a John Morgan takes over a company, you know he can add tens of millions in profit because of his toolkit, irrespective of the company’s industry. There’s a dumb-sounding but true term that captures this idea: Intellectual book value.

Brad Jacobs is an extreme version of this idea. He has consistently shown his ability as an operator and the market is thus able to sit back and trust. In 2024, Jacobs was able to raise $5bn on just a plan. Even though he had identified the target sector, he had no experience or operation in that industry. But the market knew that, no matter what, Brad was able to spot fragmented industries where his skills were applicable.

A dollar is not worth a dollar. Depending on who holds it, its intrinsic value can greatly exceed $1 or be close to zero. If a 40-year old Buffett owned a public company with only $100M in cash, funded with equity, the company’s value would certainly be well in excess of $100M. Capital allocation is a transferable skill, just like operating capabilities.

Trying to Understand Crazy

This is the very reason why Tesla shareholders approved a $1 trillion (!!!) compensation package for Elon, why Bezos was able to raise $6bn on an idea alone, why Larry Ellison committed $1bn to the Twitter acquisition out of just a text message from Elon, and why Apple paid $430M for NeXT (company with no viable product but with Steve Jobs).

If Sam Walton had resigned from Wal-Mart and set to start a new retailer, I’d bet on that going well. If a Lee Kuan Yew were to start a new nation from scratch, I’d bet on that. Top people’s capacity needs to be assessed and premiums should be considered accordingly. Almost always, these guys surprise you. What you think is possible falls way short of what’s possible.

Who expected Murphy’s run to end in the (by-then) 2nd largest deal in history, selling Cap Cities to Disney for $19bn?

Personal Commentary

I’ve been playing around this idea for almost a year now. Even though I feel that my grasp thereof has improved, there’s much that’s uncovered.

Been reading many books about business and investing but, for whatever reason, I can’t seem to find many valuable things to bring. It’s on my mind to record a podcast episode going through my notes on this last dozen or so books.

Always feel free to reach out at giulianomana@0to1stockmarket.com

Best, Giuliano

The Intelligent Investor

I read this back in 2022 and thought it was the best book about investing. After 3 years and everyone telling me I was wrong, I had to re-read it to check on my former self. What I found delighted me: Everyone else is wrong. Just read this and you’ll see why:

Lessons From the Titans

This was a book recommended by Sidecar Investor. It’s a great account of some exceptionally run, overlooked companies. It’s focus, alike The Outsiders, is on the operations side of these businesses. Ideas that stuck:

• The best HR teams are not about hiring superstars. They are about making average people (80% of org) perform a little better.

• Business processes are powerful and can single-handedly make you win.

• Good managers know when to grow the company’s asset base and when to stop doing so. After a point, returns might be higher when optimizing assets and trying to extract every dollar out of them.

• $1 generated in oil and gas is just as green as one generated by a SaaS.

• Culture is dictated top-down, and it’s destroyed when arrogance creeps in at the top.

• There are operational edges even in commoditized industries.

We discussed this book with Sidecar in a podcast episode:

Built from Scratch

This is an autobiography of the guys who built The Home Depot. It surprised me. One of the most remarkable business books I’ve come across. All ideas I might’ve read about, these guys applied. And not only that, they multi-dimensionally applied them, with example showing their understanding.

The thing I thought the most about while reading was that it gave me a feeling of reading Jeff Bezos. Bezos always mentioned Amazon focused on 3 things: (i) Lower prices; (ii) faster delivery; (iii) broader selection. I’d never had figured that the HD guys had pushed for this on an extreme level, 20 years earlier, with the exception of faster delivery.

Customer obsession, Bezos’ overarching principle, was also Home Depot’s. And I’ve never seen it practiced to the extent HD did.

The Power Law

This book gives a historical account of the VC industry. Excellent read. Things that might’ve stuck the most, though I need to think it further through:

1. Difference between VCs. There’s a spectrum of investment stage and how to deal with risks depending thereon, VC involvement, invest on product or people, and how much dd different investors need to invest.

2. How much ‘luck’ there is to it.

3. Why where you reside matters.

4. How the business of business is connecting people.

Richer, Wiser, Happier

This book is good in that it covers a wide array of investors, many of whose approach differ in nature. It has, in addition, a philosophical angle to it, for the author borrows quotes from everywhere; fascinating. The great problem it has, in my opinion, is that investors have been so influenced by Buffett, Munger, and Graham, that you rarely find new ideas after reading them.

Another thought was triggered after reading the chapter on Greenblatt. I came across an interview of Feynman that was life-changing to me last year. He spoke about the fun he experienced while thinking; something I had seen in Darwin, Cicero, and others, but that I hadn’t fully grasped. The best investors share the same trait as these guys, as theoretical physicists. They enjoy just thinking.

Personal Commentary

This was a quick recap. There’s a lot more to each of these reads, naturally. But I just wanted to see what was top of mind with regards to each book. Hope you found it useful.

Best, Giuliano

Go to the Source

The misrepresentation of ideas is widespread and something I’ve repeatedly encountered. Most people read “recent” literature, ignoring its origin. I believe this is something to avoid if one were to aim for sound thinking. Once ideas are out there, ‘new work’ is typically an interpretation about these, with some new thoughts.

Problematically, new work brings along the writer’s biases. Even if a good thinker, able to faithfully reproduce the original content, no replicating mechanism is perfect. Furthermore, new work built on top of it will accentuate discrepancies, and so on to infinity. People reading recent literature completely miss what the idea was originally about.

Theory and Logic

Isaac Newton, after Galileo, Keppler, and other giants, did a great service to humanity. He built a theory for how the world largely works; a theory being a framework that explains what causes what and why. In physics, you can test theories’ Truthfulness, or at least have more tools therefor. Nature tells you.

Before you successfully test and retest your theory, it’s just a hypothesis. The problem arose from people becoming so acquainted with the word “Theory” that they just throw it around as if it was nothing. Outside of physics, you just cannot tell; you can’t really test it. And more people agreeing on it, all of them based on illusionary interdependencies, will not make it True.

Quality is something that escapes the grasp of any given sense or ability, but it’s found at the intersection of them all. I’m inclined to believe that logic, mostly following some sort of mathematical path, cannot, in and of itself, catapult man into a sound economic framework. Despite me being attuned to Adam Smith’s way of expressing ideas, Truth might be found in a mix of both thinking methods. I’m not really sure what I mean by this, but it felt as if Keynes was continuously pursuing “if statements” until he cornered each variable. And I think that’s a deeply flawed system to explore economics. Logic alone will not suffice to truly understand.

Economics

An honest evaluation of the book’s intellectual merits forces me to observe the great impediments I face when trying to undertake this task objectively, namely: (i) I have almost 100 years of hindsight; (ii) outside of strict academia, most people I’ve heard speak about Keynes was in a negative fashion; (iii) he published it in 1936, after the Great Recession, yet with no recovery on sight.

I found the book interesting in two respects. Being Keynes an intelligent person, he sets the stage very well, addressing the state of economics and the problems it encountered (which validity I ignore, incidentally). In addition, he had a good grasp of how the different concepts interplay with one another, defining and proposing how this may be done so. Some of his premises are sound and, when assumptions are overlaid, Keynes explicitly declares that these are just assumptions; one has to be careful with their use and any conclusion derived therefrom.

Essentially, and hopefully I’m paraphrasing accurately, some of his conclusions were the following:

• He believed that maintaining a stable (~fixed) level of money-wages is the most advisable policy, though his view was not fully inflexible.

• Under some conditions, employment will change in the same proportion as the quantity of money; and when there is full employment, prices will then change in proportion to the quantity of money. Thus, policy would be to increase the money supply so long as there is not full employment.

• He emphasizes that the problem stemmed not, as was mostly believed, from a lack of consumption, but a low volume of investment. Keynes favored the government kickstarting the recovery by undertaking public investments (i.e infrastructure).

• In contemporary conditions, the growth of wealth was not aided, as commonly supposed, by the abstinence of the rich, but impeded by it.

• He strongly favored taxation for the redistribution of income, especially inheritance taxes, to reduce inequality.

• Against international Trade restrictions in general; in favor when needed to protect domestic employment.

• Increase “the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus; and at a scheme of direct taxation which allows the intelligence and determination and executive skill of the financier, the entrepreneur et hog genus omne (who are certainly so fond of their craft that their labour could be obtained much cheaper than at present), to be harnessed to the service of the community on reasonable terms of reward.”

• In favor of increasingly “socializing” investment, whereby the public authority would co-invest alongside the private sector.

• [In an example of an economy with 10M people, 9M of whom are employed], “the complaint against the present system is not that these 9M men ought to be employed on different tasks, but that tasks should be available for the remaining 1M men.”

Keynes thought that, should the policymaker implement the correct measures, the state of the economy would trend towards a more desirable place. When the convergence is manifesting itself into reality, Keynes pointed out that Classical Theory was to take over policymaking once again.

My critique is that, inasmuch as the latter never unfolds fully, intervention would be indefinite. After I mentioned this to a friend of mine, he proceeded to tell me an anecdote:

My Take

Upon my first impression, I thought he was delusional. Time has revealed to me that he was not. Insofar as one takes his ideas in the complete context he describes, and under the assumption that he was an honest, objective, intellectual, he might not have been wrong on some things.

It is the general belief, I presume, among the economists’ community, that it was Keynes’ ideas, accidentally, what got the US back on its feet. I believe WWII propelled the US government into the incurrence of massive capital expenditures, financed with money printing. The war forced the government to increase public spending, creating many new jobs, albeit temporary, in the process. By the nature and caprice of things, this might’ve kickstarted the economic machinery.

In the event that the foregoing were true, his ideas might thus be opportunistically right. In a recessionary economy, public spending could be the stepping stone leading to an economic recovery. However, Argentina has persistently undergone economic struggle and Keynesian ideas not only did not save them, but exacerbated Argentina’s issues.

The American peoples chose to continue transacting and saving in US dollars even after large amounts thereof were injected. In contrast, I believe that a large percentage of Argentinian peoples, upon encounter with newly issued currency, have historically exchanged it for goods or other stores of wealth. And further, I suspect that an increasing percentage of the economy has not even opted to transact in Argentine Pesos, preferring other forms of payment.

Largely, Argentina’s history is one of defaults and inflation. The population has grown averse to holding the country’s currency. And if the new currency is not used to undertake new ventures or, as soon as earned through labor, gets exchanged for another currency or asset, it merely generates further downward pressure on the Peso. In one way or another, these Pesos find their way back, in ever increasing amounts, to the hands of the employers who continue to operate in this currency. They remunerate workers at rising nominal rates, for real rates plummet after the basket of goods is counterbalanced with more currency, who in turn again get rid of the Pesos.

Hence it remains unclear. The correctness of some Kenyesian ideas might depend on the country’s context and folklore. Inasmuch as he lays down his assumptions and describes the required stage for him to be right, although omitting scenarios where there’s no demand for domestic currency, there is some truth and usefulness in his reasoning. Having said this, the world rarely satisfies the necessary conditions.

Crises and the Marginal Efficiency of Capital

The Marginal Efficiency of Capital (MEC) refers to the rate of return a businessman expects to get from investing an additional unit of capital; it’s conceptually similar to the IRR, but it applies more broadly to the economy, in contrast to the IRR which is utilized to evaluate individual projects.

A remarkable aspect about Keynes’ book is the clarity with which he saw the influence of psychological phenomena upon the economy. Theretofore, it was believed that a rise in the rate of interest, a byproduct of increasing demand for money, was the largest explanatory factor behind crises.

However, Keynes posits that the main element behind crises is “a sudden collapse in the marginal efficiency of capital.” Though the rate of interest embodies the cost of capital an investment might have, it does not, in and of itself, determine the expected return; if anything, it might only increase the hurdle rate. Expected returns are driven by businessmen expectations for the economy. Well substantiated or not, there are no True answers.

In The Lessons of History, by Will Durant and Ariel Durant, it is very well captured why revolutions destroy wealth, by and large. Inasmuch as most wealth exists in a theoretical fashion, without there being a possibility of materializing all existing wealth at once, a revolution, insofar as it compromises the confidence upon which the whole societal system is built, destroys wealth. Take a stab at public confidence and the world crumbles.

For the Investor

The book is, at times, a useful read for an investor. Keynes speaks about markets with unusual perspicacity and clarity, insomuch that, should the book be reduced to merely these observations, it’d be among the most illuminating writings. Specifically, Chapter 12 addresses how the stock market functions, why liquidity ended up being a harmful feature; how, despite the stock market being organized as a channel through which capital should be able to find the most profitable opportunities, incentives ended up perverting the system; the difference between investors and speculators. It further speaks to the way in which investors and businessmen actually operate, assessing the likelihood for scenarios and acting thereupon, and how much the market and some economic variables are driven by people’s psyche.

About the latter, there is something worth thinking about. Keynes speaks about the state of confidence of businessmen and investors as a major factor behind the schedule of the marginal efficiency of capital, which resembles an investment schedule. The system’s capital outlay, and thereby, businesses’ individually, runs on a flexible schedule which allocators have. And they think about future incremental deployments as having attached thereto a specific rate of return. In consequence, cycles of contractions and expansion follow, as a byproduct of this state of expectations. Oscillations are severely aggravated by speculators and the market liquidity they’ve been blessed with.

The following chart captures three variables, which could be seen as capital outlay (maybe investment), expenses/maintenance, and net investment, the difference between the former two; a model which, although I don’t fully comprehend it, I found extremely useful;.

Note: In millions

In a non-static economy, the aggregate volume of capital formed, or invested in long-lived assets (houses, buildings, manufacturing plants), varies immensely, greatly influenced by the state of expectation. Brighter periods, such as 1925-29, where vast amounts of capital is deployed, subsequently requires increasing magnitudes of expenses, diminishing future net capital formation unless increasing amounts of capital gets deployed.

By the nature of things, the higher you are, the more distance to the ground. An economy, even resilient in appearance, is underlied by deep fragility; for a single event can unleash a domino effect, affecting the state of expectations, which gets negatively reinforced by former years’ increased levels of investment.

This very well relates to an idea I heard from Mohnish Pabrai: Gestation Periods. Commercial real estate follows something like 5-10yr cycles. When there’s excess demand, investors deploy capital into new buildings. Given the size thereof, 5 years need to go by before this new supply hits the market. In year 2, given supply has not made it to market and excess demand persists, more buildings will be started. The same happens until the first batch of buildings hit the market, whereupon the gap between supply and demand narrows. However, buildings began in year 2/3/4/5 continue increasing supply for the coming 4 years. And until this capacity gets absorbed, which might take 5-10 years, the real estate commercial market will be oversupplied. In a different industry, where constructions may take one year, there’s not such prolonged cycles, for supply catches up more quickly.

Some Wisdom

There is an element in Keynes’ General Theory, typically overlooked, which attests to his, I hope, candidness. Keynes comments about how, all throughout his life, he was taught something, which he longly held as truthful, and even himself taught to others. Time revealed to him how wrong he had been. Upon such epiphany, Keynes saw the need of thinking. Further, the purpose of his book, presumably, was to push for new ideas, very much required at the time, for there was no light. I strongly appreciate this feature, inasmuch as it stretches the limits of societal ideas.

“We cannot solve our problems with the same thinking we used when we created them” Einstein

Thinking differently from the crowds is not only difficult given the broad area the latter has covered throughout history, but the many psychological impediments make it an excruciating task. Masses are seen as safety; everything lying beyond the reach thereof commonly entails risk, and a peculiar way of “stupidity”.

“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally”

Physics Envy

It’s still unclear to me how more complex mathematics first crept into economics, but I don’t think any Truth is to be found there. It just doesn’t feel right. What I found interesting in Keynes’ work is that he explicitly and quite eloquently attacks the pseudo-mathematical approach taken in his field.

“Too large a proportion of recent ‘mathematical’ economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.”

False Humility

This is more of a personal observation. Throughout the book, Keynes sometimes notes that he does not hold the absolute Truth on the matter, that there are assumptions and things to consider in reality. I almost never got the feeling that these lines were written sincerely. Additionally, the writing is good, but seems structured in a way so that not everyone would understand it. Both things make me suspect his intentions. I never felt that with Adam Smith or Charles Darwin, whom I consider were faithfully pursuing Truth.

Final Remarks

I am hesitant to recommend Keynes’ book. As I hope to have given the sense in this writing, I learned much, but it always takes time to unlearn what needs to be unlearned. The deeper it gets ingrained, the harder it is. Chapter 12, despite what I felt were plainly wrong conclusions, is an enlightening read. Buffett’s recommendations never miss.

Feel free to reach out if I can help you with anything:

Giulianomana@0to1stockmarket.com

Numbers at a glance:

The Outsiders and Richard Zeckhauser

Reading Zeckhauser’s essay and Thorndike’s book was quite revealing, as I had formerly held the belief that jockeys didn’t matter as much as the horse. After coming across Hermann’s announcement, my mind went back to the book, for Richard reminds me of these operators. The Hermann’s case, however, remains before the fact and proof; that’s where risk lies. Absent the latter, ironically, no profit would there be to be made.

I wonder what I would’ve felt and done after hearing about Murphy’s acquisition of the ABC Network back in 1986. The deal went for $3.5 billion, while, in all likelihood, Capital Cities’ market cap was between $1.5-$2.5bn. “Will this acquisition turn out good?” Risk lives in the absence of determinant answers. My thinking propels me to twist the question slightly, “Is he capable of pulling out this operation?” And where does the answer come from if not from one’s judgment of the operator?

The Need for Analysis

I presume it would be very common to dive into the acquiree’s characteristics and economics to “assess” whether or not the acquisition will be profitable. It seems like a very sensible thing to do. Notwithstanding this, what if it is Tom Murphy, or Mark Leonard, or Buffett, who are at the helm? If you understand their true capacity, the only item that could stand in the way of you achieving exceptional results is yourself. For, let’s say you “reach the conclusion” that Murphy was wrong, then what? Would you have sold, assuming you had done a correct job at partnering with him, understood his superiority as an operator, and knew he had more information than you about both businesses?

The magnitude of the ABC acquisition could’ve driven many investors away given its size and the fact of it posing many new risks, not theretofore exhibited. This goes without saying. And the aim of this write-up is elsewhere.

Let Them Work

Long-enduring, exceptional returns, go hand in hand with identifying extraordinary operators and partnering with them. Both elements turn sound investing into an exquisitely laborious task. Despite not yet having come across much evidence in favor of the following, my suspicion is twofold: (i) that the first condition might be analyzed by the mind, but partnering relies on Trust, which resides in another department; (ii) human nature makes investors struggle with the second condition more than anything else, being one of the most return-destroying elements, even in presence of brilliance.

An investor’s job might be to understand the water and its currents just to validate the nature of its flow. But you are not the fish; swimming is delegated and you must learn to live with that. If one’s job is well done, the fish will not die by weather nor any factor inherent to the environment. If the job is greatly done, the fish will live for a long time, yielding offspring and spreading its genetic material throughout the ocean.

More Background on HireQuest

HireQuest went public in 2019 by acquiring a then-public company called Command Center. At the time, HireQuest had 98 locations, while Command owned 67. A successful integration followed and, thereafter, HireQuest reinvested most of its cash flow in acquiring staffing businesses, some of them being sizeable (i.e Snelling with 47 locations). In late 2022, Hermanns announced the acquisition of MRI Network, which offers permanent placements and had ~230 branches, almost the same size as HireQuest’s network. The success of MRI’s integration is undeterminable yet.

All of this was funded with cash generated by operations; the balance sheet remains extremely strong, with almost no financial debt, and shareholders have not been diluted in order to pursue any of these transactions.

Why Issue Equity?

My main concern when I heard Hermann’s announcement was his intention of paying in HQI shares for the transaction. It would’ve been more understandable in 2023, when management’s efforts to acquire TBI began. But they could’ve changed their mind, or even wait, but Hermanns hasn’t. This brings me back to an aforementioned point, aided by another factor.

Richard Hermanns is HireQuest’s largest shareholder (38.2%). If I’m right about his capacity as an operator, why would he be willing to dilute himself at a “less convenient valuation than 2023’s”?

Value is destroyed when one gives more than they receive. Therefore, being incentives so aligned between shareholders and Richard, I’m led to presume that, even by paying in HQI shares, Hermanns expects the acquisition to be highly accretive and this to be a great opportunity to consummate it.

Notes

• When HireQuest acquires a company-owned location, they convert it into a franchise, selling it to its prospective franchisee. These branches have, in the past, been sold at a wide range of prices ($150k-$6.4M). Assuming $100,000-$500,000 per branch, HireQuest could receive $40M-$200M in total proceeds from the conversion of People Ready locations.

• Since HireQuest made public their intention to acquire TrueBlue’s shares at a price of $7.5 per share, on May 13, TrueBlue’s share price rose from ~$4 per share to $6.68 per share.

• “if TBI would prefer to remain an independent, publicly traded company, then HQI would be willing to acquire just the PeopleReady, Inc. subsidiary from TBI and would be willing to pay up to $150 million in cash subject to additional diligence”

Personal Remarks

I remain unconvinced that frequent posting will do any good at the moment, but writing this was real fun.

When I started writing in late 2022, I had promised myself I’d try to keep everything free. While learning about the investing world, I came across the fact that there’s little high-quality research and thoughts that one can freely access. Therefore, it was my intention to supply both things to people who, like myself, were trying to learn.

I finished my Master’s last year, returned to Argentina, and things are starting to more or less work themselves out. Consequently, earlier this year, I removed paid subscriptions, returning to a fully free model.

A couple of months have passed, so I thought I could now share the equity research that I did last year. I covered four companies, all of which’ write-ups differ in nature and structure. Hope you find them helpful:

Burford Capital:

Burford Capital Equity Report

2.13MB ∙ PDF file

Download

Download

HireQuest:

Hirequest Equity Report

1.63MB ∙ PDF file

Download

Download

Winmark:

Winmark Corporation Equity Report

588KB ∙ PDF file

Download

Download

Irsa:

Irsa Equity Report

795KB ∙ PDF file

Download

Download

Disclaimer: This is not financial advice. None of these reports should supplant your own due diligence and thinking.

Onward

I do not think I’ll continue to make use of this space to publish most of my writing. Insofar as any write-ups might relate to investing, I will. However, over the past 1.3 years, my mind has drifted to other places, most of which are completely unrelated to the heart of this newsletter and thereby outside of the scope of why you might’ve subscribed thereto.

Recording ideas and solidifying knowledge is crucial to me, but I believe that either a temporarily private approach therefor, or a new space altogether, are the better route. It is my true desire to turn all of these things that I’m learning into something. For it remains obscure how, I’ll try to eschew publishing until these clouds fade.

Thank you for reading and I hope you find the reports useful.
Importantly, none include valuations or any models.

All the best,

Giuliano

From others’ experiences, I borrowed the hypothesis, albeit not to its fullest extent, that the person who runs a business is more important than the business itself. Capable leaders bring an intangible asset to the equation that cannot even be sensed. It’s not only about the compounding of little decisions made every day but also macro picture ones, which drastically change the endeavor’s long-term direction in unpredictable ways, but on average highly skewed to favorableness.

Able people – I’m thinking about Lee Kuan Yew – can turn a nothing-place into a majestic metropolis. His genius was in picking the correct system for fixing huge societal issues, combined with pragmatism, problem-solving skills, and highly acute judgment. When complemented with LKY’s great sense of moral responsibility, for it largely appears to me that no exceptional, large-scale, achievement can be made without good, honest, stewardship, you get to one of the most impressive nation-builders in history.

People like Lee Kuan Yew are truly one of a kind. Whenever you feel like you are in the presence of another, you are most likely wrong. However, good results do not manifestly require an individual of this sort. Maybe top decile already works pretty well, with each upper percentile exponentially increasing the odds of success and the magnitude thereof.

Now, let’s presume you find a Lee Kuan Yew (extraordinary talent and high integrity) and have the opportunity to invest alongside him. Does it even matter what kind of business he is building? Is it okay to invest even if one ignores absolutely everything about the enterprise itself? What percentage allocation would you be comfortable with?

I was listening to a conference where Munger was speaking, and he said something like “the weaker the thinker, the more due diligence they need.” Highly hesitant to accept it at first, was he speaking about this? My question then is, how much can (and should) one bet based purely on their capacity to judge people, an incredibly biased skill?

Naturally, things work in degrees, not absolutes. Intellectual frameworks, mostly business ones mattering in this case, seem to help compensate for a lack of granular understanding; how things should tend to play out under a certain fact pattern. Yet, still, how far should you go based on a presumably conceptual grasp of the thing?

Depth of Knowledge

Knowledge seems to me built as a thread with finite extension, maybe resembling stacking grains of sand. Knowing a sentence that conveys a certain message does not imply one understands what’s within that message. What can happen, the transcendental status of statements, and their wide spectrum of covered area always escape one’s mind. Depth of knowledge entails knowing how the tree has grown until this cup, its configuration, and why branching created the concept being transmitted. Moreover, it entails understanding this infinite nature of things’ intention.

Deep Thinkers

Thinking feels to me as digging a hole. The mind works by sequential focus. Every time something arises and remains on, our subconscious spins the topic around. It finds unanswered questions, dead ends, presumed linkages, potential corollaries. What I tend to see in deep thinkers is that they seem to have been locked in a cage for years, navigating mental territory, yet mostly with some sort of semantic root in land transited. They’ve considered so many possibilities that what remains is like a group of ideas that have survived on the ring for a long, long, time.

The Common Denominator

Years of questioning, reasoning, and trying to understand is the only feasible approach. Other avenues lack the rigor that’s needed to tackle complex and profound ideas. These are people who have paid the dues and only rarely step outside their solidly grounded body of knowledge, which might even consist just of questions. The two individuals with whom I’ve felt this the strongest with are Fyodor Dostoevsky and Charlie Munger, both certainly differing at their core. And a lately recurrent thought is that the music I get the least tired of listening to, even after 100s-1000s of listens, may be the deepest. The fact that the mind doesn’t get tired of those might mean it's always uncovering new gems.

Personal Commentary

I’ve been lately much more inclined to thinking but without writing. It’s unclear to me whether this is the correct approach or not, but as to what the mind wants to do, I try to give room for. I believe it works as some form of intuition.

As a final and sidenote, I can’t stop thinking about physics and biology. Isaac Newton visits my thinking flow really often. I’ve been finding many of the books and ideas I’d like to pursue over the coming months; most from the 1500s-1800s. Couldn’t be more excited.

During 2024, the partnership returned 20.56%, bringing the return since inception (25th of Jan, 2022) to 50.3%. After fees, the partnership’s return since inception has been 45.3%. Although I’m not mindful of how other instruments or “comparables” perform, there is some truth in that they give a general sense of how the sea fared. A tideless sea makes surfing impossible, although you might find some tides in obscure places. The obverse is likewise true. On a tropical island, you’ll find much more fruit than in boreal forests.

The S&P 500 returned 23.3% in 2024. The index’s return since the partnership began has been 37.54%, or 11.2% per annum.

As of January 2025, the portfolio looks like the following chart illustrates. I do not think I have anything novel to share with regard to the different positions and their sizing. I would encourage you to revisit previous quarterly writings.

Conviction or Arrogance?

It has been my experience that, whenever I make up my mind that a business is mispriced, I find it incredibly hard to think otherwise. Much of the human brain is wired to impede one’s reality from vanishing, and a very pragmatic way to do so is by filling it with biases, one of which is the confirmation bias. Once you arrive at a conclusion, your inner self will work intensely to accommodate new information so that it suits your formerly held beliefs.

Changing is obnoxiously hard. On average, this works perfectly, but when you start analyzing events singularly, you’ll observe a much better job could have been done had the person been aware of how stupid their actions were. Intelligence does not prevent this a single bit; my estimate is that it mostly exacerbates it unless you exceed a threshold of brilliance, something I’ve observed after studying numerous physicists. Falling short of it, intelligence is more hurtful than useful in this respect.

There have been a few instances where I have confidently thought a security’s market price was well below its intrinsic value, whereupon we invested in these handfuls of companies. Thus far, events have turned out all right, in general, giving the impression that the analyses had been well done.

However, it is of the utmost importance to acknowledge that markets, and economies, have never done as well as in the past 150 years. Furthermore, considering the effects of compounding, the past 2 decades have been extremely tilted towards the upside in a rather fantastical — in the traditional sense of the word— fashion. 21st-century investors resemble fruit gatherers on a tropical island.

From common sense and logic follow that the path transited heretofore will likely not be walked hereafter. Over the past century, global GDP, especially in the US, grew at outsized rates, now reaching astronomical numbers in absolute terms. Moreover, equity markets outpaced GDP growth mostly due to corporate profits growing at higher rates than GDP. Inevitably, margin and cash generation capacity will reach a point where it’ll be impossible to improve upon. My suspicion is that the trend thereafter will be downward, as new competition joins and climbs the margin ladder, if it ever does.

In this environment, where Society’s wealth extraordinarily exceeds anything the world has seen, one must critically assess the correctness of their analyses. Not only is it easier to do well when everything does well, but it is easier to do well when people’s expectations are built on the recent past.

Even if both elements contribute to a business’ returns exceeding those of the general market, the correctness of the analysis is yet to be determined. Until the company’s future manifests itself, naturally taking decades, profits for the investor will be just driven by people’s change in expectations.

Conclusively, I’m still alert. Despite the fact that some of the decisions made in the past 3 years have yielded decent results, much remains undecidable and will probably be so longly hereafter. I think a person who doesn’t remind themselves about the ever-existing element of uncertainty will unequivocally tend to reach erroneous conclusions and a misappreciation of the past.

I try not to fall into the arrogant area, but I’m not so sure I do a good job at it. I realize that I can be wrong, but when I think about a position I might’ve held for 3 years with no results, I do not think I’m wrong; I just think it will take more time. This goes beyond companies for which I might’ve paid too high a price. That’s easily recognizable after the fact. But it’s the gray ones that are the difficult ones. Presuming I did not pay too high a price and that I’m right on the idea, how long can the wait be until it manifests itself?

Incidentally, in one of Greenblatt’s interviews, I heard him say something along the lines of ‘our research shows that 90% of true discrepancies between value and price tend to narrow/close within 3 years’. That really made me think. Will I be able to recognize one of these mistakes and cease holding them?

Exposure to Luck

For the purpose of this writing, let’s define luck as favorable randomness; that is, things that fall out of the cause-and-effect spectrum and end up benefiting us in one way or another. It would be ideal if one could purposedly build an attractor of luck. More specifically, if one could tilt the future outcome distribution towards the tail that most favors us.

I found Howard Marks to be one of the great articulators of the concept of risk. Risk relates to the understanding that ‘many things can happen, but only one will happen.’ When you roll a dice, you can get either {1, 2, 3, 4, 5, 6}. However, even when you know the potential outcomes and their probability of occurrence (16.6%), you still don’t know what will happen until after you roll the dice.

“We live in the sample, not the universe”

The added problem that investing posits is that you don’t really know what can happen. It feels like the completeness of the field lies in the unknown and unknowable world. An infinite number of variables interact with one another, with tiny changes at a node shaking the whole system, and unspecified locations for the nodes composing each puzzle. How to thrive in such an environment remains obscure, but there is one insight worth pondering.

Every time one makes an investment, it metaphorically resembles buying a lottery ticket. When the time arrives for the winner to be announced, a jar is shuffled, and a ticket is picked out from the thousands contained in the jar. Howard observed that superior investors have a better sense of the tickets in a jar. They know which lottery has the outcome distribution skewed towards profit. They do not play fair lotteries.

That’s the reason why knowledge and research are highly valued. Every piece of the puzzle one can gather will help make a better assessment of the ticket distribution within jars. Ideas like the margin of safety, competitive advantage period, equilibriums, competitive dynamics, manager’s talent, and so on, help make an informed inference. When considered, these ideas can be critical in determining a crucial aspect of investing: Which lotteries not to join.

Investing has an asymmetrical structure of payoffs, and with future results compounding on prior ones. Therefore, even though an investor might get a decade of a 30% CAGR, if that person deploys all capital in a business that goes bankrupt, their final result will be a total loss. It doesn’t matter how well they’ve done in the past, but how well they can do going forward, and whether they’re capable of preserving the wealth acquired.

This is the only profession I can think of that, by stacking yearly averages, you can get superior results because of that fact. It’s a peculiar characteristic that carries with it investors’ necessity to remain alert.

“We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.”

Correctness vs Accuracy

If you bet on preciseness, you’ll inevitably be wrong. I largely believe it has been a massive mistake for disciplines to try to imitate physics. Mathematics is a tool for logicians to understand a world full patterns, of sequentially sensible steps. However, when you do not know all variables impacting the output or their magnitude, it becomes a mostly useless tool.

There’s a book I read in 2024 that pushed me further in this line called Zen and the Art of Motorcycle Maintenance. Its second half is about answering a profound question: What is Quality?

Pirsig concludes that Quality is something that escapes all dimensions on which our perceptive system makes assessments, but it’s at the point where all intersect. Quality is something that we cannot define, but we know if it’s there. It’s something we see, yet it is invisible; something we hear, yet it makes no sound. It does not make it to our self through intuition, thinking, or emotion, but it somehow gets to us. We unknowingly sense Quality.

I believe the investment profession could be largely better practiced from that standpoint. Ideas such as the ones aforementioned can be perceived, understood, and can largely help one form an opinion. But a mathematical connection? No. A sequential chain of logic steps to pin down any of those? No. Chains always break somewhere. Investing has lately appeared to me as some sort of juggling of useful concepts and training the part of the mind that concludes thereupon.

Final Remarks

What goes on within one’s mind remains obscure, yet I find that recurrent, deliberate, analyses thereof are fundamental to avoid falling into one of its many traps. The investing profession is of true fascination to myself, for it allows a continuous sharpening of one’s skills. It further forces a unique kind of mental activity which I find enjoyable.

My intention in these writings is to update the reader on the framework I utilize for investing, at least to the best of my capacity. Transparency in the thinking process, and how it evolves, should lead to a more acute judgment of the partnership’s outlook. Future results turn dark whenever we stop learning.

More importantly, I’ve been placing more emphasis on making my writing as concise as possible. I have not had many interesting thoughts directly related to portfolio management, and digressing too much from it feels unfaithful to you.

Although I’ve largely ignored engaging and depending on economic analysis in the past, I must observe that the main reason I got to research Argentinian companies, besides the fact that, incidentally, I live in Argentina, is that the country is facing huge structural changes. The economic environment no longer seems to posit a mid-term threat and, if reforms get fully implemented, it might not even posit a long-term threat. Notwithstanding this, considering the country’s history, it remains a risk present in the investment.

Having said this, I became more familiar with how countries’ prosperity manifests itself. Two indicators I’ll remark on are low-level, controlled, inflation, and a continuously increasing GDP per capita, which entails the average individual getting increasingly wealthier. In consequence, this boosts consumption and investment, both local and, once the effects are internationally recognized, foreign as well. The obverse might also occur if the government inspires confidence. It’s thus that I was inclined to investigate Argentinian securities and came across Irsa, which could potentially benefit from all tailwinds embedded in an economic recovery and growth thereafter. It’s a perfectly fine business that has been subject to Argentina’s calamities.

I’ve been thinking about Irsa since May 2024, but decided to wait for further assurance about the country’s future prospects. When these things occur, there’s too large a number of risks that escape the common spectrum thereof. More importantly, my intention is not only to play re-ratings, but hopefully benefit from an intrinsic value increasing longly after the investment is made. The latter could’ve only been assured, to some extent, if the country’s restructuring solidified.

Finally, before going into the analysis, there’s an element that’s got me puzzled for the past couple of months. Irsa is technically controlled by another publicly traded company called Cresud, which has a 53% stake in Irsa. Eduardo Elsztain is the person who essentially owns Cresud and Irsa, whose family members are on both boards and running the companies. I cannot infer to what extent this dynamic affects Irsa’s operations and equity holders, probably due to my ignorance.

However, I’ve always been suspicious of Argentinian management teams, having anecdotally heard of how they operate in general. Although incredibly talented, there’s always a sense of shadiness. There are too many things going on. Maybe this changes hereafter, but it’s a risk I cannot fully grasp that I thought should be mentioned beforehand.

I believe the past 5-years actions, track record in debt payback, and insider ownership, partly insulate equity holders from being taken advantage of. Furthermore, the business’s income is very high margin, mostly from royalties, and generates a lot of cash. I believe the chances of the large underlying margin of safety being eroded are incredibly low. Nonetheless, I think these risks should be reflected by appropriately sizing the position.

Business Overview

Irsa is, at its core, a real estate company with operations mostly centered in Argentina’s capital, Buenos Aires. It focuses on land development and buildings for various purposes. Over the decades, the company has acquired and developed shopping malls, office buildings, and hotels. On some occasions, Irsa acquires stakes in such enterprises. Management has complemented this by acquiring land for future usage and obtaining concessions for certain entertainment and convention centers.

Since Elsztain acquired and started running Irsa in the 90s, the company slowly began constructing its portfolio. Shopping malls were under a vehicle called Alto Palermo Centros Comerciales (APSA), in which Irsa had a 95% stake. The office portfolio was separately managed.

In 2014, both segments were merged under a single vehicle called Irsa Propiedades Comerciales (Irsa CP), which operated as a subsidiary. The rationale behind the decision was to increase efficiency and improve the cost structure of the whole corporation.

Over the subsequent years, Irsa used to pay a portion of its dividends in Irsa CP shares. In 2017, the company sold an 8.1% stake in the secondary market for $140M. After this transaction, Irsa held an 86.5% stake in Irsa CP.

In pursuit of further simplification of the corporate structure, increase efficiency, better incentive alignment, and improved liquidity, management decided to merge Irsa and its subsidiary in 2021, Irsa CP, where Irsa would be the absorber. The combined entity would then own all assets and obligations, presented on a single balance sheet. After the event, shareholders approved in the general meeting of September 2021 for Irsa to issue $152M in equity.

Shopping portfolio

Irsa’s shopping portfolio consists of 16 shopping malls, one of which was purchased in November of this year. Nine of these are located in Buenos Aires, whereas the remaining 7 are distributed throughout the country, though concentrated in major cities. Two malls are in Córdoba, and one in Santa Fe, Rosario, Salta, Neuquén, and Mendoza. It is to be observed that Córdoba, Rosario, Salta, and Santa Fe are the 3rd, 4th, 7th, and 8th, most populated cities in Argentina, with populations between 570,000 and 1,600,000. CABA, where malls are to be found within Buenos Aires, has a population of over 3 million people.

In aggregate, Irsa has approximately 370,000 sqm in gross leasable area across the portfolio and 1,485 stores. Collectively, they get tens of millions of visitors per year.

The company follows a dual billing policy within shopping malls. Tenants pay a fixed base rent and a variable component, which is a percentage of the tenant’s gross sales, generally ranging between 2-12%. Although Irsa collects the highest amount among both, allegedly, I believe it is the case that the contract seems to establish that tenants’ payments must always exceed a certain minimum. Nonetheless, in times of economic pressure, which has systematically been the case in Argentina, Irsa has been understanding with people, sometimes working out different payment schedules.

Combined, this base and variable rate make up almost 75% of the total revenue that shopping malls generate for Irsa. The remainder comes from other services, most of which correspond to admission rights, parking, and commissions. Key money and the brokerage fee must be paid in advance and when lease renewals effectuate. As of 2019, the amounts were 5x the base rent for the brokerage fee and 8x the base rent for the admission rights. These have not been disclosed as of the more recent past, but I suspect remain fairly in those ranges, considering Irsa’s reported revenue from these sources.

The following chart illustrates the percentage of revenue that the fixed and variable components represented of total rental income. The lowest rental income that shopping malls generated was $37.9M in 2021, with $23.9M being base rent, and $14M corresponding to the royalty on gross billings. Rent derived from a percentage of gross billings seems to have been increasingly taking share of total rental income. This suggests either that stores are doing increasingly well, or that there’s been some change in Irsa’s royalty fee. I’m inclined to suspect that, if the economy recovers and begins to grow, this source will contribute meaningfully more to Irsa’s rental income.

Aggregated tenant sales finished a mostly flat decade. In 2014, the portfolio of malls had total tenant sales of $1.46 billion, whereas in the fiscal year 2024, tenants had sales of $1.67bn. I must observe that Irsa’s fiscal year starts and ends in June of the calendar year. As of the writing of this report, namely December 2024, Irsa is finishing the second quarter of its 2025 fiscal year.

Notably, occupancy levels in shopping malls remained high, mostly above 94%. In the period 2019-2020, the country went through a severe recession, followed by the pandemic, which was managed quite peculiarly by the Argentinian government. For the whole of the pandemic, Argentina was one of the most restrictive countries. Overall closures had a negative impact on sales, which was enhanced by lower tourism levels.

What’s interesting about Irsa’s portfolio of real estate assets is that they are high quality and require very low levels of expense for continued maintenance and operation. The gross margin that Irsa has on revenue generated by shopping malls has been around 90% for the past 8 years. The operating margin has been more volatile because of around $25M in mostly fixed OpEx. When malls have normal years, with tenant sales around $1.4bn, Irsa’s operating margin on shopping malls is around 70-75%.

Note: The operating margin is computed on an adjusted basis. I took out the fair value adjustments that run through the p&l every single year.

Even though the book value of a business is rarely a precise estimation of its economic value, I believe there’s a huge dissociation between both with this company, which causes a two-fold problem, namely: (i) very volatile income statements; (ii) it’s much harder to assess Irsa’s earnings power at a first glance.

On the first point, I think most investors, when they come across an awful income statement, the company turns into an easy pass, which is perfect for a potential misprice to occur. In 2023, for instance, Irsa’s reported operating margin on malls was 49%, instead of the adjusted 73% margin. This is more pronounced with their office portfolio and land development segment, which largely impacted the company’s overall operating margin.

Irsa reported 692bn pesos in carrying value for their shopping mall portfolio as of June 2024; an amount that is equivalent to $513M. Over the past 5 years, the company has written down these assets for a total of $41.8M. This leaves them at 5.1x their adjusted FY24 operating income, or at 5.7x their reported operating income. This would mean Irsa is carrying its 15 shopping malls, excluding the last acquisition, at $1,531 per leasable square meter. In essence, a group of assets that have systematically generated lots of cash, even through terrible recessions, is carried at such a value.

The company has not only focused on acquiring and building shopping malls, but also on expanding individual ones. Over the past time, Irsa spent great effort in acquiring locations, land, buildings, or houses, next to constructed malls so that they could expand their operations. This way, Irsa has increased the shopping portfolio’s GLA by 53,521 square meters.

Since 2018, total tenant sales per square meter have averaged $4,110. By extrapolation, we find that Irsa’s expansions have led to approximately $220M in extra tenant sales per year. If we assume Irsa’s take rate on that is 5%, then the company increased its revenue by $11M annually. When operating at a 70% margin, this in turn translates into $7.7M EBIT. These numbers must of course be taken with a grain of salt, for the economics differ between malls.

The most recently completed expansion was in 2020, to Alto Palermo, which increased its GLA by 3,900sqm. During FY24, Alto Palermo has 20,733sqm of GLA, and reported total tenant sales of $217M, implying $10,500 in sales per square meter. With this in mind, Irsa might’ve increased total tenant sales by $41M with this last expansion, which translates into $2M in revenue and $1.4M in EBIT. Although the actual investment seems to not have been disclosed, Irsa estimated it at $28.5M before construction.

After considering non-rental income, the expansion might yield 6.5% per annum, though there may be some boost to all store sales. I must nonetheless observe that Alto Palermo is the mall with the highest sales per sqm in Irsa’s portfolio. It also probably holds the best location, and I ignore to what extent this impacts the investment required. Although it is not a mind-blowing yearly return, I can’t picture how it could cease to yield for at least a couple of decades. Furthermore, it’s an investment in tangible, high quality, assets, which have tended to preserve wealth very well in Argentina. This idea is at the core of Elzstain’s approach to business.

In August of 2024, Irsa acquired a location adjacent to the Alto Avellaneda mall for $12.2M. The property has a total area of 86,600sqm and buildable area of 32,660sqm. As of its current numbers, Alto Avellaneda’s tenants generate $4.300 in sales per sqm. Considering the extra GLA, this might translate into over $140M in total tenant sales. With a 5% average royalty and 70% operating margin, Irsa’s incremental EBIT would be $4.9M. After taxes, this leads to $3.47M in NOPAT. However, if we remember that Irsa’s income has a non-rental part, equal to ¼ of the total, we get that non-rental income on this expansion might be around $1.15M. The ultimate return on capital will depend on construction costs, but economics seem encouraging, mainly due to the life expectancy I suspect these assets have.

The last case I’ll mention in this line is a very recent one. On December 3rd, Irsa announced the acquisition of Terrazas de Mayo, a shopping mall located in Buenos Aires, outside the main part of the city, which is where most of its other malls are. The shopping has 33,720sqm of GLA, 90 stores, and 10 cinema theaters. Irsa agreed to pay $27.75M, 60% of which has already been paid. It’ll be unclear what the economics of the deal are until Irsa discloses the mall’s numbers (if it does). Terrazas de Mayo presumably has 7 million visitors per year.

Lastly, Irsa carries all-risk insurance for its portfolio of shopping malls, which would cover damages caused by most natural phenomena and social outbreaks. At the store level, tenants must secure adequate insurance. If the loss they experience upon an adverse event exceeds the proceeds from the claim, Irsa might face a loss.

Office portfolio

Irsa has 5 office buildings, although some are not wholly owned, for the company might have sold floors or units within them. This is the case of Della Paollera, for instance. The following image illustrates Irsa’s office portfolio, which, collectively, adds up to 59,000sqm of GLA.

Leases tend to have an average term of between 3 and 10 years, are generally stated in US dollars, and rates are mostly at market values.

In contrast to the shopping malls, what’s interesting about the office portfolio is that Irsa has placed great emphasis on diminishing its footprint. The company sold numerous units and floors over the past couple of years. As of 2018, the office portfolio had an aggregate 115,000sqm of GLA, whereas it finished the third quarter of 2024 with 59,000sqm. It must be observed that, at the same time, Irsa built and added a building to the portfolio, called Della Paollera, which is located in a premium area of the city.

Della Paollera offers a great illustration of Irsa’s past years’ rationale. Irsa began its construction in 2016 and inaugurated it in December of 2020, although work progress in June of 2019 was 95%. Throughout construction, the total investment presumably amounted to $110M, granting the company 30 office floors, or 35,000sqm of GLA, and 316 parking spaces. Over the past 4 years, Irsa has sold 23 floors for a total consideration of $232.2M, equivalent to $7,631 per square meter. After these sales, Irsa still owns 3 floors.

In addition to this, in 2021, Irsa made 2 large sales. The Bouchard 710 building, acquired in 2005, was sold for a total price of $87.2M; for it had 15,000sqm of GLA, Irsa sold it for $5,800/sqm. On the other hand, the company also sold 13 floors of Torre Boston for $83.4M. Considering the 13 floors had a total of 14,640sqm of GLA, each square meter was priced at around $5,700.

In April 2022, Irsa announced the sale of the República building for a total price of $131.8M. The building had 19,885sqm of GLA and 178 parking spaces. 80% was paid in cash, and the residual was in the form of land, namely 46 hectares in Buenos Aires, the province. This land counts with 521,000sqm of buildable area.

Irsa’s office portfolio is mostly composed of premium buildings, which is on which I’ll base the following chart and numbers. Since 2020, and ever theretofore, the rental price per square meter has been relatively stable, averaging around $24-$27/sqm. Occupancy levels in these premium offices stayed at 80%+ even through the pandemic, exhibiting resilience.

To shed some light on the attractiveness of the above-mentioned sales, I’ll utilize the last sale of a Della Paollera floor, which was 1,197sqm. At a $24.4/sqm monthly rental rate, the floor might’ve been rented for around $350,000 per year. When considering its selling price of $7.1M, its cap rate would have been around 5%. It’s worth noting that this floor sale price was below the last few years' average.

The office segment has generated total revenue of $18.1M, $12.6M, and $12M in 2022, 2023, and 2024, respectively. This is largely attributed to the company’s reduction of the portfolio. Margins have been systematically high since expenses associated with floor rentals are quite negligible. Notwithstanding this, Irsa had to do severe write-downs of their office assets due to the economic environment, as it did with shopping malls. Over the past 3 years, the reported operating margin for the office segment was -101%, -27%, and -348%, from 2022-24 respectively.

The carrying value for the office portfolio was $225M as of June 2024, implying $4,385 per square meter. This was down from almost $420M in 2022, when the “fair value” per square meter was estimated at $6,515.

To conclude this segment, the following chart captures management’s historical thesis for investing in real estate assets; and, more specifically, in premium real estate assets whenever possible. The value per square meter of constructed high-tier properties has tended to rise in Buenos Aires.

Hotels

As of November 2024, Irsa owns a stake in 3 hotels, all of which were acquired before the turn of the millennium. The company owns 100% of Libertador, 76% of Intercontinental, both located in Buenos Aires; and 50% of Llao Llao, a very exclusive and symbolic hotel located in Bariloche, in the southern part of Argentina.

Throughout the past couple of decades, all three hotels have done very well, except in 2020-21 due to the pandemic. Their public consists of wealthy Argentinian families and tourists. This feature has been particularly helpful for the portfolio's continuous resilience. Nonetheless, the Argentinian currency's latest appreciation in the parallel market, and if it happens hereafter, would pose a tangible headwind to the business, for it makes things more expensive to tourists and, to the extent that salaries do not catch up, to the Argentinian population as well.

Occupancy has been around 60% on average in the different hotels, with Llao LLao’s being higher and with a much higher rental rate.

The Hotel segment generated revenue of $45M in FY24, up from $41M in 2023 and $25M in 2022. Irsa does not tend to make fair value adjustments in the same manner as it does with its offices and shopping malls, for which the reported headlines are representative of the segment’s economics. The gross margin was 53% during 2024, the highest it’s been since 2019, and the segment’s operating margin was 29%.

The hotel segment is the lowest margin segment Irsa has. Moreover, it has a fixed cost component that represents a much larger percentage of total sales than other segments. This has caused the segment to operate at very volatile margins. When sales contract, margins tend to fall; the obverse is likewise true. I would argue that the pandemic and Argentina’s recession make this seem scarier than it would in a normal economy. Absent both extraordinary elements and hotels might be seen as perfectly fine businesses.

Irsa carries hotel assets at $23.4M on the balance sheet, slightly down from $24.8M in 2022. Over the past decade, there has not been much activity in the form of buying or selling assets in this segment. It’s only worth noting that Irsa sold its 49% stake in a hotel located in Rosario for $4.2M in 2015.

Sales and Development Segment

Historically, Irsa has re-deployed most of the cash generated in the purchase of land, buildings, and for obtaining certain concessions. The purpose of these is quite varied; some are for expanding the shopping or office portfolio, and others to keep potentially valuable land in reserve for future usage.

The segment has generated $4M, $12M, and $6.8M in sales during 2022, 2023, and 2024, respectively. However, this segment affected Irsa’s p&l the most. Assets included are carried at $581M in the balance sheet, which is substantially below 2023’s $790M, and 2022’s $863M. Absent the fair value adjustments, mostly of the sales and development segment, Irsa would have generated decent levels of profit, at naturally good margins. This, however, does not affect the company’s capacity to generate cash flow.

Irsa’s recent years are characterized by the company’s concentrating operations on shopping malls and offices. I believe this is materially changing and will highly influence the company’s investments moving forward. Although Irsa will continue to expand their currently held assets and acquire new ones when opportunities arise, it seems that management will more pronouncedly focus on the residential market.

Ramblas del Plata, previously known as Costa Urbana, is a project that management has shown excitement about for several years. Ramblas del Plata is a 70-hectare land with 866,000sqm of buildable area, but of which 71% will be destined to public use. Irsa carries it at $359M on the balance sheet. The land is in a very peculiar location in Buenos Aires. It’s next to Puerto Madero, a premium area within the city that has experienced great success since it was constructed in the 90s.

The company expects this to be a 10–20 years project, to which Irsa committed a total investment of $40M. The rest will be financed by buyers and worked out through agreements. After it’s finished, the company expects it could be home to 6,000 families, with capacity for over 10,000 houses.

Irsa went through a couple of years seeking approvals and certification required to begin constructing Ramblas del Plata. In the conference call held in November 2024, management mentioned the company is almost at the final phase of compliance. At any moment they could get the last paperwork ready and start the project shortly thereafter.

In late November, another announcement was made, alongside the acquisition of Terrazas de Mayo. Management pointed out that Irsa made progress in the commercialization of the project. The company received offers for 126,000 square meters, which represents 18% of the total sellable area. Should all of these materialize, Irsa would receive $40M in cash and the right to keep 16,500 square meters in functional units of fully constructed area. Over the next couple of months, Irsa would presumably start with building the infrastructure if the deals close.

Irsa’s Focus on the Residential Market

I have addressed the fact that Irsa has lately placed more emphasis on shopping malls, offices, and, to some extent, hotels. In Argentina, for over a decade, there’s been incredibly limited access to credit. The mortgage market somewhat thrived in the 90s and never recovered. Given how large of a purchase apartments and houses are, only a handful of families engaged in these. Residential real estate, if to anyone, only appealed to investors. However, this started to change.

One of the core tenets of Milei’s presidency is deregulation. Since December 2023, when his mandate began, his team has made great effort in deleting regulations across most markets within Argentina, including real estate. Multiple laws have been passed to congress, others by decree, and Milei’s commentaries seem to suggest this trend should continue.

Rental supply in Buenos Aires already reflected the increased simplicity and the fact that the government won’t intercede, or not as much as before, in private transactions. After this occurred, prices started to pick up and seemed to be looking for an equilibrium. Construction costs, due to the devaluation of Argentina’s currency, have been high for the past 2 quarters, but should also start trending towards an equilibrium, where it’s feasible to engage in real estate projects. If salary growth continues to outpace inflation, families will become increasingly wealthier, permitting them to afford rentals, at first, and then aim for more expensive ones.

On the finance side, Argentina’s risk premium in the bond market dropped from over 2000bps to around 700bps. Not only does this allow the government to borrow at lower rates but complementing it with a rapidly decelerating inflation allowed for a decrease in interest rates, which spread throughout the whole economy. Argentina’s central bank interest rate exceeded 100% in late 2023, yet it’s now at 32%.

The other important factor is Milei’s policy of not overspending on their income. The government thus far registers a budget surplus for 2024 and the president’s comments suggest that frugality will continue to be core to their strategy. Prior to this occurring, it’s highly likely that private banks focused on lending to the government, but now they’ll look for new customers, who’ll end up being Argentinian citizens.

Partly due to these reasons and many other presumably positive indicators of the country’s administration led to the rebirth of Argentina’s mortgage market. Mortgages are unbelievably important for the aggregate of a population to be able to purchase homesites. If mortgage rates are accessible, this should tend to strongly increase demand for real estate. Irsa seems thus very well positioned to capture a potentially big, rising, market.

During Irsa’s conference call, held in November of 2024, the team highlighted their feeling of the market. Tides seem to be turning. They mentioned that recent government actions are having a positive effect on the residential market.

Irsa plans to carry out two more residential projects, namely Del Plata Building, which will be in a great area of Buenos Aires and count with 720 apartments; and La Plata Project, which will have 100,000 of buildable square meters, out of which 22,000 will be destined to a new shopping mall.

Banco Hipotecario

In 1999-2000, Irsa acquired a stake in Banco Hipotecario, which subsequently increased to 29.9% ownership, which they’ve held since. The bank was founded in 1886 and has been a leader in mortgage lending within Argentina. During the late 90s, its privatization process began, but the government that succeeded the one that started with it decided to retain a controlling stake in Banco Hipotecario. As of 2024, the Argentinian government remains the controlling shareholder. Nonetheless, 7 of Irsa’s executives and directors sit on Banco Hipotecario’s board.

Banco Hipotecario has a 62-branch network that extends to all provinces across the country. The company had ARS 372bn in equity as of June of 2024, equating to around $275M, and total assets of around $1.8bn.

For it has been a household name for 130 years, the bank is very well-positioned to capture an upside in Argentina’s mortgage market. In addition to this, there is a possibility of Banco Hipotecario and Irsa cooperating on projects, creating very valuable synergies. While Irsa plans to undertake big residential projects, Banco Hipotecario looks to finance home buyers. It is to be determined how the economy continues to fare, but future prospects appear to be good, giving a chance for demand of these loans to explode.

In the fiscal year that ended in June of 2024, Banco Hipotecario approved dividends distribution of around $20M, of which $10.5M were distributed to Irsa. The bank operated profitably over the past 2 years, had returns on equity above 15% and its balance sheet is healthy, with liquidity exceeding total deposits. If the mortgage market effectively recovers and grows, Banco Hipotecario could pay dividends to Irsa for a long time to come.

La Rural – Special Mention

In the city of Buenos Aires, there is an emblematic building called La Rural, which is one of the most well-regarded convention centers in the country. It was founded in 1878 and serves as the place where fairs, exhibitions, congresses, and various events, including those business-wise, are held. La Rural has multiple millions of visitors every year.

Irsa acquired its 50% stake in La Rural by purchasing in two separate years, namely 2011 and 2016. The building generally requires a governmental concession to be utilized, which Irsa had formerly gotten. Irsa renewed its concession in 2022, extending its usage period of La Rural until 2037. In order to get this extension, Irsa agreed to pay $12M in annual installments.

Irsa received slightly over $1M in dividends from La Rural during the fiscal year 2024. The company’s interest in La Rural’s total 2024 income was $5.6M, and they carry their equity interest at $7.8M in Irsa’s balance sheet. The following chart includes the ownership, equity value in La Rural and Banco Hipotecario, and Irsa’s interest in their 2024 income. It must be observed that both businesses grew by over 150% yearly.

Cash Flow and Distribution

Irsa has been cash flow positive for more than a decade, with no year being an exception. During 2022, 2023, and 2024, the company generated $75M, $100M, and $76.6M from operating activities, respectively Moreover, in recent years, Irsa’s sales of investment properties outweighed purchases, creating a large inflow of cash.

Instead of reinvesting most of this capital, Irsa reduced its debt. The company had historically operated with relatively high leverage. But seemingly ever since a change in directors, and the merger with Irsa CP, capital has been used to deleverage the business and return a part to shareholders.

Considering Irsa’s high recent activity in the debt market ($52M issued in February and $42M issued in June of 2024), it might be expected for management to leverage up the balance sheet. However, I wouldn’t expect the business to return to prior levels. As of early 2025, net debt is around two times rental EBITDA.

After considering debt payback, Irsa still had cash available. During 2023 and 2024, management strongly favored returning cash to shareholders. Irsa distributed $64M in fiscal year 2023, $117M in 2024, and, in December of 2024, $78M more. At the same time, the company repurchased $34M in shares over the past 2 years. Both elements represented around a 30% yield for investors.

I contacted Irsa’s investor relations department in December 2024 and was notified that, onward, Irsa expects to again focus on reinvesting cash generated. Personally, I would believe they’ll continue paying dividends, and repurchasing stock as long as it seems below fair value to management, but much less aggressively.

Final Remarks

Irsa’s business is centered around redeploying the cash generated by its portfolio of offices, shopping malls, and hotels. I’m inclined to believe that Argentina’s economic environment in the past decade has been detrimental to Irsa’s operations and that the company can generate profits well above the levels heretofore exhibited.

The nature of the assets that make up part of Irsa’s portfolio, namely their local and national relevance, brand value, and quality, make me further suspect their intrinsic value is well in excess of the market’s view thereof. I suspect offices, shopping malls, and hotels have a long runway ahead. I believe chances are high that they’ll continue to generate good levels of cash for the coming years and probably decades.

I conclude their cash generation capacity after analyzing the assets’ economics, high-margin profile, and low capital requirements. On the other hand, the estimated competitive advantage period derives from the nature of these assets, how it has played out thus far, and how it has played out in other countries.

Moreover, if Argentina’s economy begins to grow after a decade of stagnation, consumption should pick up, inevitably benefitting stores within shopping malls. Land, office prices, and rentals would become more expensive. This would benefit Irsa in the form of higher rental revenue and higher base rent charged to tenants. Lastly, to the extent that any sales whatsoever are realized, the price at which these transactions will be made should exceed what the market might’ve agreed to over the past couple of years.

Even under stressful scenarios, Irsa’s portfolio has shown resilience, operating mostly profitably. Considering Irsa’s market capitalization of around $1.35 billion, or an enterprise value of $1.5bn, an investor purchasing a stake in the underlying business would be paying around 1.3 times its book value. I believe that, for the reasons laid in the foregoing report, such a price contains a large enough margin of safety to turn the potential upside into an attractive one.

I must nonetheless observe that, as pointed out in the opening remarks, many things are going on with the business. Complemented with Argentinian companies’ perceived shadiness, plus the country’s history, these factors remain posing the largest risk in this operation. Except for a political and economic setback, these can be extinguished with further due diligence, which is what I encourage the reader to do.

Thank you very much for reading and I encourage you to reach out to me at giulianomana@0to1stockmarket.com if you have any doubts about Irsa.

Disclaimer: This is not financial advice.

In this article, I’ll explore a concept that has transcended all fields and disciplines. I cannot, as of now, do an exhaustive analysis because of how little depth of knowledge I have in these different verticals. However, I believe it vividly captures the power of escaping one’s field and looking for ideas elsewhere. Many of them, with a twist, can be deeply helpful in understanding phenomena beyond what made them rise.

The first time this idea hit me from an unexpected place was in physics, specifically in thermodynamics. The second law of thermodynamics is about the increase of entropy within a closed system. If you leave it isolated, with no interference, the system will tend towards the state of maximum entropy and minimum energy. In a bowl, balls would sink to the middle. This acts as an attractor state.

Evolutionarily Stable Strategies

In the 50s-60s, biologists were studying how animals compete within an ecosystem. When one encounters a problem somewhere, it’s plausible that a similar thing happened elsewhere. If you find out how it’s been dealt with in this elsewhere, you might find some valuable tool for analyzing the situation you are interested in.

Essentially, evolutionarily stable strategies is an idea biologists took from game theory. It’s about thinking of species, or individuals, as players, and trying figure out what’s the soundest strategy each participant should utilize to maximize their chances to reproduce. Let’s imagine a population of one species, where individuals can adopt 1 of 2 strategies:

1. Hawk. Hawks are aggressive. Individuals adopting this strategy will always fight until death or a serious injury when they encounter another individual.

2. Doves. Doves are easy-going. Individuals adopting this strategy will always do a contest stare with individuals they meet. They never fight.

To make things interesting and exploit the potential for thinking ground this model offers, we assign payoffs to encounters between 2 individuals.

• Win: +50

• Serious injury: -100

• Long stare: -10

The purpose of this exercise is not to infer whether doves or hawks will win. We know for certain that hawks will always win encounters. An evolutionarily stable strategy is the strategy, or set thereof, that, if the majority of the population adopts, there will be no better alternative. It’s impermeable. That’s what we are interested in. Now let’s suppose two scenarios:

After a quick glance, you would think doves will dominate. But that’s wrong. If a population is full of doves, becoming a hawk turns suddenly profitable. Every time a hawk meets another individual, they’ll win because doves won’t fight. The average payoff for a hawk would be +50, reproducing the most.

Now you think hawks will dominate. But if a population is full of hawks, then becoming a dove turns profitable. Although the average payoff for a dove in a population full of hawks will be -10, hawks’ average payoff will be almost -25. In this scenario, doves will reproduce the most and their share of the population will rise.

It appears as if the ecosystem will follow a pattern of ascension of one strategy to then be succeeded by its decline and full ascension of the other. But there is a fascinating kicker. Mathematically, there is an equilibrium where the population will settle. Every 12 individuals, 7 will be hawks, and 5 will be doves. If a strategy gets used more than that, the other one will become profitable and hence the system will regulate itself. When a population reaches an equilibrium, alternative strategies get penalized.

These “attractor states” is what I’ve seen everywhere. I’ll briefly go over some of these.

In microeconomics, this idea of how players think about their strategies, which are invariably affected by what other players’ options are, reached an interesting conclusion. Where a finite number of strategies can be determined, alongside the payoffs or costs they carry, you can mathematically arrive at the strategy that’s the most convenient for every player, considering other players’. Deviating from it gets penalized and hence you have no incentive to do so.

Where it gets interesting is when you observe systems where individual players choose the best strategy they presumably have, but end up being much worse off than if another set of populational choices were taken. This is classically known as The Prisoner’s Dilemma. Simply stated, when two criminals in this exercise are interrogated, the options they can choose is either to stay silent or defect, betraying the other. Given payoffs and costs, both prisoners’ best strategy is to betray the other, but they’d be much better off if they could cooperate and stay silent.

This is not in and of itself that novel. The exciting part is when Dawkins brings this idea to nature. One would think that in ecosystems where this marvelous agent regulates everything, the attractor state would be the optimal state, yet that’s not what happens. Our hypothetical population would end up settling in 7/12 hawks, yielding an average populational payoff of +6.25. However, if the population was full of doves, the average populational payoff would be much higher, at +15.

In a free market economy, any given good will have a set of suppliers and people who demand it; sellers and buyers. The attractor state is where, on weighted average, these two sets of people agree. Goods will presumably reach an equilibrium, which determines what its supply will be and the price at which it’ll be done so.

The invisible hand is another cornerstone of economics, but most people get this one wrong. Adam Smith spoke about the invisible hand in the context of people doing what’s in their best interests; that by doing so, they end up, more frequently than not, benefiting the whole society. It is as if an invisible hand makes them promote the greater good by promoting their own.

“By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society”

Staying in economics, equilibriums are everywhere. There’s a peculiar thing called the “law of convergence,” which posits that, as a country gets richer and richer, its per capita gdp growth rate will tend towards 2%. It also has the counterpart that, the lower the base they start with, the higher their potential growth rate, naturally converging to this 2% as they get richer.

This is, in part, just the extrapolation of an incredibly powerful statistics concept. The law of large numbers states that the larger you make a sample of observations/tries over an independent event, the more will the average of the sample tend towards the expected value/true value, if there is one. When flipping a coin, you’ll notice a convergence towards a 50/50 distribution the more coinflips you do.

Regression to the mean, or base rates if I’m not incorrect, derives from the above and probability theory. Given there exists some sort of true value, when considering an event’s outcome distribution, whenever a trial is close to a tail of the distribution, the subsequent trial/observation is more likely to be nearer the true value.

In psychology, I found there are two similar things in this line of attractor states:

1. We are strongly wired to follow the crowds, which associated term is herding behavior. Hence my vague corollary is that what a society thinks, most individuals will think as they grow up. These generally held beliefs will act as an attractor state of people’s thoughts.

2. Humans will do what rewarded them in the past, avoid doing what harmed them, and our subconscious continuously speculates about potential payoffs in the systems wherein we operate. Therefore, people’s behavior will be skewed towards where incentives are aligned. That’s why they are so powerful a controller of human cognition. Well defined incentives could be used as accurate predictors of average behavior.

In physics, there’s a thing called centripetal forces. Newton spotted and coined the term in the 1670s when he was investigating gravity. These have some sort of pulling effects. The heaviest object in the solar system, although now I’m getting to dangerous territory, is the sun. That is why planets orbit therearound. It acts as an attractor spot. The system does not tend towards it due to other forces and variables in place but it’s an incredibly peculiar thing to think about.

Then we have thermodynamics, which posits, as aforementioned, that isolated systems will tend towards the state of maximum entropy and minimum energy. If you have two separate boxes, one of which contains atoms of gas, and open the valve, connecting them, atoms will distribute evenly throughout the whole new open space.

Whenever you are making a pile of sand, rice, grain, or stacking one of these little things, you will eventually reach some sort of peak. After such a threshold, each time you add to the pile will cause an avalanche, of varying dimensions. That peak is a critical value.

The last one I will cover in this article is one which we are all familiar with. Ben Graham wrote that, “over the short run, the market is a voting machine but in the long run it is a weighing machine.” The convergence between intrinsic values, or fundamentals, and stock prices follows from this idea that the fundamentals act as an attractor state.

Final Remarks

I believe there are two main takeaways from this array of similarities. Firstly, there are things, system-wise, that can be taken from one discipline to another, with great benefit to those who do. Secondly, it seems impossible to find these things unless you really search. As obvious as it now seems, the multidisciplinarity of attractor states only hit me after reading several books, most of them focused on particular verticals of knowledge.

I hope you all finish the year well and have a great 2025. Thank you immensely for taking the time to read this.

Best wishes, Giuliano

I’m a very lousy observer. For whatever reason, I’ve mostly lived my life introvertly, up in my mind. I tend not to pay attention to my physical surroundings, and even to people, if I find myself in a group.

This has certainly brought me trouble, but it has a peculiarly positive counterpart. I really pay attention to what happens in my mind. I sometimes feel the chains of thought being constructed, how there seems to be a typewriter and an entity suggesting words or phrases while writing, how ideas clash, others synthesize, others I ignore completely. In any event, this feature helps me better recognize what’s happening in mental territory.

To me, reading is passing my eyes through sentences, while my mind tries to figure out what they mean and how they connect to one another. Writing is the petrification of information, or the conveyance thereof. When reading, the mind wanders. Paragraphs create context and provide ground to be explored. A successful exploration entails the understanding of something. And the mind returns with a piece of knowledge. A failed exploration is one where the mind gets lost in the process and does not return. Incidentally, it’s my experience that the latter happens the most often.

What follows from this is that, if I’m continuously reading, my mind goes for these missions with incredible frequency. Hence the first effect reading has had is my increased capacity to seek and find. It is the same as exercising a muscle. The problem this in turn brings is complacency. The mind knows it’s getting better and becomes lazier. While on its first quest it had to do all kinds of tricks and things to solidify the piece of knowledge, after thousands, it fools itself into thinking it does not have to do that. And, curiously, it is true, to some extent. But this causes the loss of details I retain from incremental reads.

At the same time, there’s another dynamic playing out. Although I am not of the view that the mind has a fixed storage capacity, there’s high degrees of truth to that. I believe the conscious mind, which contains information we can quickly consult, has a definite limit, but I don’t think any human has ever reached it. It seems to take huge effort and skill to expand one’s conscious capacity to access knowledge. There is a fight between pieces of information, which at the beginning is not of zero-sum, but, as the mind gets more and more filled, the fights tend to be more and more zero-sum-like.

When a fighter loses, it’s sent to the subconscious. I think the latter really stores a very large percentage of the lessons and things one learns, maybe in excess of 90%. One only rarely has access to this pool of data, but it does help make decisions via intuition. This is something I’ll explore in the future, but it escapes the purpose of the article.

Now, the way ideas are built is by new information of a certain class replacing another in the conscious mind, but before being sent to the subconscious, they build a link. And that happens almost always thereafter; I have not found the limit to that yet, if there’s any. Then the idea that’s in the conscious mind, to which one has access, every time it’s recalled, the mind also summons the links it has. With some effort, you can bring those to the conscious mind and say them aloud. It works like pulling a thread.

That’s how you know someone has thought deeply about something. I feel most people do not build these layers; I eschew reading or listening to them altogether. Truly deep thinkers, like Munger or Dostoevsky, had built millions of layers to their conscious knowledge. And every time they build a new link, it tests all others, making connections stronger. These people also develop a capacity to deal with the hard questions no one else has because of the layers of knowledge and thought in between.

Going back to the main idea, it is contradictory and counterintuitive, but reading phenomenally improves your memory as well as it erodes it. What one needs to work on is in the contact with the subconscious to not lose much of the consciously acquired knowledge. I am far from knowing how, but writing and speaking help.

The second point I want to raise as to how reading impacts the memory is that reading dyes one’s opinions/sense on subjects. Over 95% of the arguments behind it fade, but the dye remains. This one is quite peculiar. When coming across a particular statement as of today, I sometimes realize that I have an approving or disapproving view of the statement, or that it triggers specific connections. Then I remember that I have in fact read about it in the past, my mind knows about it, but I cannot recall why is my opinion as such. I only have access to the feeling and manifest it accordingly.

I’m not really sure how it works, but this second thing is very dangerous. It’s very simple for a high-substance opinion to be faked by an empty one. The difference is tough to spot, considering our greatly developed talent of fooling ourselves.

Final Remarks

I feel I could write dozens of pages on these topics, yet I’ll abstain from doing so. Maybe in the future. There are many elements I left out on how reading affects the memory. Hope you found these two though-provoking.

Although my reading process works in cycles, it’s generally the case that I daily carry two things in parallel:

1. I have books/letters that I intend to really absorb, hence I study them. First thing in the morning; slow read, taking notes. Each page of these might take 3-4 times what a normal read would take.

2. Normal reads. Lately it’s been 2-4 books in parallel, in turn.

-Studied-

Jeff Bezos letters

I’m of the view that you don’t fully understand a certain thing until you pay the required dues. Customer obsession is at the core of Bezos and Amazon’s philosophy. This principle is dazzlingly simple, and obvious, yet how seriously he takes it is otherworldly. And what’s beautiful is that it works marvelously. There’s incrementally increasing returns on each unit of effort dedicated to thinking about customer needs and acting in consequence.

The Outsiders, William Thorndike

Great book to understand “another” type of investment one can make. It greatly illustrates what happens when you pair up with outrageously good operators.

The Outsiders covers 8 CEOs, a feature that’s certainly useful when thinking about where to dive further into. Notwithstanding this, I felt it severely lacked depth and, for whatever reason, I feel there’s much more to it that remains uncovered. If you think about it, it’s natural to conclude this after realizing that barely 25 pages were dedicated to each of these Masters.

The Origin of Species, Charles Darwin

This is the first book I studied in the worldly wisdom line, and I cannot stress enough how much it improved my thinking. I realized most people are aware of what natural selection entails yet ignore the extent to which it impacts ecosystems. There’s a number of factors underlying the survival of the fittest, many of them skewing variations towards one side or the other. In a sense I cannot yet describe, The Origin of Species is probably the book that has changed my perspective the most.

The Wealth of Nations, Adam Smith

I remain astonished by how could a human being put this together. The breadth of daunting topics covered is unbelievable. It also surprised me how Smith manages to not lack any depth whatsoever. In fact, I’d argue that 100-200 pages could be deleted and the book would be most profound of all non-fiction books in history. Furthermore, I’d speculate that a person who understands this work in its completeness learns 60-70% of what’s taught for a bachelor’s in economics.

The Interpretation of Dreams, Sigmund Freud

Great book to see how high potential goes to waste due to miscognition. Freud had a couple of outstanding insights on human nature, how dreams play a part of our lives, and the analysis thereof. However, once his ideas got to a theory, he just fell victim to the man-with-a-hammer tendency.

I must observe that I have not yet gone through his work on Psychoanalysis, which composes the bulk of his legacy. Hopefully, this will be one of my studies in 2025.

Man and his Symbols, Carl Jung

My mistake in studying this book is that only 1/4th or so is written by Jung. The rest are other people, though Jung’s most ferocious followers, expanding on verticals Jung created and explored. I’ve been lately much more reluctant to reading others rather than the source. Notwithstanding this, the chapter that’s written by Jung is fascinating. There’s many of his ideas that provide huge thinking ground.

The Principia (I’m at 50-60%), Isaac Newton

This is my “current study.” It’s a physically massive, 900-pages book. It is and probably always hereafter be the most difficult book I will have gone through. Despite its complexity, The Principia is helping me get a curiously decent understanding of the field of physics. What’s so good about Newton’s work is how many impossible phenomena he got to explain through corollaries of a few laws.

-Read-

The Catcher in the Rye, J.D. Salinger

I’m actually currently re-reading this book. It’s very uniquely written. Salinger does a sadly spectacular job in describing how true solitude and despair feel like. I couldn’t help but really empathize with Holden. The Catcher in the Rye shook something within me that only Dostoevsky had been able to reach.

Naturally, I must observe that I think Dostoevsky is the greatest thinker mankind has ever had. No one comes even close to him.

Poor Charlie’s Almanack, Charlie Munger

Poor Charlie’s Almanack is the book that, at a holistic level, has changed my life the most. Charlie found the best recipe for living life in a wholesome manner, complemented with massive contribution to humanity. A man that was remarkable in too many ways and after whom I based my life thereafter.

Franklin’s Autobiography and Other Writings

Franklin’s autobiography was a huge disappointment. Of course it’s well written, though the 1700s phrasing and vocabulary is distinct from nowadays’. I finished the book knowing barely something about the man himself.

What really saved it, in my case, is the inclusion of his other writings. There is one piece, called The Way to Wealth, that’s the finest thing I’ve read in my whole life. Another was The Whistle. Collectively, these 10 pages teach you more about wealth and life than any long list of books I can come up with.

Thinking, Fast and Slow, Daniel Kahneman

Another disappointment, although this one was more my fault than the author’s. Kahneman provides an incredibly sound framework for understanding how the mind works. In addition, there’s a great selection of the biases to which we are subject and how to counteract them. My problem was knowing most of his work in advance, knowing he got a Nobel Prize in economics for it, and reading Munger’s speech in the mid 90s. Too high expectations.

The Almanack of Naval Ravikant

Good book for people starting in the world of business ideas. There’s high utility in most of the verticals Naval explores. The single most important idea in his book might be leverage. Understanding that is life-changing.

Nonetheless, I feel I also was disappointed by Naval altogether. He’s praised as an outstanding thinker/philosopher, which might have led to me expecting some more depth to what he preaches. I didn’t find that, honestly, although I have enjoyed listening to him in the past.

Scarlet Study, Conan Doyle

Interesting way to, in my opinion, ruin a book by adding unnecessary background. Half of it revolves around the reader getting familiarized with the character of Sherlock Holmes and himself getting acquainted with the case, plus resolving it. That is absolutely delightful. In fact, I ordered a full collection of Conan Doyle’s books on Sherlock. But the remaining half I’d catalog as useless.

The Theory of Moral Sentiments, Adam Smith

Well, I may have understood only 2 or 3 things about this book. Two of these are how Nature embedded man with a sense of morality, and that no one other than oneself knows what’s best for them.

I read it before The Wealth of Nations, hoping this would help me understand the roots of Adam Smith’s thinking of economics. It does have a bit of that, but it’s mostly pure philosophy; speaking literally about moral sentiments, how man behaves, why he does so, and what’s Virtue. I don’t mind those types of reads once in a while, but they are not my favorite. They’re typically written in a way that make me think the author wants nobody to understand them.

The General in his Labyrinth, Gabriel García Márquez

García Marquez never disappoints in the execution. His books are so delightfully written it’s a pleasure to go through them, irrespective of the plot. This one aims to describe the story of Simon Bolivar after the glory days. It has a good underlying idea. Exile, mistreating, and society’s treachery, are things I’ve seen repeatedly in history, yet there’s not much on how these heroes fared those days. For whatever reason, nonetheless, I found the book normal, nothing crazy.

The Book of Sand, Jorge Luis Borges

I had read other of Borges’ books before and I have yet to meet his genius. He was an extremely intelligent person and too good of a writer. I hope to, in a few years, be able to get a better grasp of his work.

The Pleasure of Finding Things Out, Richard Feynman

What a beautiful book which, incidentally, has the best title I’ve seen. It’s amazing what reading and listening to Feynman did for me. I had theretofore never seen someone transmit so much joy from learning. Thinking itself, to a very large extent, is unbelievably fun. I’ve never realized that’s what theoretical physicists do. Feynman’s speeches and writings included in this book extend beyond physics, however, and I really liked that. His takes on how knowledge contributes to beauty, the need to beware of pseudosciences, encounters with other brilliant people, and so on, are fascinating.

Supernatural, Graham Hancock

I fully admit that one of the people who have captivated me the most this year is Graham Hancock. Author of Fingerprints of the Gods, over the past 40 years, he’s been exploring the idea of an advanced lost civilization. His fight with mainstream archaeology perfectly illustrates the problem with modern “science,” “thinkers,” and academia. I feel his contribution is incredibly net positive and that it extends well beyond his field. Thinking for himself and looking where no one has looked are some of the elements I admire of Graham’s philosophy.

Guns, Germs and Steel, Jared Diamond

I read Jared’s book after Munger’s recommendation. Wow. Jared’s intention was to answer a ridiculously obscure question, and I think he did an outstanding work at it. He seeks to shed some light on why Eurasians conquered Native Americans and indigenous populations. Most history books are simple summaries of what happened in the past, but aiming for the ‘Why’ is extraordinary. Truly wonderful read, and greatly written.

Life in a Putty-knife Factory, Howard Hawkins

I was doing some equity research in July, came across Hawkins and found it interesting enough so as to read 10-20 of their annual reports. I then came across the company’s founder from the 30s, Howard Hawkins, and saw he had written 100-page documenting Hawkins’ journey. I only remember he was led by a very sound principle: providing a good service. That single idea helped Hawkins triumph in a commodity market.

Brave New World, Aldous Huxley

What a dreadful vision of what the world can turn into. Huxley’s book was well ahead of his time. Complete avoidance of pain, consumption-based society, the banning of books, the re-writing of history, the loss of Love and disinterest in things. One thing that struck me is that a leader, if I don’t misremember, used to keep a great deal of classics to read in his spare time. Shakespeare and Homer, I think. I loved the implications of that detail.

Nietoschka Nezvanova, Fyodor Dostoevsky

The only book I’ve read from Dostoevsky I didn’t fully like. Although misery and sadness are superbly captured, as is usually the case with him, I didn’t connect with the narrative. I felt it lacked something, or I’m not sure if it was meant to be anything. I barely even remember how events unfolded, up from covering the story of a girl whose father had passed (or something like that) and was adopted by a rich family.

White Nights, Fyodor Dostoevsky

I read this in August and already had to re-read it in November (it’s less than 100 pages). Wow. I couldn’t get over the sorrow and grief the main character experiences. He’s a fully well-intentioned person, full of love, yet seemed to have given up on life and is tortured by solitude. He meets a woman and has an intense 4-nights sequence with her. That’s the happiest he’s ever been. But it ends. She picks another man and wonders why things had to be that way. The main character is devastated, but got to be temporarily happy. He’s grateful, but does not get the grasp of the tragedy’s depth.

“My God, a moment of bliss. Why, isn't that enough for a whole lifetime?”

Crime and Punishment, Fyodor Dostoevsky

Another of Dostoevsky’s widely known masterpieces. Probably the best known of his work, and I immediately saw why. Out of all of his books, this might be the one that cuts the deepest. In contrast to The Brothers Karamazov, C&P is much more lightly written, with a straightforward plot, and without too much fanciness in the insights I believe Fyodor wanted to transmit.

In spite of myself making it sound superficial, it is beyond extraordinary. I seriously cannot describe how it makes you feel while going through it. And I am sure I missed most of Dostoevsky’s ideas. There are numerous characters with whom one relates completely and just don’t understand why it has to be that way. But it is.

Moreover, as happens with Dostoevsky, you cannot take any page for granted. In all dialogues, or internal monologues, he hits you with unbelievable lines and observations.

1984, George Orwell

God. I knew this was an absolute classic and that a lot of people regarded it as a masterpiece. Expectations were incredibly high, but this book just did something to me I cannot describe. Winston is the only sane person in Orwell’s dystopian society (alongside Julia), yet it’s brutal how he is broken. Massive ignorance controlled by a totalitarian state is such a despicable recipe. 1984 is about how one individual is lucid amongst madness who seeks what was lost, Love, and to remain mentally free.

Since I read this in August, I’ve been holding myself to not re-read it so soon. It is a ridiculously serious read. Ideas, special terms, trends, topics, dialogues, the narrative, the characters, the unfolding of events; I cannot think about anything that’s not perfect.

Zen and the Art of Motorcycle Maintenance, Robert Pirsig

Pirsig wrote one of those books that makes you wonder if you are of the same species as them. The book follows a narrative consisting of a father taking his son on a mountain trip. At first they are joined by a couple, but then continue alone. I’d say the write-up is divided into 2 or 3 deeply ingrained ideas. One is about people’s philosophy of life, comparing two broad ones, whereas another is about the main character recalling his experience as a philosophy professor and his quest to understand what Quality is.

Zen and the Art of Motorcycle Maintenance might be the heaviest book I’ve ever read. Every sentence forces you to stop.

My First Million, Poissant – Godefroy

Despite it being a very marketing-like book, written for popularity, and immensely lacking depth, it was an interesting read. It briefly tells the story of how Rockefeller, Disney, Hilton, and some more people built their empire. The book is very useful if one is unaware of these businessmen’s lives, which is my case.

The Quark and the Jaguar, Murray Gell-Mann

Gell-Mann won a Nobel prize in physics for his theoretical work on elementary particles and coining the term “quark,” alongside a colleague. The Quark and The Jaguar is a phenomenal analysis of complex systems, how they come about, and provides tools for better understanding the concept. Additionally, it’s a great illustration of what can happen when a brilliant person masters multiple disciplines. I must observe that, nonetheless, it is quite a technical book.

The Autobiography of Charles Darwin

I wouldn’t say this is a good book, but it has a few insights on how Darwin’s mind worked, best practices he followed, and puts the man in context.

Financial Intelligence, Joe Knight and Karen Berman

I wrote about this book last week. Best book I’ve thus far found on accounting.

Newton’s Philosophy of Nature, Newton

It’s unfathomable how Newton’s mind operated, which translated into his writing. Through his letters and some other inquiries, you can vividly perceive how he connects one logical statement after another. It’s really dazzling. Incidentally, now that I’m writing this, it reminds me of when I listened to Richard Zeckhauser and Buffett for the first time. Newton took this feature to an inhuman extreme.

Surely You’re Joking Mr. Feynman! Richard Feyman

This is a compilation of anecdotes that this character left us. It’s an incredibly fun read. However, I would’ve liked for it to have some of Feynman’s views on topics, like the other book. Richard was much more than a funny guy. His perspectives were very enriching.

He, Robert Johnson

Johnson walks you through the journey of a young man in pursuit of Virtue, I’d argue. It’s some sort of interpretation of many of Jung’s archetypes and how they impact a man’s psychology. Although I tend to dislike these types of things, there’s great merit in that he wrote it in the 70s.

Deep Simplicity, John Gribbin

I read this after Munger’s recommendation, and I could see why he recommended it all throughout. The thesis of this book, I think, is around how complex systems are rooted in deep simplicity. With a handful of fundamental elements and a bit of time, marvelous things happen. This is a really profound idea I’ll expand on in the future. Deep Simplicity also counts with many of Mungers’ most loved ideas.

Meditations, Marcus Aurelius

Peak of wisdom. How to live.

From Third World to First, Lee Kuan Yew

From Third World to First is a continuous “How the hell did he manage to do that?!” The track record of Lee Kuan Yew as prime minister of Singapore is outrageous. He was systematically able to pick the right systems for each societal issue and being proven right. It’s beyond extraordinary. Additionally, what’s really good about the book is that there’s a lot of how his mind worked, and what his thoughts are and were.

Cicero: Selected Works

I was expecting a lawyer and great orator, but not a philosopher. Cicero was incredibly clear-minded, although apparently sometimes moved by vanity. He had a quite instructive approach to topics and ideology in general. Cicero was a man who, all along Rome’s most troubled decades, remained independent minded and comfortably in between extremes. I’ve yesterday read two treatises that are outstanding. The first, called “On Duties,” which reminded me on Franklin, is on how to live good life. The second, “On Old Age,” shows deep wisdom and answers why aging is not such a dreadful event.

The Selfish Gene, Richard Dawkins (Current Read)

I wanted to return to learning biology and, given I could not find any earlier foundational books, I proceeded with this one. I think it’s one of Munger’s recommendations and, thus far, it’s exciting.

Howard Marks’ Memos 1990-2003

I left Marks’ memos after reading only a couple dozen pages. It’s a read I intend to resume, for his writing is very clear and all of his memos are instructive. They not only discuss important topics but are very concise and full of great data.

Buffett’s Letters 1984-95

In 1994, if I’m not mistaken, is where the transcripts of the annual meetings begin. I read one of those and stopped this read altogether. I need to resume this asap.

Final Remarks

There is no mechanism by which “intellectual progression” can be measured. I suspect intelligence is highly related to one’s capacity to command mental tools. And, what I found, is that reading builds one’s arsenal.

I feel these past 2 years have strongly boosted my understanding about things. The aim of 2023 was to take a leap in the investment field and, of 2024, the world in general. My sense is both objectives were reached, although I always think I could do more.

The game of reading is a long one. Rewards follow an exponential path. The difference between this and compounding capital is that the mind seems to take off earlier. This past year I’ve just felt much more capable and, in consequence, useful to society, than ever. I’ll aim for this to systematically occur year after year.

I do not have any learning plan for 2025, but the goals are clear.

• Study the hard, foundational, books for at least 4 months.

• Maintain cadence with non-fiction. Ideally 1-2 daily hours all year.

• Read more fiction. Replace non-fiction when close to burning out.

I need to be more cautious of the tricks my mind plays. These habits are getting more and more ingrained within me. The trick is that, even if I miss a day, or god forbid, a couple of days, I still have the sense I’m reaching the objective, which is false. I stopped studying Newton’s The Principia in early November and haven’t resumed, yet my mind lies by saying I still am.

Moreover, I’m not sure what’s happening to my memory. It’s both improving phenomenally but becoming increasingly selective. I have the sense that some titles are missing from the list, but I cannot remember which, nor when I read them. At the same time, although I have decent recall of the structures I learned from different books and disciplines, many details are going away.

Everything is peculiar and things are starting to get interesting in mental territory. I’ll try to follow up with updates on the journey and hope you find it useful.

1. Accounting is not a science, yet it’s interesting to me how many professionals, books, and articles, act as if it is. This book continuously reminds the reader about the limitations of accounting in very useful manners. For instance, it goes through numerous cases of fraud and how the principles, not rules, were taken advantage of.

2. The book is structured in 4-5 pages chapters, with each having numerous 1-2 pages subchapters. Authors’ intention is for you to read it every time you have 5 minutes available, and it’s written in that way as well. I honestly found this feature phenomenal, for the book was far from my main read.

3. Karen and Joe don’t want you to become accountants. They want you to understand what’s going on in the finance department, be able to deal with accountants, and help you add value. In consequence, the book is a much lighter read than any other I’ve come across.

4. I have the sense most books spend pages speaking about single concepts, when it’s not necessary. These guys write concise, but precise, definitions. When necessary, they tie them with principles and exercises.

5. They help you understand the obscure jargon accounting is filled with.

6. Does not paint false realities. For example, when speaking about valuations, it very rapidly addresses how much personal opinion there is involved.

7. Joe and Karen are practitioners, so they know what are the pitfalls people fall in. Hence chapters are specifically dedicated to some of these. How profit differs from cash, for instance.

8. The book helps you empathize with accountants. It walks you through the decision-making process they have to follow. That way, you recognize how many grey areas there are and how difficult it is to write any single line in financial statements.

9. Although relatively short, the book does expand when it’s necessary, taking numerous pages and as many number examples as required. I’d say there’s not a single example that shouldn’t be there.

10. It covers, very simply, the intricacies about financial statements, returns on capital, M&A, the cash conversion cycle, and many things one would think are sophisticated.

11. Lastly, Joe and Karen explain the why of things all throughout the book. At the end, they address how cash is the element that ties all financial statements together. It is truly enlightening how this last thing is done.

Final Remark

I cannot recommend this book enough for anyone who’s interested in investing. I’d argue this book is perfect for beginners, intermediates, and even people who are well acquainted with the elements behind accounting. For beginners, it gives a spectacular overview and, if studied properly, the 80% that’s needed; for intermediates, it helps solidify already acquired knowledge and sheds some light on obscure corners; for advanced people, the structure it provides is superbly useful, and the book could be used repeatedly when dealing with reports.

HireQuest has a franchising model, providing them with many advantages over small peers. Firstly, the staffing business requires hiring employees before clients pay for their services, which is a great impediment for small firms. HireQuest funds working capital needs and acquires ownership of customers’ receivables. Secondly, compensation insurance is a big cost for staffing firms. HireQuest centralizes it. Given the company has over 400 branches, it can negotiate much better terms with insurance companies.

Staffing firms with company-owned offices need to hire branch managers and overseers. HireQuest avoids both costs, strongly enhancing margins. In addition to this, the industry is subject to very high turnover and other factors as a byproduct of it being a people business. Having all branches led by their owner greatly aligns incentives, improving execution.

HireQuest went public in 2019 by reverse merger, “acquiring” a then mismanaged public company called Command Center, which had company-owned offices. This is another spot where HQI’s model shines. It shows its aptitude for large integrations and reveals how big of a role incentives play. HireQuest has grown from 100 locations to 400+ mostly via M&A since 2018.

When HireQuest acquires a firm with company-owned offices, they sell them and enter a franchise agreement. After conversions are considered, the price HireQuest ends up paying for the acquired company ends up being much lower than headlines report. These are some of their acquisitions.

The staffing industry, being a people business, makes M&A highly problematic. Branches’ worth is defined by a manager’s capacity to keep the customer list together. Almost always, it’s done so because of the people in charge. Hence, when a staffing company is acquired by one with company-owned offices, managers resign, and the acquired branch might lose over 50% of their revenue. Additionally, turnover is enhanced when this occurs, making acquisitions highly deceptive. HireQuest avoids this issue by keeping the managers in place. It’s mostly them to whom the branches are sold.

HireQuest finds itself in a very advantageous position for M&A. In addition to the aforementioned elements, the staffing industry is highly fragmented. There are many small offices, some family-owned, that dominate niches and local markets. For most staffing players are very large, they don’t compete for these acquisitions. This provides fertile ground for HireQuest to deploy capital at attractive rates of return for a decently long time.

Disclaimer: This is not financial advice.

If you are looking for more information on HireQuest’s current stance, check my equity research and Q3 earnings review.

The Limit and Extension of Ideas

I’m inclined to suspect that a great part of our mind operates in a reactive fashion. Our senses give us information about the world that surrounds us, and the mind seems to be wired to give some sort of shape to this information. When a particular shape arises numerous times, we might refer to it as knowledge.

After some time being alive, we are exposed to vast amounts of information, some of which is turned into knowledge and some remains undecidable. This creates a pool of brewing things deep in the subconscious; something like a soup, where everything is revolving around. At times, we are able to focus on one of these things, which makes the thing go up into our conscious mind. But that doesn’t mean the other things stopped revolving.

While we observe the world thereafter, we receive new sensory inputs. My sense is that these clash with the soup, and a peculiar output comes out of it, namely a thought. This doesn’t actively require us to do anything, it just happens. Sometimes, thoughts seem to not even need a trigger and simply come out of the soup themselves. Thoughts are singular. They are an individual piece of an ethereal substance. Thoughts may be us trying to get new knowledge out of available information.

Once we’ve had a number of thoughts, all of which try to reflect a part of reality, we come up with ideas. Now, ideas are interesting. These are attempts to explain reality. They have massive potential and are tested against our own preconceptions. Many times, ideas are rapidly discarded as they contradict something we know, or that we think we do.

Other times, ideas make sense. We cannot find logical flaws in them and proceed to test the ideas against phenomena, mostly natural. When we see that this idea helps us get a better grasp of the phenomenon, it evolves. After facing nature, the idea grows legs and arms, it becomes more precise and its reach is better understood. That’s when the idea becomes a concept.

What I previously thought is that once we have a lot of ideas, pieces of knowledge, and concepts all over the place, we channel them and come up with frameworks to explain a series of observations. Frameworks that acquire a certain structure become hypotheses. When hypotheses are tested against nature and survive, they become theories. Theories have fully explanatory capacity, telling what causes what and why.

The purpose of scientists and thinkers is to push thoughts through the chain until they reach a state of theory, helping us make a better sense out of the world. However, I noticed there are some astounding frameworks which seem to have high, but not fully, explanatory power of lots of phenomena.

This area is where I think mental models are. A mental model might be a very legitimate framework that helps you better understand a complex phenomenon, but its explanatory power is not 100%. Due to the lack of cause-and-effect relations in many systems, there’s little possibility of things becoming theories. The chain would therefore look like this:

Although they don’t tell you what will happen, your intuition gets trained to an extent where you get the feeling of how it might go. Not precisely where the event will fall, but some sort of how the distribution of events might look like. This feature is ridiculously powerful and should not be overlooked.

Final Remark

I suspect a very useful output can come out of giving proper thought to how some ideas like these interplay with Jung, Freud, and other psychologists’ work. It’s not my intention to do exhaustive analyses in these articles, but I hope you get the grasp of why I claim this. Furthermore, I hope you find this useful for thinking purposes.

HireQuest had quarterly revenues of $9.4 million, up 1.5% YoY, returning to yearly growth. Topline appears to be fairly stagnant since 2022, but d…

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