For various reasons, revenue growth stalled, margins heavily contracted, and cash flow turned negative. I’ll explore why I think these are mostly temporary issues and why the business should rerate aggressively as things normalize.

The business was founded in the 90’s by Ashraf Zaghloul, who remains as CEO. NTG built proprietary OSS/BSS software for telecom operators alongside implementation services, expanding into the Middle East roughly two decades ago.

Between 2016-2021, management made three major changes: (1) they began focusing on clients in the finance/banking industries and system integrators serving government programs; (2) became a software development outsourcing business, placing engineering resources directly into client operations; (3) created an offshore solution by employing talent in Egypt.

After decades of flat-declining revenue and random profit-generation, these decisions led to explosive growth and an increase in profitability.

Operating margins I think are now structurally higher because of the offshore solution. By hiring in Egypt, NTG delivers cost savings of up to 50% to clients vs those who onsite, with the benefit that Egypt shares timezone, culture, language, and has a great talent pool for Saudi customers. Offshore sales currently represent 52% of total, up from under 10% five years ago. Maybe the increase in profitability is also due to the simplification of the business, now focusing on mainly one offering.

Growth bounced because it was the right place at the right time. In 2016, Saudi Arabia’s government established the 2030 Vision, a program aimed at diversifying the country’s economy from the O&G industry, favoring investments in other industries. Budget for the program was set at over $1 trillion. NTG’s rebranding to a digital transformation company was perfect for industries like banking, which remain undeveloped digitally, and are favored by the Saudi Vision program.

In addition, new contracts proved stickier than before causing revenue to be largely re-ocurring. Gross dollar retention sat at 99% for 2025 and net dollar retention at over 130%, meaning NTG kept almost every dollar worth of customers and, on average, they renewed & increased contract size. A customer not renewing is akin to saying they’re firing/downsizing their own software development team.

Why the opportunity exists (it’s ugly)

Multiple reasons resulted in such large dislocation. For starters, the conflict in the Middle East had presumably not affected NTG’s business until the just-reported quarter. In Q1, management said they had not seen a slowdown in customer spend. In Q2, the slowdown happened, and customers began demanding better pricing due to the uncertainty. Due to this reason, guidance was withdrawn, even though it was very conservative.

Secondly, software and consulting have both taken a huge hit over the past two years on fears of AI eating their business away. NTG belongs to both industries; part of the selling pressure might’ve come from this direction.
It appears to me that this narrative has started to shift earlier this year, but there remains a long way to go.

Thirdly, accounts receivable increased from ~$3M in 2021 to $35.7M as of the last quarter. The last two years, A/Rs have particularly increased while management explicitly mentions they’re working on getting them under control. NTG is selling more by financing customers, and only a few ones; 71% of 2025 sales originated from five customers. Days of sales outstanding increased from a low 63 in 2023 to 125 in last Q, with 69% of receivables belonging to top five customers.

The foregoing has been a huge drag on cash flow, which brings me to my next point. NTG has been profitable every year since 2021. However, cash flow turned negative in 2025, using $2.6M in operations, and they burned $4.6M in the last quarter alone. Payables decreased; ARs and prepaid expenses rose.

In addition, NTG is going through an investment cycle. In late 2024 and 2025, management began conversations with customers to extend the duration and size of contracts. At the time, NTG didn’t have enough people to satisfy this demand. Therefore, management hired hundreds of resources, whom they keep on their SG&A and cost of sales alternately, to be prepared for when these contracts finally land. Goes without saying that large contracts have taken much longer than management initially thought.

In 2024, NTG earned $12.3M of operating income on $56M of revenue. In 2025 it earned $10.7M on $83M; the difference is G&A rising from $5.5M to $13.1M.

During the last conference call, Adam (son of founder; investor relations) mentioned they’re investing $1M per month to keep these people. And for the first time, he admitted management is seriously evaluating whether it makes sense for this to continue.

Management

Ashraf Zaghloul founded the business in the 90s and remains as CEO. Adam took over investor relations, intensifying his efforts in spreading NTG’s story since 2019-2021. This has been crucial in giving a face to the business. Kristine Lewis is NTG’s president and has been with the company for decades.

In 2019, when NTG was facing absolute hell, management stepped forward. The business had turned cash flow negative and revenue decreased 30%+. In that context, the bank called on their loan and gave NTG 10 days to pay; only that NTG didn’t have the money. The bank obtained a court order placing NTG into interim receivership, and NTG’s shares were halted. After negotiations, Kristine and Ashraf bought out the bank, assuming the ~$7.1M debt themselves.

The management-owned debt is at favorable rates and on flexible terms, with ~$5M still on the balance sheet. During 2020-22, Kristine and Ashraf converted part of the debt and unpaid compensation into equity (at distressed prices).

Insider ownership stands at ~35%, most of which was obtained through the just mentioned mechanism. A smaller piece comes from a $1.1M private placement in 2023 at $0.03 per share, where management participated.

Importantly, their share position was consolidated after a reverse split they made in 2024. Thereafter, management didn’t supply fresh capital, the equity markets being readily accessible once again.

NTG raised $6M in 2024 by issuing shares at $1.4 per share through a private offering. Each common share had half-a-warrant attached to it with exercise price at $2 per share. Finally, in 2025, NTG raised ~$9M at $2.2 per share through a LIFE offering. Capital was used to fund growth.

Despite having issued equity a few times, Adam mentioned in late 2025 they were considering buybacks. As the share price collapsed further, buybacks remain among the priorities, though they need to stabilize cash flow first.

The price you pay

There are 48M shares outstanding and ~1.5M in-the-money options - weighted avg exercise price of ~$0.26 - bringing total diluted shares to 49.5M. Around 1.1M options also exist with a weighted avg exercise price of ~$1.
Then there are 1.8M warrants at $2, expiring in September 2026, followed by a tranche with $2.9 exercise price expiring in July 2027.

I would not count warrants as dilutive instruments at said exercise prices, added to the fact that NTG would receive cash in exchange.

Putting everything together, I arrive at a broad liquidation value for NTG of ~$26M. I apply no haircut to ARs because there is no history of bad debt and 90% of receivables are aged under 90 days.

If we were to be more cautious, there’s still room for write-downs and we’d still be trading at below liquidation value. Even further, current assets exceed all liabilities by $24M, which is 20% higher than NTG’s market cap of ~$19M

Final Remarks

I think headwinds are temporary because: (1) the conflict will eventually end; (2) Saudi Arabia is committed to Saudi Vision and the conflict reinforces that even further; (3) narratives change over time; (4) larger contracts will materialize or $12M in annual cost savings will be unlocked; (5) management simplified tax structure to avoid double taxation, which should enhance profit margins; (6) client retention and NRR signal strong ties.

Things don’t have to go great to generate a good IRR by investing in NTG. Them not going terrible should lead to decent results, and only one of the negative factors reverting might be enough for a re-rating.

If management executes on at least collections, the business will be well. Absent cash conversion, they have the layoff lever to pull, which although not great, it’s unreasonable for shareholders to pay $1M monthly for no benefit. Nineteen months of this cash inflow represents the whole $19M market cap.

Having said this, I agree in that keeping people has been a good decision, and it’s a good decision insofar as larger contracts materialize. Good operators invest in bad environments, but they also know when to stop.

If nothing goes in NTG’s way, it’s likely they’ll need to raise capital to keep the business afloat. I think said scenario is not extremely unlikely and, if it were to play out, it’d be quite hurtful for shareholders. Good thing is that incentives are aligned, and management would be diluted alongside us.

Management controls the company, and this falls within the world of potential risks. However, when NTG faced absolute hell during 2019, Ashraf was direct and did not try to hide the truth.

Disclaimer: I own a position in the mentioned security. This is not financial advice and should not be taken as such. Always do your own research.

giulianomana@0to1stockmarket.com | reach out if I’m missing something.

This is the business I might’ve researched the most, and the one that had the worst outcome. I ended up closing my position after the reverse judgment on YPF, a position that stood at ~7% before that 50% drop. Burford might still do well, as the business model is unique and managers very able, but I made several analytical mistakes in this investment decision:

1. Backlog of cases went much slower than I thought. I took management’s words at face value.

2. I thought book value was close to intrinsic value. Trading at near net asset value, I thought my margin of safety was large. I ignored that it wasn’t tangible net asset value; a large portion was FV adjustments.

3. I ignored OpEx, for the most part. Having a ‘machine’ doing 25-30% IRRs, I thought it would be able to deliver strong profits even on high opex.

4. I didn’t fully acknowledge how (mis)aligned incentives were. If I don’t misrecall, managers are taking $16M+ every year (+ some shares of proceeds generated by private funds I think), while shareholders have been in hell for a while. Though it’s great that managers earn a ton of money, those earnings should match the value created for owners. Added to other high opex, the business feels more run for insiders.

5. I thought YPF was essentially won, assigning ~0-10% chances of judgment reversion. Given it actually happened, was it really a low-probability event? My sense is that no matter how much I read about the industry, I just went far outside my circle of competence. Ignorance about the legal field undermined my analysis.

   1. Besides this, I even thought that the business traded fairly with respect to deployed cost ex-YPF. I believe I thought a 30-40% markup on cost was fine, given their historical ROIC.

6. I viewed the black box element favorably, which proved somewhat unwise. It’s a very interesting idea if you have someone like Mark Leonard leading such black box. Systematic mispricing is normal in these types of situations. If you trust management, it’s a plus as you build a position.

7. I ignored that we don’t earn extra points for complexity.

Having said all this, I hope Burford does well. It’s a fascinating business model with a long runway in a nascent industry that I think is a net plus for society, and Jon and Chris are extremely smart.

Quality businesses

Many inevitable companies have fallen 50-80% in the past 2 years. Companies one would think are so high quality that a 20-35x earnings multiple was appropriate. Absolutely mind-boggling.

The business that marked me on this front is Zoetis. Fortunately, I was able to spot this in real time. Opportunity cost led me to close my position before the fall.

There’s no asset so good that it can’t be overpriced.
We think that terminal value justifies it; that it has decades of growing free cash flow ahead. And the worst of all mistakes might be thinking the exit multiple will be the same as the one I bought into. “I’ll get a 12% return because it has a 4% dividend yield and it will grow 8%.” Sure, provided that you exit at the same 25-35x earnings that you paid.

I didn’t ignore history out of a bias, but because I wasn’t fully acquainted with what has happened throughout time. Further readings have served me well.

Opportunity cost saved me on this one.
I started seeing businesses in an everything-agnostic while customized manner. They are things that generate cash; and a dollar generated in O&G is just as green as a dollar generated by a SaaS business. How much cash will come out of them until judgment day determines their intrinsic value.
Why would you pay $1M for a $30k earnings stream when you can pay $1M for a $200-$500k earnings stream?

It’s easy to attribute the gap to Quality, but that’s not always the reason they trade at distinct multiples. Oftentimes, the second kind of business is just cheap. It might be just as high quality, with similar growth prospects, and limited downside, but unknown and thus overlooked, or mispriced due to short term events.

Time has to Pass

You can build a 2-3-year thesis on a business, but sometimes the 2-3 years will have to go by, and holding on for 500-1,000 days is an interesting test of conviction. Furthermore, you might’ve made a mistake in purchasing the business so early. It’s ultimately irrelevant if the dislocation is large. However, if you were expecting a 30-50% appreciation, having that occur in 1-3 years provides for wildly different IRRs. That’s why buying a dollar for 50 cents is only half the job; the dollar needs to be growing so that your returns and margin of safety aren’t capped.

A few wins since adjusting my investment strategy

Alpha Metallurgical Resources and Warrior Met Coal

My first bet was in May/June 2025: Alpha Metallurgical Resources and Warrior Met Coal (HCC). If I don’t misrecall, they were trading at ~$1.3B and ~$2.2B respectively. Both were priced at around book, with little debt, a large net cash position, and at 3-7x normal upcycle fcf. Both had signs of being low-cost producers and I had reasons to believe they were very well run, especially HCC, which had most capital already laid out for a new, extremely low-cost, high quality met coal mine.

Both returned 100%+ over the subsequent ~4-6 months, after which I sold. I left under the impression that Warrior Met Coal is the better business out of the two. Under the right circumstances, I would consider re-entering HCC.

Starting in October 2025, I switched to pursuing this avenue full time, which I’d summarize in 3 ideas: (i) Look for the margin of safety in the balance sheet and/or normalized EBIT/EV multiple, ideally both; (ii) growth, the more the better; (iii) bet on the operator.

Gulf Island

Started reading about Gulf Island in October, but only had a small position; news came out too quickly. I saw Richard Heo had gotten involved a few years back and he turned the business around, focusing on higher-margin offerings while divesting undesired assets, driving efficiency gains, and landing large contracts. Business had rerated and, in Nov-Dec, they announced they were being acquired at a ~50% premium.

Xponential Fitness

Xponential Fitness came onto my radar in February, before Q1 results. The business had been an almost criminal disaster from ~2018-23, after which there were two CEO changes. They had acquired many fitness-related studio franchises. Since 2024, some have been divested; with the last round of divestitures done by Mike Nuzzo, who took over as CEO in mid 2025.

A lot of cleanup that was needed and the business model changed in some ways (i.e. used to sell equipment, now 3rd party in charge while XPOF gets a commission). In addition, Nuzzo inherited a poor capital structure; he restructured it in December, converting preferred shares into debt.

Q1 results showed a lot of this clean-up, including a huge settlement; XPOF dropped 50% and I started a 3-5% position. My bet was that, the underlying business being strong, with maybe 30-40% normalized operating margins and a well-known brand, it was likely to be acquired. News came out a few weeks later, saying they were considering M&A after an activist investor got involved. Stock rose 50-70% and I sold.

Since then, XPOF returned to around my cost level. I did not initiate a position again because I’m less sure about their sustainability. Debt interest is eating all cash the business is generating and they are in the middle of the turnaround. Although these are the times from which the highest returns are obtained, financial risk deters me from investing in the equity.

After thinking about it since I sold back in March, I realized I misanalyzed the whole thing and have later come to realize how big a burden the debt is. They might generate ~$60M in cash per year, maybe growing, of which ~$50M is eaten by interest, and their $500M debt matures in 2030. I don’t know how they’ll manage to come up with that much cash by then, and I don’t think it’s sound to bet on refinancings without deep involvement.

Total Telcom

Started reading about the business in March and opened a ~7% position in April. Understandable business model, high insider ownership, growing topline at 20-40%, systematically profitable, key decisions should lead to margin expansion, main industry in recovery from down cycle, and a few potential opportunities for large hardware deployments, which could mean 100-200% growth.

Total Telcom was worth ~$4M EV, trading at ~5x my normalized EBIT. Thought a 20% EBIT yield, combined with the above, made for a good setup. After a few months, I sold a third of the position for a 50% return. The balance stands at a ~70% return.

I suspect this could be a long-term compounder, for which I might regret further sales. Nonetheless, I’m trying to find equilibrium. The reason I sold is that the new 10% EBIT yield was not as enticing as before; there are better opportunities elsewhere and buying/holding at current levels is placing a bet on accelerating growth and large contracts materializing. The margin of safety has been greatly diminished.

HireQuest

I published my write-up in Nov-Dec 2024. The stock fell from ~$13 to ~$7 per share as of late 2025. Having started in Oct 2025, I accumulated at the $8-$11 per share level, getting to be a 40% position at one point. Its weight gradually dropped to 18% pre-earnings as I deployed income into more attractive opportunities.

The bet was: industry recovering from longest down cycle in 20-30 years, margins recovering to ~40%, acquisitions for growth, and a great operator at the helm. About the latter, what convinced me was that Hermanns is able to pull all capital allocation levers: he quickly divested/restructured an acquisition made in late 2023 that went poorly, knows when to take on debt, acquires assets at ~1-4x multiples, and announced a 20% buyback when the business was severely undervalued. This, combined with the fact that the business drowns you in cash, that it has never reported a loss, and runs on a clean balance sheet, made for a large margin of safety.

I closed ~40% of the position after Q2 earnings for a ~70% return. Business was trading at an adjusted EV of ~$180M (need to re-check numbers), while having normalized EBIT of ~$12-16M. I left a large balance, even at such a multiple, granting full credit to the idea that great CEOs tend to surprise you on the bright side, though it’s unclear if I should push for higher yields.

Closing Remarks

Top three current bets include OMS Energy, Canaf Investments, and NTG Clarity Networks. Smaller positions include HireQuest, Total Telcom, Thermal Energy International, SuperCom, and Cleantek Industries.

I feel increasingly attuned to the idea that weight should depend on how big the margin of safety is. The larger a position is, the fewer the chances of losing money.

OMS trades at <1x EBIT/EV and below book value, with ~85% thereof being made of current assets, mostly cash. Canaf trades at ~2x EBIT/EV and at book, with book being 75% current assets, mainly cash. NTG Clarity trades at 2-3x normalized EBIT/EV, with great growth prospects, and at ~1.4x book, with the latter being mostly in receivables.

Additionally, I’m trying to build a portfolio that’s proportional to my thinking. In the last few months before closing Burford, the business consumed ~30% of my investing thoughts while being a <10% position. I don’t like that, a priori.

Finally, the period when I found the most ideas was March-May, when I went over hundreds of small businesses, mainly Canadian microcaps. Every time I start turning over dozens of rocks, I find one or two things. If you don’t look, you won’t find.

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

Best, Giuliano

Disclaimer: This is not financial advice. Do your own research.

I believe margin expansion and continued growth are inevitable, which should lead to an aggressive rerating. Even if the foregoing fails to materialize, I estimate liquidation value per share to be ~15% below current price, creating a huge margin of safety.

_{All numbers are in Canadian Dollars.}

Christopher Way took over as CEO in 2011, shortly after graduate school. He inherited inefficient, low-margin facilities and a fragile balance sheet in a very lumpy industry.

Most earnings had to be redeployed into building new facilities and improving legacy ones. During his first five years, Way secured longer-term contracts with customers, built and acquired higher-efficiency capacity. Gross margins improving and flat SG&A allowed him to start looking elsewhere to deploy capital in 2018.

In 2019, Christopher began testing the RE market in Johannesburg. After a successful first rental property, he methodically grew the portfolio, which now stands at $1.9M. Canaf owns 15 investment properties, yielding ~14% pretax returns, and it’s expected to grow over time.

Three years later, Canaf received authorization to build two additional coal and anthracite devolatilization facilities. The permit expires in 2027 and management has not yet acted on it. If the decision is to not pursue further investments in the commodity business, it will be a great signal.

In 2024, Canaf started providing secured, short-term financing to SMBs through a third-party provider. They tested over one or two quarters and grew the portfolio to a current $1.6M, with target of ~$2.3M. Returns on this division are expected at ~2% per month.

This year, Way began the next venture. Urbanhold is a joint venture that will leverage empty space in shopping malls to build self-storage facilities. The first pilot test of 100 units is underway. If returns and demand prove satisfactory, management plans to grow it to 1,500 units initially. If fully built, these units will represent ~$2M in investment.

Christopher is diversifying Canaf away from the commodity business. Even within it, he expanded customer base and secured stronger contracts. Though I can’t tell for certain, I’d expect the next ~$6M in cash to be deployed into current opportunities. Ceiling on deployment size is unclear. If too large a cash position gets built, I’d expect him to turn to M&A and return capital to shareholders, especially since he’s a large shareholder himself. Way owns 16% of Canaf, bought mostly through open-market purchases.

The large cash position was only built over the past six years. I think investments will increase as Way feels more confident in the different projects. For starters, the ~$3.9M deployed is generating $530k in annualized EBIT. EBIT derived from properties should grow as more units are brought to market, pushing blended pretax returns to ~15%.

Financials

Canaf reported revenues of $13.3M in 2011, the year Christopher became CEO. An abrupt down cycle followed after China slowed down its investment in infrastructure. During the downturn, Canaf announced their purchase of a third coal-processing facility for $1.9M, financed ~70% with debt. The facility operated at higher efficiency than legacy ones, which were subsequently refurbished to adopt the better mechanisms. These measures led to improved gross margins over time.

The calcined anthracite business has widely varying margins, given the high fixed costs associated and the cyclical nature of the industry. My sense is normalized gross margins for the main business hover around 10-12%.

The recent uptick in profitability is due to Canaf’s investments in real estate and short-term asset-backed financing. The combined gross margin for these has been at 60-70% for the past year. Although these segments contributed just 3.2% of total revenue in the first half of 2026, they generated 18.5% of total gross profit. Margin expansion should continue as long as management keeps deploying cash outside Quantum.

Christopher has invested $1.9M in properties and, though not static, ~$2M in the financing business. Out of $3.9M deployed, Canaf is generating ~$530k in annualized EBIT, implying pretax returns of 13.5%. EBIT will grow as more residential units become available, which should push returns to ~15%.

Though ROIC is not stellar, I’d bet management is aware of it, and they’re moving to increasingly higher-return projects, insofar as opportunities are available. Irrespective of whether they continue allocating in current opportunities or new ones, such a transformation in the business economics should lead to an aggressive rerating.

In addition, Canaf has systematically shown that the business throws off more cash than it consumes. CapEx has not exceeded 5% of sales in any given year, and it rarely consumes all cash from operations.

Since 2020, the business has generated over $14M in cumulative free cash flow. If Cristopher doesn’t find enough opportunities to deploy capital, I believe dividends will be on the table, as the stock is too illiquid for a meaningful buyback.

The price for which Canaf sells

There are 47.4M shares outstanding, a count that hasn’t increased since at least 2013. At a $0.315 share price, market cap is $14.9M. With $9.8M in net cash, EV stands at ~$5.1M. However, take a look at the balance sheet and you’ll land at an adjusted EV that’s far lower.

ARs cancel out with payables. Then you have $1.6M currently tied to the loan portfolio, $1.9M in investment properties, $1.7M in inventories, and $600k in PPE. After haircuts, you get a liquidation value of ~$13M, or $0.273 per share.

Even if you were to stick to the coal processing business, and sell off everything else, you’d be paying an EV of ~$2M for a normalized EBIT of ~$1M-$1.5M * 70% (considering another party has a 30% stake in Southern Coal).

Final Remarks

Christopher was dealt a pretty terrible hand and I think he’s playing it extremely well. Since he took over in 2011, book value has grown from $1.1M to $15.8M while issuing no shares.

I suspect the only reason why he didn’t turn to other investments earlier was the need to stabilize and make the core business systematically profitable. In doing so, Way utilized the little excess cash that was generated.

After securing stable cash flows, he started investing in RE, generating 14% pretax returns. Maybe he later realized returns could be higher elsewhere. The lending division has ~20% pretax returns, though subject to default risk. Now Way is taking small steps in the self-storage business, which I would suspect has 20%+ pretax returns and very low maintenance capex needs.

Christopher is in mid-to-late 40s, I believe. The fact that he has independently reached the conclusion of redeploying cash into higher-return assets, and actually doing it, is highly reassuring. I suspect he’s becoming an extraordinary operator in addition to a high-integrity CEO; provided that he acquired most of his stake through open-market transactions.

Feel free to ask any Qs to me at giulianomana@0to1stockmarket.com

Disclaimer: I own a position in the security mentioned at the time of this writing. This should not be taken as financial advice. Do your own research.
All numbers are in Canadian dollars.

OMS trades below book value with 80% of their book being cash & other current assets while generating $30M+ in profit. Reported fiscal year results two weeks ago.

OMS was a struggling division on last O&G down cycle at a Japanese conglomerate. It was going to be liquidated and current management bought it from conglomerate for $2M; full bargain purchase. He turned it around, secured deal with Saudi Aramco & Halliburton and IPO’d in the Nasdaq at ~$360M. Meng Hock owns 60%+ of shares.

The business trades at ~$175M market cap; has $153M in cash and $45M in other current assets; $35M in total liabilities. OMS employs ~30M of tangible capital and generated $33M in profit last year on $155M in sales; $52M in FCF.

OMS is a very lean operation, it has facilities in 6 jurisdictions and benefits from close proximity to customer plus tax advantages given their local presence in Saudi and Indonesia. How Meng Hock guided for modest growth in topline during the just-started fiscal year, lower SG&A, but also modestly lower op margin (20%?).

Main issue is customer concentration. They have a 10-year agreement with Aramco which is expected to generate $120-$200M in yearly sales (came in below range at $91M in FY26). My sense is there are reasons to suspect contract is doing well and might even expand; OMS has been awarded specific certifications that would allow it to up-sell Aramco.

Ex-Aramco, OMS’s business generates $60M+ in sales at 30-40% gross margins, compared to their Aramco segment’s 25-30%. It’s focused on mostly recurring services to customers like Weatherford, Shell, Chevron, and has grown substantially over the past 5 years.

OMS is mispriced because it’s severely undiscovered. No one mentions the business, not even on Twitter. It IPO’d last year. No fund holds 5% of the stock. Tight liquidity given CEO’s stake makes it even harder for funds to purchase, for liquidity and governance reasons.

HireQuest

Staffing services for mostly light industrial and commercial, short-term jobs. Daily dispatch model. Differentiates from industry by following a decentralized franchising model vs company-owned offices; many advantages to model, ~1-2% larger profit margin on system-wide sales.

Profitable every year for 2-3 decades. Hermanns is candidate to extraordinary operator. Very lean model. Grows mainly by acquisitions (pays 3-5x adj ebitda). $20M share buyback announced when stock was truly undervalued (running at full volume). Industry now recovering from longest down cycle Hermanns has seen in 30ys. Operating leverage kicking in and sales should grow at 15%-30% over next year.

They’re going after TrueBlue’s on-demand portion of People Ready division (~$800M in sales vs HQI’s ~$450M; ~400 ofices). HireQuest offered $105M all-cash-deal in May, rejected by TBI’s board. Economics: HQI converts the 400 offices into franchises, sells them for ~$200k, maybe $100k seller financed; recoups ~$40M of price paid, $40M seller-financed. And People Ready might do ~$20M in profit, so they’d increase profit by $20M for a price of $20M (?).

Main issue is margin of safety having been largely eroded. Business trades at $180M mkt cap, no debt currently, with normalized EBIT of ~$12-$15M; has no heavy assets but $40M in receivables. If they don’t acquire another business, it’s not a bargain.

Irsa

Argentinian high-quality real estate conglomerate. Owns 18 shopping malls, a few premium offices, owns and operates 3 key hotels. Mainly from malls, should generate ~$150-$200M in normalized EBIT with low-millions maint CapEx and little overhead (pure royalty model for malls). Business trades at $1.3B market cap; roughly at book value, but assets are too conservatively priced.

Irsa stabilized balance sheet over past 6 years, paid 10-20% in yearly dividends, and now turning to growth. They’re acquiring malls and they own a lot of land in premium locations that’s being developed for residential projects, expecting demand from Argentina’s growth. They strike deals with developers, whom pay Irsa in cash for development rights + built sqm. Management hinted turning into new RE industries for growth. History of good capital allocation. Never defaulted on debt in 30+ years.

Main issue: Attractively priced for a ~15% return (EBIT yield), but Argentina always has that binary element to it + I expect growth from residential and new projects, but current portfolio is only expected to grow at GDP + a few points.

SuperCom

Hardware + SaaS model. Ankle bracelets for criminal offenders; electronic monitoring technology. Strikes deals with governments to deploy 100-10,000 units per contract.

Business struggled since its founding, under two different management teams. Ordan Trabelsi, family of former CEO (?), was first US employee in 2014; led US business from 0 to ~$10M in sales. In 2021, Ordan took over struggling parent company. He shut down previous unprofitable, one-off business, and focused on current hardware + ARR model. Revenue grew from $12.3M in 2021 to $27.9M in 2025; net income went from -$6.7M to $3.75M. Debt was reduced by 50% (multiple debt-to-equity conversions at premium prices).

Ton of momentum: secured 20+ national contracts in EU and, since mid 2024, 40+ county-level contracts in the US + Arizona state-level contract. Largest is Sweden, awarded in 2026; base case is $17M and customer budget is $75M.RPOs stood at $55M at Dec 25, with $21M to be recognized as revenue in 2026. Growth could be expected to come at 40%+ in 2026. Margins have not yet shown normalized levels, but operating margins if SaaS is main contributor might be ~25%+. If hardware dominates, ~10%.

Trades at $55M mkt cap. Net debt of $10M, but has $24M in receivables. If things go decently, it’s trading at 3-4x 2026 ebitda. Has ~$70M in NOL carryforward.

Main issues:

• Terrible economic model (in EU at least). They recognize a lot of revenue upfront but get paid over time, so ARs are very high. Negative cash flow every past year.

• Dilution was a risk until very recently. Maybe remains a risk.

• Not sure if they are playing accounting games.

Total Telcom (Canadian dollars)

Trades at $12.6M mkt cap, ~$8M EV and on track to generate $800k+ in operating income in current FY and growing at 30%.

Hardware + ‘SaaS’ model. Many services, but essentially a remote asset-tracking offering, which then needs ongoing data. Current growth vertical is in a water-level tracker combined with surveillance monitoring; rebranded as Site-trax in March 2026. Struck 3 deals with South American providers and is in conversation with government organizations for large-scale deployments. Additionally, they sold the IP for two of their products, on which they’ll earn a royalty per unit built by a manufacturer; 100% margin onward, could add hundreds of thousands in profit.

Lean operation, sales growing at 20%+, 20% operating margin and expanding, ~40% of sales are recurring but portion will expand as they deploy hardware.

My sense is that, even while not cheap on a relative basis now (I purchased shares at an EV of ~$4M, business has been historically profitable, management seems good, especially now with Andreola on the board; and as new opportunities ramp up, any deal can mean a 2-3x in valuation. I think that might happen over next 6-12mo based on their press releases and starting to recognize revenue in South America, meaning trials are ongoing. Market seems to already be getting ahead of it.

Thermal Energy International (Canadian dollars)

Business trades at an EV of ~$24M. Margins were depressed in 2024-25 after management invested in capacity (engineers and salespeople). Business grew 60% last Q, 17% previous Q, and will likely grow at 35%+ in the next Q (last of FY). It’s at a ~$40M run rate and normalized op margins might be ~12%. Trading at normalized ~5x EV/EBIT. (Current op margin at 4%).

They help manufacturing companies recapture heat lost during the normal course of operation, while saving a lot of money doing so. The ROI on their machines & services are 3-5 years. Have been working with multinational companies for 2 decades; many repeat customers like Pepsi.

William Crossland has led the business since late 2000s. Has done a few small but good acquisitions, leveraged up the business when sensible, now runs a clean balance sheet,invested in extra capacity in response to excess demand, and has bought back some shares.
Very well run operation, almost no competition. CEO has hinted he aims at 15-25%+ growth yearly. Already within their customers’ manufacuting sites (1,000), TMG has <7% penetration.

Cleantek Industries (Canadian dollars)

Cleantek trades at $16M market cap and has $9M net debt. Since 2019: revenue grew from $1M to $13.7M last year; gross margin expanded from 35% to 62%; from millions in losses and a “Going Concern risk” to $900k in net profit in 2025. Cleantek has ~$60M in NOL carryforward.

Riley Taggart (deep operational background in Baker Hughes and did his academic thesis in micro-cap energy sentiment) took over as CEO in mid 2024 when the company was on the verge of a covenant default and the ship started turning. Cleantek had a $3M working capital deficit and now is $800k positive. Book value was $400k in Dec ‘23 and now exceedes $3M. He optimized the asset base by refurbushing machines and secured a ~$7M deal that drove their 2026 guidance to $22M (+50% YoY) with $7.3M in EBITDA.

The business mainly rents and sells huge lighttowers used for oil rigs; they are fueled by solar and lithium, are less expensive than traditional options, are more efficient, and their lighting is much more intensive and broad. Like Thermal Energy, it saves customers money while helping them meet their ESG mandates. Customers are mostly in NA, with many of them renting towers for multiple rigs, though the large 2026 contract will be shipped to the Middle East.

Cleantek used to operate legacy, diesel-powered wastewater disposal machines. They were lost in the asset base and Riley is refurbishing them into being natural-gas-based. Less costly, more efficient. Each of these machines (fleet of ~50 by 2027) could generate ~$500k/yr in sales. By refurbishing, instead of building from the ground up, they save ~$200k-$400k per machine.

Margin of safety is smaller than in other investments, but asset value severely underestimates replacement cost and true earnings power of the whole fleet. Lighting towers have rental capacity for $20M+ in yearly sales while wastewater machines of $25M+ once converted. At a 30%+ ebitda margin, assets should be priced meaningfully higher.

CEO is looking for M&A opportunities to leverage their tax assets and get uplisted.

NTG Clarity Network

NTG trades at a $35M mkt cap and has $3M in net cash. They have $39M in current assets ($30M in receivables) and $17.5M in total liabilities. It trades slightly above book value with most of their assets being highly liquid and with capacity to generate $10-$20M in operating profit.

Founder-led business from the 90s that ‘struggled’ until 5-7 years ago. They found an in-demand service and the way to offer it with attractive economics: NTG is an IT staffing/consulting company for Saudi Arabian large businesses in many industries (50% in banking). They have offices and hire most workers in Egypt, benefiting from salary arbitrage while employees are high-quality, tech savvy, and speak the same language as clients. Their offering seems valuable; 134% in NRR and 99.3% in gross dollar retention in 2025.

Revenue had been declining and grew from $8M in 2019 to $83M in 2025. NTG went from operating losses to ~$10M in operating profit, and their operating margin has oscillated between 8%-22%. Demand is fueled by Saudi’s government attempt to diversify away from oil and gas, promoting other industries. They have a target to hit by 2030 and are committing capital to it.

Stock dropped 70% from peak last year for I think four main reasons:

1. NTG hired in excess of demand, expecting large contracts to ramp up. This hasn’t happened yet. Excess capacity + holidays led to op margin dropping to 3% last Q.

2. They use to run on negative net working capital. As they grew, accounts receivable increased a lot. Though they have systematically collected 99%+ of ARs, market might not know how to think about scale economics. Management said they’ll focus on getting cash cycles back on track but have struggled in doing so.

   1. My take is that, even if ARs stay at these levels, it’s normal for a business generating $85M in yearly sales.

3. Growth stalled. If they hit low-end guidance, sales will grow ~8%.

4. Consulting and IT-related businesses are out of favor.

Guidance for 2026 is $90M in sales and 13%-16% in adj ebitda margin (8-10% op margin). They reaffirmed guidance even after their first Q came in at $21M and 3% op margin. CEO had said in Q4 call that their Q1 was expected to be like this. I think they’ll hit guidance, considering it’s conservatively estimated, supported by backlog and ‘low-risk- renewals.

Disclosure: This is not a recommendation to buy or sell any security. In addition, the foregoing write-up is just the result of my dd and opinion. Please do your own research.

Contact: giulianomana@0to1stockmarket.com

This idea clicked for me two years ago. I was attending a conference at Harvard where Seth Klarman spoke. And I remember him saying something like “small caps (<$500M) are one of the few places left to find asymmetric returns.”

Then I realized it’s what Buffett had done for as long as he could, and what Munger suggested to start. Greenblatt had followed this path at Gotham and Graham wrote there might be a lesson in his Geico purchase.

The smartest and most successful investors all agreed on this. Though I formerly held a different view, I thought it deserved careful analysis.
Now it seems obvious.

$20 bills aren’t lying around on Fifth Avenue. The market is not stupid.
You might find them, however, in streets few people visit.
Investing is about paying $50 for something that’s worth $100. It’s about finding $20 bills no one has picked up yet.

You choose the game’s difficulty. Why would you go fish in a lake which has a few fish and compete with very talented fishermen? Look for a pond no one’s fishing in. You don’t earn extra points for complexity.

Mispricing occurs when: (1) there’s very little public information; (2) players are not sophisticated; (3) there’s very few players; (4) the media manipulates people; (5) cycles + other reasons.

Frequent transactions of an asset lead to more efficient pricing, most of the time. Market prices follow intrinsic values, and they converge as more and more investors get a better grasp of the underlying business.
The stock market is not like democracy - the more capital you put behind a market order, the more you influence the asset’s price. And because capital tends toward sophisticated hands, more transactions typically lead to better pricing.

When there’s not much capital after a stock (<$50M), anyone can cast a huge vote. A $10,000 market order can swipe through the whole order book. A fat finger can send the stock 30% down searching for buyers. More people, sophisticated or not, have disproportionate influence over these assets.

It’s in small caps where you can find great businesses, growing 20%+ while trading at <10x earnings, oftentimes <5x.

Truly good investors grow out of this pond and institutions can’t access them because of market cap requirements. All of these create the perfect conditions for systematic mispricings to occur.

I collect ideas from books, thoughts, anecdotes, and through observation.
This will be a long read. At the end, the full list will be included. Feel free to skip to the tl;dr and share, or bookmark for the full read later.

1. If you find a genius, give them all power

There come times in life when you encounter extraordinary individuals - people whose abilities are well in excess of your own. A handful of those times, you’ll also recognize a deeply moral drive. It doesn’t happen very often. It might only happen 1-5 times in a lifetime. But you need to be on the lookout. When you come across one of these people, partner with them.

Studying the life of Lee Kuan Yew flabbergasted me. Singapore was a malarial swamp. No common culture, no people, and no country wanted to help them at the beginning. Citizens didn’t even speak the same language. Then this man came along and he single-handedly fixed all societal issues, turning Singapore into one of the richest countries in the world by per capita GDP. LKY couldn’t have done it alone; he had a great team of ministers and advisors. That’s another feature of these astounding individuals: they know how to build an exceptional team.

Warren Buffett became Berkshire’s CEO in the late ‘60s. He turned a mediocre $15M textile operation into a $1 trillion conglomerate, while earning essentially no salary and partnering with Charlie Munger.
Imagine you knew a young Buffett. The single decision of handing him your money would make you end up billions of dollars richer. And you wouldn’t have to lift a finger.

A Buffett or Lee Kuan Yew kind of talent might come once every century. And in all likelihood, we won’t meet people like them. But the idea holds true at all levels. Think of that marketing agency whose performance is 2-3x that of the other agency you hire. Think of the person who manages 1-2 people, but whose results are astounding and could manage 10-50. Think of your incredibly smart friend who could and would do a lot but has no resources. Life becomes easier as you stack tailwinds.

2. You are neither right nor wrong because a poll agrees with you

You are right because your facts and reasoning are right; because the outcome was similar to what you predicted. Other people’s opinions has nothing to do with the truth. Truth lives by itself. It’s independent.

Until Darwin, all naturalists believed in the independent creation of species. After Darwin, almost no one did. Everyone thought the world had been created 5,000 years ago; after Lyell published his work, no one thinks that. Before Copernicus, people thought the Earth was at the center of the solar system. Before Galileo, that a heavy stone fell faster than a light one.

What society holds true at any point in time is fragile. It only takes one observation to shatter it completely and for a new paradigm to emerge.

When Henry Singleton took over Teledyne, dividends were the only conceivable way in which companies could return capital to their shareholders. He figured that, done well, buybacks could create more value and proceeded to repurchase shares when multiples contracted in the 70s. Thereafter, everyone on Wall Street caught up with their tax efficiency and started doing share buybacks periodically. In the 90s, Singleton had his last interview and was asked what he thinks of this development:

“If everyone is doing them, then there must be something wrong with them.”

3. The key to success is mediocre competition

You are always competing with someone. For attention, a position, a candidate, a customer, an audience. Every activity, meal, or plan competes with every other, time being the only true asset.

Winning can be a win-win, but that doesn’t mean there isn’t a loser somewhere. Imagine you pitch your product or service to a potential customer. After your meeting, the customer meets another vendor. What determines whether you win is not only your performance, the quality of your service, and soft skills, but also how they compare to your competitor’s. How much easier it’d be if their product weren’t functional or they didn’t show up?

It’s not about taking advantage of other people. It’s about being smart at game selection. You’ll end up competing anyway, so you might as well pick something where you have an edge over other people. You must be capable of telling where your edge comes from. At a poker table, ‘if you don’t know who the patsy is 30 minutes into the game, then you are the patsy’.

Niches are large enough to support a family and fund growth. If there is demand, and you control a tier of the supply, you’ll do well. Doesn’t matter if you’re Alaska’s best fisherman. If you’re the best at something for which there’s stable demand, you’ll do well. Buffett oftentimes said that the best shield against inflation is being the best lawyer or doctor in town; your earnings are protected because you supply the market with a high quality product that’s continuously in demand.

4. There are answers worth billions of dollars in a $30 history book - Munger

Near the end of his life, Charlie Munger often told an anecdote later in life:
he read an investment magazine every year for 30-40 years and had never found an actionable idea in it... until the 2010s. Charlie subsequently invested a couple million in the business portrayed and took out $80M in profit. He gave that $80M to Li Lu and Li Lu turned it into ~$400M. All of this in the span of under 15 years, I believe.

That’s how powerful reading can be, especially in investing. It only takes one idea to change your life. Imagine if you knew everything you now know when you were 10-20 years old. Would you exercise? Would you invest? Would you read? Would you spend more time with relatives?

You are not smarter than your former self. You’re just more knowledgeable, hopefully wiser. Knowledge is power; it brings profit in all shapes and forms. And the best thing is that it is, to a large extent, ‘speed-runnable.’ Read 1,000 carefully selected books and I suspect decisions become simpler. It’s immaterial if you read those 1,000 books in one decade or six decades. I strongly suspect you’ll take away most insights anyway. The difference is that you have that mental database to compound and work for you for five decades thereafter.

You don’t need to make all mistakes there are to be made. Learn from people who came before you; avoid the mistakes they made and take their advice. Life is very much the same in many ways. And you don’t have to figure out Newton’s laws by yourself; you won’t be able to, or you’ll spend your whole life trying. Just read about them. It’s a fair shortcut.

5. It’s always a skill issue

If you don’t get what you want in the long run, it’s likely on you. This is especially true nowadays, when opportunities are widespread; the internet and now AI have leveled the playing field.

This reframe is extremely impactful and pragmatic. From: It’s another person’s fault. To: It’s my fault. If it didn’t turn out the way I wanted, I could’ve done something better.

It’s a reframe about responsibility and accountability. If you take it, you’ll learn something from it. And your behavior will thereafter be more profitable. You can always do something better. You can always be better. Failed at an interview? Maybe my English or knowledge are off. Failed at an exam? I didn’t study hard enough. Don’t know how to close a customer? I’m not a good enough salesperson yet.

There’s always someone who could do what we’re supposed to do better than us. And not because they were born with it. They acquired the skill.

“The easiest way to get what you want is to deserve what you want”

No one is a natural at anything. The rate of learning plays a big role in how quickly you arrive at a proficiency level and acquire new techniques. But not even the most remarkable human beings could’ve gone far without intense practice and focus.

When I read da Vinci’s biography, I was astounded by his obsessive personality and the attention he gave to getting every little detail right. Talent can only take you so far. There is no substitute for hard work.

Whatever another person has, you can have (naturally limited to changeable things, which I’d estimate to be in excess of 97% of cravings). Some achievements and results take more effort and time, but there’s no rule why you can’t reach a certain summit.

‘Aim for the sky. For, even if you don’t get there, you could reach the clouds.’ Improvement is deeply satisfactory, irrespective of whether you reach your original target. And time will pass anyway, so you might as well do something.

6. Cargo Cult Science

Feynman gave this speech in the ‘70s. He warned the audience about the upcoming new ‘science’. They’ll say their conclusions have a scientific basis, that they followed the scientific method, and that their opinions are just as valid as those forged through sweat and tears in the fields of mathematics and physics.

But they are non-knowers. They lack intellectual integrity and rigor, and ignore how difficult it is to produce any piece of knowledge. When trying to explain a phenomenon, the way to establish causality is by isolating variables in an experimental/observational manner and running tests.

Some of these people don’t realize their disciplines fall into the complex adaptive systems realm. Many variables impact any given outcome, and all of them are interconnected. Isolation is virtually impossible. And true causality can’t be determined because the environment continuously changes; new set of rules, the experiment is no longer the same.

Furthermore, if they do know this and insist on their newfound truth, it’s likely that they are not disclosing the whole picture. Failed experiments are left out of their papers and noisy data goes unreported. Only elements that validate the conclusion are presented.

Beware of people who claim they know something that’s really hard to know. The best shield is to deeply research a topic. See for yourself how hard it is to stay on the tracks of truth to not misinform others. Or you can lie to yourself, and others will play along.

“The first principle is that you must not fool yourself - and you are the easiest person to fool.”

7. The men who can manage men manage the men who can manage only things, and the men who can manage money manage all - Durant

The output from your employed capacity is a function of how much leverage you have and how well you use each unit of time. If it’s only you getting paid per hour, earnings scale linearly with your input. If you have the eye or skill of a master, you might get paid per project or earn a share of the generated proceeds; output becomes nonlinear. If you manage people and get to decide how they employ their time at work, the foregoing multiplies. If you can manage money and understand returns on time, everything will be at your disposition.

8. Incentives

We repeat behavior that rewards us and avoid that which punishes us. No one wakes up wanting to bang their head into the wall. Pain is terror, in all forms. If a conversation with your friend was unpleasant, you won’t want to go through it again. And thus you might see that friend less often, even if the unpleasantness wasn’t out of a personal issue. We are wired this way.

Man’s genome took billions of years to evolve. On an Earth were catastrophe abounds, mechanisms were built into our DNA to preserve ourselves. Everything in your circuitry is optimized for self-preservation and reproduction. What is pain if not the body telling you you’re being constrained in one way or another from the thing for which you live?

If you want something to happen, align everyone’s interests toward it and it will. We only do things that are in our interest; the self-serving bias is too powerful. Generosity does exist but there’s truth to the idea that there’s no action that’s purely altruistic.

“Reason, justice and equity never had weight enough on the face of the earth, to govern the councils of men” – John Adams.

It is interest alone which does it. When there are enough incentives, anything can happen. In the 1930s-40s in Russia, there were quotas to fill for arrests. It didn’t matter if people had done a wrongdoing. Quotas needed to be filled and any pretext was good enough.

There was an organization with two products. One was higher quality and it didn’t sell for a much higher price, yet nobody bought it. After some inquiring, management realized salesmen received a higher commission if they sold the lower-quality product. Managers inverted the commission and sales of the higher-quality product eclipsed the other.

Pavlov ran thousands of experiments with dogs to investigate reflexes. Most tests had the secretion of saliva as the objective, which in a natural setting happens when food or poison enters the dog’s mouth. Pavlov found dozens of stimuli that could be conditioned to trigger this reflex. You can use the sound of a bell to trigger saliva. Organisms’ cabling can be reconfigured to suit your needs. Whose bread I eat, his song I sing.

In finance, investment bankers connect companies that want to acquire others with potential targets. They are the deal makers and receive a cut of the transaction for their services. Because it’s in their absolute interest for a deal to be struck, their unconscious will push for it to happen, even if it’s not in the company’s best interest. Don’t ask your barber if you need a haircut.

I’ll finish this section with a story my father told me once. He was working at a consulting firm and had a group meeting. The manager who was leading it arrived 5 minutes late. So the guy comes in, everyone already sitting, and starts playing with the document he had at hand. Then he pounds the table and says, ‘Gentlemen, are we gonna do what’s right or what’s in our interest?’

9. Intelligent is different from smart, and both can be stupid

I think being smart is being quick of mind; smart people are witty; they compute/permutate quickly and are good at pattern-recognition at the micro level. Intelligence is broader, but holds less specific power. Intelligent people can see the depth to things; they know what questions are worth entertaining and can hold one in their heads for days until they get an answer; they see the whole board and seem to understand nature at levels others don’t. It’s pattern-recognition at a higher scale.

Intelligence lets you build your mental schemas, and brightness let’s you sort through your mental library to analyze the problem at hand, arriving more quickly at the answer. Both are extremely helpful attributes, but neither can save you from stupidity.

“It takes something more than intelligence to act intelligently.” – the Master

I suspect there’s a spectrum in intelligence that’s something like intellectual self-awareness. Up to a point, the more intelligent you are, the easier it is to act irrationally - you can argue in favor of anything, but are not intelligent enough to recognize blindspots that arise from the nature of things. You can even be a Nobel laureate and make terrible decisions, Long-Term Capital Management being the prime example.

We fall in love with our creations and are bound to overestimate our capacity. It seems like the more intelligent you are, the more difficult it is to accept some things are outside your control. Up to a certain point.

Nobel laureates in the field of physics seem to have long known how biased our judgment is. They don’t hold their ideas as True; they learned to hold them as the truth as of now. Studying history and how their field got to its current state forces that mental switch.

To this effect, ‘people who are in the top percentile of probabilistic games have more in common with one another than with people in their own fields’ - Michael Mauboussin.
It’s unclear to me whether this is a genetic element. But there’s something coded within some brains that makes them more resilient.

10. Worldly wisdom

The modern educational system was created to meet modern reality. We live in a world that’s full of long-tailed branches. It takes years of intense diligence to place yourself at the frontier of any knowledge vertical. And it takes even longer to reach a point where you can break through boundaries.

These 10-20 years of education leave us in a place where we don’t want to revisit academia. We think of it as this horrible memory where we were assigned terrible reads about things we didn’t care about. As a consequence, we leave proficient in one area while neglecting everything else.

This is a disaster. ‘You’re like a one-legged man in an ass-kicking contest’.

Real life problems cannot be isolated into neat boxes. Answering any question to any truthful extent requires knowing history, psychology, economics, physics. Problems are multifaceted and all disciplines are interconnected. The best decision-makers have a good understanding of the whole. They are generalists who also know their field extremely well.

Beyond that, how can you go through life without knowing? Learning brings profit, joy, and happiness. ‘You can’t expect to dream it up all by yourself – no one is that smart’.

11. Education is software for the brain

Without Windows or iOS, your computer would be an alien product. Impossible to use. Just by adding an operating system, it becomes this incredibly malleable, resourceful machine. Add software layers on top of it, install applications and learn how to use the internet, and there’s no problem you can’t solve. You’ll also save infinite time through efficiency gains.

That’s what education does to you. Reading a book adds ideas to your brain, words to your vocabulary, and you experience a wide range of emotions. Your mind acquires new lenses through which to analyze the world. And lenses compound; each hour spent reading builds layers of understanding. Decisions are filtered through them all, becoming sounder and more optimal.

12. Economies of scale

Manufacturing businesses typically have large headcount and maintenance expenses associated with their facilities. Both are fixed costs. As the company scales and sells more units, while keeping this fixed base flat, operating margins expand. The business becomes more efficient on a per-unit basis.

The same thing happens with organisms. The metabolic rate signals the energy we need to ingest to keep our machinery active. And it so happens that, the larger the organism, the less energy it needs per gram of tissue. Likewise, the larger the organism, the fewer heartbeats per minute it has. These represent huge efficiencies gained from scale.

In geometry, the area of a 2D objects increases with the square of their dimensions’ lengths. And in 3D objects, volume scales with the cube. So every time you double dimensions, in the former you get 4x the area; in the latter, you get 8x.

There are also inefficiencies that come from scale, such as the amount of weight a physical structure can support. The larger it is, the less proportional mass it can hold up. That’s why ants seem incredibly strong.

Sol Price figured out how to win in retail by understanding this and complementing it with his business savviness. As your business gets larger, you experience gains from efficiency. But your margin is others’ opportunity. Therefore, if you pass on your savings to customers by lowering your prices (Amazon, Walmart, HD, and Costco’s playbook), you almost can’t be taken out by a competitor.

13. Quality

A teacher stands in front of his classroom and reads two short essays aloud, both about the same topic and structurally similar. At the end, he asks students to raise their hands if they think the first one is better. *No one raises their hand*. Then he asks them to raise their hands if they think the second one is better. *Every hand goes up*.

You can try to quantify it. You can point to how sentences are framed, how commas are used, ratio of verbs to total words, pauses, and so on. But in the final analysis, you don’t know why it’s better. You just know it is.

We have an inner sense of Quality. It’s not taste or intuition, and it’s not analytical. It’s something you observe that can’t be seen. Something you hear that emits no noise. It’s a switch that gets triggered at the point where all our senses connect.

14. Extraordinary results are just 1,000 boring days strung together

Rocks can be worn down by drops of water. It takes a decade to create an overnight success. Think about any skill you’d like to be better at; then think how much better you’d be if you had practiced it every day for the past 3 years. It reminds me of the story of a great, old musician to whom, after the concert, a fan said to him, “My God, you play so beautifully. I’d give my life to play like that.” To which the musician melancholically replied, “That’s exactly what I did.”

Innate talent is not enough. Newton locked himself in a room for months to dedicate himself to any subject that was of interest to him; all day spent thinking. Da Vinci spent ~16 years painting the Mona Lisa; and decades of intense practice and learning about painting & drawing to perfect his craft. Francis Crick and James Watson worked on a single topic for 2-3 years filled with frustration before they could discover the double helix.

No one double-clicks on the long periods of darkness and nothingness. All the greatest have gone through that, but everyone remembers the fame and achievements.

To be acclaimed in front of everybody, you need to outwork everybody in front of nobody.

15. Stack the bricks

On one occasion, Steve Jobs was discussing a media strategy with an advisor. Both men ran into a disagreement, and the other guy did an experiment. He crumpled up a piece of paper and threw it at Steve; Steve caught it. Then this man crumpled up five paper balls and threw them all at once; Steve caught none. Everything works that way. We only have so many mental resources.

One of the reasons why Google and Apple won was their intense focus on what they wanted to show the customer. Internet pages had every pixel crammed up with images and information. Smartphones were anything but smart. Google got rid of everything except for the Search bar, and that’s perfect for users. iPhones had only one button; now they have none. If something is not required, delete it. You risk diverting users’ attention to things that don’t matter.

We look more at buildings than we do at floors. If you have 100 bricks and lay them horizontally on the floor, they amount to nothing. No contrast, no excitement, no novelty. Everyone will pass by; uniformity catches no eyes. Instead, if you stack the bricks and build a tower, there’ll be no person who walks by without noticing it.

Businesses think about marketing in the same way. They have recurring investment in S&M, but when something important happens, all resources get concentrated on that announcement. A new product, fundraising rounds, new partnerships. Companies might leverage all channels and networks to publicize the same event. Incrementally invested capital in directing attention to the same event yields increasing returns (up to a certain point).

This is analogue to how Marc Andreessen views venture capital: returns aren’t evenly distributed. It’s only a few that drive all results. If you develop an eye for what those few look like, concentrating resources is not only more profitable, but less risky.

16. There are multiple ways of thinking

Whenever da Vinci faced a problem and needed to think, he took out a pencil and paper and began drawing. If Leonardo set out to understand the motion of water, the flow of a river or the mechanics of sight, he just drew.

When I saw his drawings of rivers, I sensed how they acted as a mental model for da Vinci, or as an algorithm like those used to ‘forecast’ weather patterns. It became clear when I read he was working for Cesare Borgia. Leonardo came up with innovative military ideas. And the way he determined feasibility was by putting them on paper.

He was able to see whether something could work in reality by sketching it. And tweaking sketches was just like changing inputs in a computer simulator.

Learn how you think and leverage that. You’ll often hear people say that they are “visual thinkers;” some just want to sound fancy, but there’s deep truth in that statement. If you know how you think, you’ll be much more effective at everything you do in life. You’ll feed yourself the knowledge you need, in the right way, and optimize your environment according to your nature.

17. Real understanding comes through continued mental exposure

It’s not the same to read a book, which takes 15-35 hours, as it is to listen to a 1-2-hour podcast. And it’s not the same to read a summary of the book. You don’t get 80% of the job done; it doesn’t work that way. Understanding comes from continuously thinking about something, adding layers of information and theorizing about how new knowledge fits the picture.

Jung analyzed dreams by ‘turning them around and around, analyzing every single angle they had’. A thesis can just be a sentence: natural selection is the process by which superior organisms are selected based on their fitness and are thus able to yield offspring. But you don’t understand everything underneath; the pillars that back the theory up. Use and disuse, specialization of organs, tiny variations, shared commonalities. Those are what help you understand natural selection.

For what is understanding if not the capacity to profit from the knowledge?

18. Deep simplicity

Complex systems are the result of a few nodes interacting with one another, left alone for a long time. This stands true across disciplines:

• 95%+ of all biological matter is made up of only 4 elements (carbon, hydrogen, oxygen, nitrogen).

• With 3 laws and gravity, you can explain and predict the motion of all (large) bodies.

• All DNA is made of sugar, phosphate, and a chemical base, which in turn are built from pairs of 4 nucleobases.

• Electricity and magnetism were separate fields until Maxwell. With 4 equations, he explained the most varied phenomena. At the bottom of things, only a handful of elements serve as the Lego blocks.

When performing any sort of analysis, look for the 2-5 variables that move the needle. It doesn’t matter how immense an issue looks.

In the early 1900s, Milanković wanted to understand why the Earth has this pattern of an alternating cycle of ice ages and warm interglacial periods.
After 30 years of thinking and manual calculations, he reduced this enormously complex phenomenon to 3 variables:
- The eccentricity of the orbit - goes from more to less elliptical in loop. 100,000-year cycles.
- The tilt of the Earth’s axis - obliquity. 41,000-year cycles.
- The wobble - slow, top-like wobble on its axis. 26,000-year cycles.

By tracking how these three variables overlap, he answered this impossible question.

Jeff Bezos did a similar thing when he said that a leader’s job is to identify the 2-3 big ideas and enforce execution against those. Amazon was built around: (1) Lower prices; (2) Faster delivery; (3) Broader selection. “It’s inconceivable to me to imagine a world where people don’t want that 10 years from now.” These are the things that don’t change and thus make a business resilient, while virtually guaranteeing positive returns on capital if you win.

19. Tweak a problem only slightly and you’ll turn it from impossible to easy

This approach is about finding pieces of information that seem to matter but are ultimately irrelevant to the final result. Then work around or avoid them.

What if asked you to pass a needle through a block of ice? It’s a physical impossibility. But if you heat the ice, it’ll melt and you’ll be able to pass the needle. Likewise, if you heat the needle, it’ll slide through. Learning different disciplines helps you spot shortcuts where others only see a wall.

The original insight came from Thorp. He was once given a geometry puzzle: find the volume of the solid part left after drilling a hole through a sphere given only its height. Because the sphere’s radius wasn’t provided, most students thought the problem was impossible to solve. Thorp tweaked the scenario by imagining the smallest possible sphere; one exactly as tall as the hole. In this extreme case, the hole becomes a single point and the ring becomes a solid sphere, turning a complex calculus problem into a 5-second mental calculation.

20. Systems naturally trend towards decentralization and specialization

Adam Smith pointed out the difference between a pin factory where labor is divided and one where everyone does everything. The former was orders of magnitude more productive than the latter. Focusing on one task increases your dexterity and reduces context switching. You become proficient at the task, while a jack of all trades is a master of none. Groups of proficient workers outproduce their counterparts.

Natural selection has caused a similar phenomenon in organisms. Darwin thought that the higher on the scale of Nature, the more specialized an organism’s organs. Organisms less fit for survival were those whose organs were too general-purpose. They suffer from the same disadvantage as the pin factory that’s full of non-specialists. Thus, a visible trend in nature has been the specialization of organs.

In economics, it has been at times believed that a central authority can set prices for objects and services fairly well. Reality proves that the foregoing belief is wrong. Hayek remarked on the flaws of such a system - a single entity can’t faithfully integrate all ever-changing inputs to make decisions. Thus, the trend within economics has been for prices to be set by free markets, to a greater or lesser extent. Arbitrage and incentives seem to make this the best alternative.

For centuries, Societies were been ruled by emperors, or hereditary monarchs. Senates have been introduced and tested in Rome and Greece, though subsequently again replaced by monarchies and empires. Aristocracy emerged as a precursor to democracy. Finally, society arrived at democracy as the optimum selecting machine to govern the affairs of man.

21. Complex adaptive systems

We’re used to extrapolating, to thinking linearly. When we see 1, 2, 3... we think the next number in the sequence is 4. Our brain plays great tricks on us by seeing patterns, real or not, and trying to solve for unknowns. This has great utility, but it’s not absolute. It works in mathematics and to a large extent in physics & chemistry; logic is power.

However, in most of life, it leads to terrible results.
Linear thinking breaks down when trying to explain most of reality.

Economics, psychology, sociology, weather forecasting, people management. Each of these has infinite subtleties. You can’t say that just because interest rates fell, asset prices will skyrocket; or that just because a person coughed, they have pneumonia. Most of reality is formed by complex adaptive systems, with an indefinite number of components and a compounded feedback loops. What one node does affects all others, which affects all others again in turn, and so on indefinitely.

Do a small change in input and the whole system gets shaken; the output is indeterminate. I once read that the world is its fastest computing machine.

22. Why thinking what no one else is thinking pays off enormously

History shows that we systematically improve our understanding of nature. Therefore, at any given point in time, Society has a set of ‘currently held truths’. These are placeholders. Bound to get displaced in the future. But they are the best we’ve got as of now.

In the 1800s, all naturalists believed in the independent creation of species. Darwin encountered no sympathetic agreement whenever he discussed his ideas with someone. Nevertheless, he published his work in 1859. After Darwin’s theory got out, everyone regarded evolution as the truth.

When that happens, there’s a huge switch in society. Everyone’s mental software gets upgraded. With new lenses, new ways of doing things come; new methods, analyses, and fields open up. They are all closer to the truth than before. And because that’s the case, more pursuits are profitable. Wealth is created and expands.

In investing, it’s not good enough to be a contrarian. You must be contrarian and right at the same time. There’s no point in a building being different for its own sake; it must be more beautiful, useful, resilient. The more people who disagree with you when you are right, the larger the payoff.

In general terms, if you manage to bring an idea to society, you are rewarded. And the farther it is from the currently held truths, the larger the payoff. In intellectual terms, there might be no single idea that brought as much profit as Darwin’s. There’s true value in stretching people’s understanding.

The two easiest ways to force this type of thinking come from one of Paul Graham’s essays: (i) Don’t be aware of conventions – if you don’t know what people think, you’ll think for yourself by default; (ii) surround yourself with independent-minded people – we are the average of the people that surround us.

People tend to think there are no more secrets out there, but a current example of this I came to appreciate is Graham Hancock. He posits that our record of history is flawed; Hancock believes there was an advanced civilization that got lost during the ice age and we haven’t yet put the pieces together. To argue, he pulls research from archeology, astronomy, sociology, and geology. It’s fascinating how he tries to connect the dots. And his view is forcing a whole re-thinking of everything.

23. The difficulty lies not in the new ideas, but in escaping from the old ones - Keynes

When we come up with or learn a new idea, theory, or process, it colors our view of everything. We fall in love with our creations and force new facts to accommodate to them. Any phenomenon we might encounter, we try to explain through our acquired idea.
That’s the man-with-a-hammer tendency; to the man with a hammer, every problem looks pretty much like a nail. He twists the problem at hand until he can crush it with the only hammer he holds. Hugely flawed way to operate.

Learning an idea costs so much that people don’t want to let it go to waste; they want to make as much use thereof as they can. Thus, science moves one funeral at a time.

24. You drift toward the average of your surroundings

We learn by imitation. Watching our parents conduct themselves teaches us how to conduct ourselves. While surrounded by peers, we copy behaviors from people we like or admire. You can’t fully resist this effect; it’s largely unconscious.
It has happened to me many times that I find myself expressing my views in a certain way and I wonder, ‘Why did I say that?’ Then I think deeper and realize, ‘Oh that came from Munger. That’s Feynman. That’s Buffett.’

When I was 7-17 years old, I spent a great deal of time with friends who played football; so I did that (loved it though). When I was older, I might meet with people who go to the gym more often, so I replicate that in some way.

Other people mold your behavior. And it’s a powerful force. If you meet with people who exercise a lot, you’ll be far more inclined to hitting the gym. If you gather around people who read a lot, you’ll start reading more and more. The obverse also holds true: if you surround yourself with smokers, you’ll smoke; if they don’t work hard, you won’t work hard.
It doesn’t matter how independent-minded you think you are. We tend towards the average of the 5 people who surround us.

25. Causes of human misjudgment

Our minds break in embarrassing ways all too frequently. You can’t avoid it. These failures are so deeply rooted that you can rarely tell when they occur; they feel natural. Worse than that, they feel right. And you experience great damage and suffering because of your wiring.

When anger comes, rationality leaves. Emotions cloud our judgment. And so do a lot of phenomena: if you are hungry, your decisions will be worse and your temperament more irascible; we fail to notice change that happens gradually; we twist reality when it hurts until it becomes bearable; we are more prone to agree with opinions of people whom we like; and so on. There are dozens of silent threats that lead to our misjudging events.

I think that, to a large extent, you can troubleshoot it. Learn new behaviors. What you can’t do is get rid of the intrinsic causes of malfunction. It works like addictions; you cure them one day at a time. The most practical way to do so is to become aware of all common errors and live in a state of alert.

A very useful piece of advice that’ll save you infinite trouble:

“You can always tell someone to go to hell tomorrow if it’s such a good idea” Tom Murphy

26. Find out what works and do it

Lee Kuan Yew turned Singapore from a malarial swamp into a thriving modern nation, which now ranks ~top ten in GDP per capita.

He wasn’t an ideologue; the only test is reality. For every issue he encountered, LKY studied what other nations did and how it had played out. If something had worked and was analytically sensible, he would do that – like changing incentives to fix traffic or offering tax benefits to multinational corporations. If something was a common cause of trouble elsewhere, he’d avoid it – like at the beginning, when he chose not to have a traditional central bank that could issue currency lightly.

There’s always a place where you can find larger density of what you’re looking for. Looking for startups? Go to SF. Looking for truths? Read the classics. Looking for mispriced investments? Fish where the fish are. Look where nobody is looking.

If you don’t look, you won’t find. When Buffett was young, he’d flip through the whole Moody’s manual searching for investment opportunities. Naturally, he found plenty. Whenever you search more, diligently, you’ll find more. Working hard tilts odds in your favor.

27. After a business gets to scale, capital allocation matters more than any other thing

The skillset that takes a business from $0 to $1M is different from the skillset that takes it from $1M to $10M, different from $10M to $100M, and beyond. Complexity escalates, product lines increase, markets get saturated, the business model might change, individual sales no longer move the needle. Success might start with product, grow through sales, and stabilize via operations.

However, as the business grows and it starts printing 10s-100s of millions in cash annually, what you do with cash inflow matters increasingly more. Growth is not just bound to happen in most businesses; markets saturate. At a 5% growth rate in a capped market, deploying that capital to expand the core business might not be worth it. By reinvesting it elsewhere, CEOs can create value for shareholders that’s orders of magnitude higher.

Good capital allocation drives lollapalooza results and makes businesses more resilient. When Buffett took over Berkshire Hathaway, BRK was a mediocre $15M textile operation with $50M in sales but $175k in profit. Instead of accepting that Berkshire was a textile operation, Warren built a portfolio of securities and bought companies like See’s Candies and Blue Chip Stamps. Cash flow continued to be used for M&A and investment in public equities. Buffett turned Berkshire into a $1tn, diversified conglomerate. Further, in the 2010s, one investment created $100bn+

“What Teledyne makes or sells is less important than the style of the man who runs it.”

28. History doesn’t repeat itself but it often rhymes - Mark Twain

The world has gone through a large number of permutations, state of things. And it’s in continuous change. Both elements yield the fact that past conditions are in all likelihood to repeat themselves, in a more-or-less fashion.

Not knowing what has transpired leaves you handicapped. Chess is not only a game of analytical ability, but also of memory. Grandmasters typically hold hundreds of previous games in their heads, so they know what to play given almost any situation. Life, albeit less deterministic, works the same way.

Being familiar with past market crashes prepares you for future ones. Even though each is unique, they’ll share common elements. Analyzing the fall of Rome or any past great civilization might lead to insight about the forthcoming fall of current powerhouses. Studying what worked and failed in other nations will give you a good sense of what will work in your own land.

Nevertheless, we need a mental routine that forces us to remember. Most tragedies resemble one another. And all happy families are alike.
But this lesson is easy to forget.

In one of the last sections from Lessons of History, a rising young politician is arguing with an old general; he’s laying out the case for how history has played itself out. At the end of their discourse, the young man pushes for the two current great nations to make peace with each other; he explains why it’s the best for the whole world. The old general smiles and says, “Son, you’ve forgotten all the lessons of history, and all that nature of man which you describe”

If you want to go deeper, read this:

29. Uniformitarianism vs catastrophism

There are two sides to this idea:
1. How did a system get somewhere.
2. What happened after the system got somewhere.

Biology is the field that really helped me better grasp this concept.
The Bible acted as the source of truth up to the 19th century. And it posits that God created species independently.

Then Darwin came along, who spoke about little variations per generation of species, and ecosystems (Nature) selecting the fittest therefor. Given enough time, organic beings completely differ from one another, reaching the state of different genus, and species.

But it is the sense in which it happens that matters: It’s a gradual, step-by-step process, in contrast to the Bible’s “catastrophist”/abrupt explanation.

Fast forward to the 1960s and Stephen Jay Gould came along, who spoke about Darwin being wrong. In the fossil record, Gould found that species went through long periods of stasis, followed by a Punctuated Equilibrium (a concentrated period of time where evolution pronouncedly occurred), stasis again, punctuated equilibrium, etc.

The theme doesn’t vary. Although fundamentally different from the Bible, the subject remains in the realm of catastrophism/abruptness.

Second, we have what happens after a system gets somewhere.
And for this I’m going to turn to Economics.

Adam Smith wrote in the 1770s that society largely works well for resource allocation because entrepreneurs get rewarded in the form of profit if they find an exploitable market.

However, he knew people are not dumb. When others see someone making a profit, they’ll jump to that market and compete to get a share thereof.
Over time, he concluded, competitors will increase until the product’s price equals the cost of providing it. No profits to be made thereafter.

Economists interpreted this as being a linear, gradual process, like Darwinism. But if you analyze companies, you’ll see this is not that true.

Michael Mauboussin published an article called “CAP, The Neglected Value Driver” in the 1990s. Part of it is around this idea that the market was/is fundamentally wrong about forecasting cash flow. Corporate profits, seen from the capital investment point of view, represent the difference between the company’s return on capital and its cost of capital.

And the market believes/d that excess returns are driven to zero in a linear, gradual fashion.

That’s just not true. It kind of assumes the company’s moat eroding slowly over time. But what I understand happens is that the moat disappears almost overnight. The company enjoys excess returns on its capital until, suddenly and abruptly, it doesn’t anymore. It incidentally reminds me of Christensen’s idea of disruption.

30. Lollapalooza effect

Extraordinary outcomes are typically the result of a confluence of factors working in the same direction at the same time. Multiple things going for something makes it much more likely to happen. Munger explained the Lollapalooza effect through how mental models and biases operated together, leading to Coca-Cola’s astounding success, as well as to explain the Moonies cult conversion. The Lollapalooza effect’s power comes from helping you think in terms of parallel tailwinds.

31. Paint the fence

If something is not worth doing well, it might not be worth doing at all. Why do something that doesn’t make your soul smile?

Steve Jobs’s father was once working on their house’s fence. What caught Steve’s eye was that his father went to extraordinary lengths to ensure everything was perfect. He’d paint entire boards, even the back facing the alley, which nobody would see.

Steve took that to Apple. Open up their early computers or any other product and they are just as beautiful in the inside as in the outside.

Self-esteem is the reputation we have with ourselves. Even when no one else will know, you will know. So do a good job. If you’re gonna do something, you might as well do something useful, beautiful, and well crafted.

32. The role of technology is to make complicated and expensive things cheaper and more accessible

Von Neumann invented the first computer in the mid 40s; only he and a few other people could use it. Two decades later, IBM built a business out of installing mainframe computers; only technicians could use them and they cost north of

$1M

. Apple brought computing to larger masses of people through personal computers in the 80s; they cost $500-$3,000 and almost anyone could now use them without needed much technical ability. Phones and iPads led the subsequent charge; they cost hundreds of dollars and even toddlers can use them given how UI friendly they are.

That’s the role of technology. It makes a highly sought-after resource (computing + memory) more abundant. Its price and the barrier to use it fall

33. Attractor states

Free-market systems are those where there is no intervention in private parties’ transactions. People are free to buy or sell any given item. But, more importantly, they can choose the price at which they are willing to trade. This causes there to be two large groups of people:

a) Those who need the product and are willing to pay a certain price for it, ranging from A to Z.

b) Those who’d rather have money instead of the product, and are willing to exchange it at a price ranging from A to Z.

When you put these two groups in contact, a market for the product emerges. Its price will be bid higher or lower, driven by the transactions between individual buyers and sellers. Some people will want to buy the product to benefit from its usage, but they’ll be willing to pay up to a certain price. Others will ignore it altogether.

Some sellers will regard the item as valuable and ask lots of money for it. Others might want to get rid of the item, so they try to sell it as cheaply as they can. Others will be producers, who’ll sell it at a profit margin.

When you have a push-and-pull like this, the price will settle at an equilibrium. It is the price that represents people’s preferences, on a weighted average basis. Such a price will act as an attractor state.

This mental model of systems converging to an equilibrium is something I’ve seen everywhere. Think about your field, discipline, job, and interests. It is highly likely that things are naturally tending towards somewhere. Spotting that place can help you make much better informed decisions and give you a great advantage over others.

34. Make things as simple as possible, but not simpler - Einstein

Isaac Newton came up with a framework as fundamental as possible. He created a system for how the world works, based on 4 elements.

• Inertia: That all bodies will tend to remain in their state of rest or moving uniformly in a rectilinear direction unless a force is impressed upon them.

• Inverse reaction: That when a force is impressed upon something, the thing returns the same force to the object.

• When a force is impressed upon an object, it’ll affect its trajectory, modifying it depending on the trajectory of the force and the force itself.
  - Force = mass * acceleration

• Universal gravitation, or the inverse square law: that all bodies attract one another with a force equal to constant * M1*M2 / squared distance between them.

These axioms and gravity explain the most complex set of phenomena:

• Planetary orbits.

• Tide motion.

• The precession of the equinoxes.

We can only go as simple as our understanding permits. There are patterns even in things that look bizarre. Always strive for increasingly simpler frameworks. If you can’t explain it to a 5-year-old, you don’t understand it that well. And you don’t get rewarded for complexity; stepping over a one-foot bar might have the same result as stepping over a seven-foot bar.

“For the simplicity on this side of complexity, I wouldn’t give you a fig. But for the simplicity on the other side of complexity, for that I would give you anything I have.” - Oliver Wendell Holmes

35. Ideas are much older than you think

Three years ago, I was reading Jeff Bezos’s shareholder letters and felt amazed by two ideas: customer obsession and passing efficiency gains to the consumer. Then I looked at CostCo and figured these guys had been pushing these ideas since earlier. Then I read Home Depot founders’ autobiography; same ideas, highly similar framings even. Then I read Sam Walton’s autobiography; shared same values. And finally, Sam Walton points to the source of these ideas: Sol Price at FedMart and later at Price Club.

This has happened to me over and over again. I believe an idea to have originated at a certain point in time but, the more I read, the further back that idea can be traced. It feels like archaeology, which investigation always leads to stuff being older and older.

Don’t think you’re stealing an idea. In all likelihood, the person you thought invented it actually took it from someone else. Mankind has been around for a long time, and tens of thousands of years with a similar brain and environment. It’s natural for most ideas to have earlier roots.

36. Do what you love

Life is long enough to do anything, but not long enough to do everything. Choosing what to do means choosing what not to do. When facing relatively significant decisions, I find myself using the regret minimization framework: “When I am 80 years old, will I regret not doing this?” - Jeff Bezos

And do what you love; for the same reason. No one can beat you at being you. Work on things that feel like a fun hobby to you but heavy lifting to others.

You can very much fail doing something other people want, so you might as well take a shot at what you want. If you fail, it won’t be as terrible. But imagine failing at something you didn’t even want to do in the first place. That is a true waste.

37. True law is reason - Cicero

The affairs of man have been ruled by multiple forms of governments and structures. Good leaders and dictators have come and gone. Policies of the most varied nature implemented. Promises were responsible for despair and destruction. Much has been tried as to how to rule society.

Reason is what ties truth, God, and man. In any situation, what’s reasonable is what should be done. Malpractice should be penalized to the extent that reason permits.

People have an inner sense for morality and analysis. Oftentimes, human actions are strictly black or white. Whenever they fall into grey territory, good judgment is that which accords most with reason. It’s easy for majorities to prevail, but “for something to be rightful, it must be reasonable.” - Jefferson

When asked about whether the whole population or only a select group of people should vote, Jefferson pointed out the question was missing the point. The question, rather, is how many people should vote so that the most capable and honest person gets elected to the Office.

That democracy has evolved into a combat of extremes, whereby two parties focus on opposing each other rather than thinking about what’s truly useful, is a shame. They hate each other; and when anger arrives, reason leaves. We lose by trying to win.

38. You can’t teach an old dog to live in chains and you can’t teach old tricks to a new dog

You can’t change someone’s nature. If they don’t want to work hard, you won’t convince them to work hard. If someone is accustomed to freedom, you can’t chain them and teach them how to live with that. They’ll revolt. The more we’ve done of something, the more ingrained it is within us. Changing that deeply settled wiring is a bet that’s likely unprofitable.

Second quote comes from Warren. In business management, there’s no true retirement threshold. You can invest alongside a 50-year-old manager; if they love what they do, they still have a few decades ahead. It’s much easier to get these people right than it is to bet on an unproven new manager. People’s experience will work in your favor; you’ll avoid several costly mistakes every manager has to learn.

39. Knowers vs non-knowers

Whenever I hear “Adam Smith,” the person immediately parrots “the invisible hand.” As if the two were inextricably linked and the concept contained Smith’s whole philosophy.

It turns out the invisible hand is only one paragraph and it’s not even about what people talk about. Adam Smith speaks of it as being the thing that causes people to do what’s right for society when they do what’s right for themselves, “as though moved by an invisible hand.”

This has happened repeatedly to me. People will repeat what others say. Very few are willing to pay the dues and rightfully acquire the knowledge.

The world is full of non-knowers. They learned how to prattle the talk, but they don’t really understand what they’re saying. Ask them a few questions and there’ll be no sensible answers. They have not critically thought about the subject nor have they invested the years required to know it.

You must learn to discriminate between knowers and non-knowers. Only by discerning between the two will you rightfully delegate responsibilities or assign trust.
And I found two ways to learn this: (1) Read the source; (2) Become a doer, a practitioner - the real intellectual struggle happens when trying to take something from the idea to execution.

TL;DR - List of Ideas:

1. If you find a genius, give them all power

2. You are neither right or wrong because a poll agrees with you

3. The key to success is mediocre competition

4. There are answers worth billions of dollars in a $30 history book - Munger

5. Worldly wisdom

6. Incentives

7. It’s always a skill issue

8. Intelligent is different from smart, and both can be stupid

9. The men who can manage men manage the men who can manage only things, and the men who can manage money manage all.

10. Cargo Cult Science

11. Education is software for the brain

12. Economies of scale.

13. Quality

14. Extraordinary results are just 1,000 boring days strung together

15. Stack the bricks

16. There are multiple ways of thinking

17. Real understanding comes through continued mental exposure

18. Deep simplicity

19. Tweak a problem only slightly and you’ll turn it from impossible to easy

20. Systems naturally trend towards decentralization and specialization

21. Complex adaptive systems

22. Why thinking what no one else is thinking pays off enormously

23. The difficulty lies not in the new ideas, but in escaping from the old ones

24. You drift toward the average of your surroundings

25. Causes of human misjudgment

26. Find out what works and do it

27. After a business gets to scale, capital allocation matters more than any other thing

28. ‘History doesn’t repeat itself but it often rhymes’

29. Uniformitarianism vs catastrophism

30. Lollapalooza effect

31. Paint the fence

32. The role of technology is to make complicated and expensive things cheaper and more accessible.

33. Attractor states

34. Make things as simple as possible, but no more simple.

35. Ideas are much older than you think

36. Do what you love

37. True law is reason - Cicero

38. You can’t teach an old dog to live in chain and you can’t teach old tricks to a new dog

39. Knowers vs non-knowers

• ~$200M mkt cap; $80M EV.

• ~2.5x EV/FCF.

• 20%+ operating margins; profitable (at varying degrees) for past 5 years.

• Singaporean company; O&G industry.

A few years ago, How Meng Hock was leading OMS when Sumitomo (former parent) wanted to liquidate it due to the o&g down cycle. How Meng bought the division from them for $2mm in late 2023. He turned OMS around, secured an estimated $120-$200mm per annum deal with Saudi Aramco, and listed OMSE in the Nasdaq at a ~$350mm mkt cap. How Meng didn’t sell a single share out of his ~60% ownership, despite the extraordinary results of his investment.

What OMS Energy does

OMS operates in the O&G sector, selling to onshore and offshore exploration and production companies. They manufacture surface wellhead systems and specialty connectors and pipes. Because customers’ wells are in tough environments, OMS needs to meet specific requirements on temperature, corrosion, pressure. In addition, OMS sells premium threading and other ancillary services.

Customers include Chevron, Saudi Aramco, Halliburton, Baker Hughes, Weatherford.

Saudi Aramco (67% of FY25 revenue)

OMS entered into a 10-year supply agreement with Saudi Aramco in Jan 2024. Management estimates it represents a potential $120-$200mm per year, though Aramco has no obligation to purchase any minimum amount and they can terminate for convinience. Customer concentration encompasses the largest risk OMS faces.
However, I’ve reasons to believe the contract is doing fine and might even expand.

OMS mostly sells specialty connectors & pipes to Aramco. In the first half of FY26, revenue from this source was $51mm, and OMS announced an $11mm call-off order in March. The deal is at least ongoing.

To some customers, OMS sells the connectors & pipes and leverages that to further sell their after-market services. They couldn’t do this with Aramco because OMS didn’t have the industry certification for some of these. But in the same press release where they announced the $11mm order, management hinted OMS Saudi can now provide repair and maintenance services for wellheads and christmas trees. This is after they earned the API Specification 6A certification in January 2026. It’s always easier to select just one vendor.

Manufacturing Sites

The second reason why I suspect their contract with Aramco might expand is because of OMS Energy’s strategic footprint. Over the past decade, regulation has been tilting towards favoring local manufacturers; in certain countries, you can’t even bid if you don’t manufacture locally and employ local people. Saudi Arabia is an example thereof, as well as Indonesia. OMS has local presence in both locations and is thus favored when compared to most competitors. In addition, the company owns manufacturing sites in 4 other jurisdictions.

Financials – H1 Results

The company grew from a ~$50mm run-rate to $200M in the span of three years, mostly attributed to Aramco. Operating profit rose faster as fixed costs were spread across more units.

In the first half of FY26, revenue decreased 36% and margins contracted highly, but the operating margin was 21.6%. Though bound to experience volatilility, OMS Energy has a decent profit margin baseline.

Trend of Economics and Cash-generation Capacity

Sales decrease in H1 were due to the overlapping of two contracts for Aramco and unusually high call-off orders last year. Revenue from pipes & connectors contracted by 46%, whereas the rest of the business fell by 5% YoY. When this happens, and further reducing customer concentration risk, OMS benefits from a healthier mix. Pipes & connectors carry ~23-31% gross margins; SWS & Christmas trees ~24-30%; premium threading ~28-39%; and other ancillary services ~42-47%.

Most of OMS’s business, ex-Aramco, is centered around the higher-margin products. The 2nd large contract they have is with Halliburton, which I estimate generates ~$15M/yr in sales of premium threading services. Even in places where they do sell pipes, connectors, and wellheads, OMS tries to upsell customers and increase contracts’ average margin.

In addition, despite having ~$30M in 11 manufacturing sites, OMS needs minimal CapEx for maintenance. The company is thus able to generates large amounts of free cash flow: $27.9M in FY23; $16.7M in FY24; $37.6M in FY25; and $25.7M in first half of FY26.
Inventory-building and destocking is the primary driver behind cash-conversion dynamics.

IPO was for branding and expansion

Though many businesses get listed because they need capital, OMS Energy does not. How Meng Hock mentioned the decision was made to drive awareness and branding. In fact, SG&A barely increased from $4.9M in first half FY25 to $5.4M in first half FY26. I suspect this is due to the annual legal and auditing costs required to be listed in the Nasdaq; not to headcount growth.

They want to get better known globally and are hoarding cash waiting for a good M&A opportunity. It’s likely that OMS follows a tuck-in model, to expand portfolio or add geographies, instead of acquiring for manufacturing capacity. To the effect of branding, management is doing some IR efforts; How Meng attended a conf in CA and will be in Planet MicroCap’s in June.

Estimation of the true price OMS trades at

The company’s EV and mkt cap suggest a $120M net cash position. However, this severely understates the balance sheet’s health. A closer look point to a significantly lower price the business currently trades at.

Reminder that OMS generated $17.8M in operating profit over the first six months of FY26, $14.6M in earnings, and $25.7M in free cash flow.

Final Remarks

Out of $203M in FY ‘25 sales, $136M originated from Saudi Aramco. Management mentioned FY25 included unusually large call-off orders, for which I suspect a normal run-rate hovers ~$160M in total sales. Strip out Aramco’s 67% and we’re left with a business that has $52.8M in revenue, mainly focused in the higher margin products. Likely, it’d still be capable of generating ~$10M in cash per annum. At this valuation, it’s trading at ~5x that. Furthermore, given their FY has ended but hasn’t been’t reported yet, it’s likely that their valuation is getting compressed a further 1-3x. Profit generated is acting like accrued interest in bond coupons.

Disclosure: This is not a recommendation to buy or sell any security. I must nonetheless disclose that I own a position in some of the securitie(s) discussed. In addition, the foregoing write-up is just the result of my dd and opinion. Please do your own research.

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.