Tech Black Holes & Quality Investing
Two important things you may have missed in June
Today's post gives you another chance to look at the insights I shared with you in June.
You’ll also learn about a mysterious Scot who became one of history’s first millionaires and, among other things, once bankrupted the nation of France.
There’s a specific reason he’s featured in today’s issue and you’ll find out why at the end of this email. But first, onto the monthly roundup.
This month I focused on two key topics:
1) A huge “hidden risk” you must look for in today’s tech stocks
2) Whether or not quality investing can keep outperforming
As a paid subscriber, you have access to the bonus material for every article below (and for every post I’ve ever written). Thanks again for your support!
The articles below are all free. Become a paying sub and you’ll also get access to the bonus content for each post, all for less than the price of a pizza each month!
I’ve priced it so that one insight (or mistake avoided) will pay for at least five years of your subscription. If you’re a professional, you can multiply that by ten…
Big Tech’s Invisible Threat
Value investors are starting to sniff around tech stocks again. But if they aren’t careful, they could get scorched.
This article identified a huge “hidden risk” in many tech names today and how value investors can measure it.
Paying subs also get a screen of the worst offenders in the US and Europe. Trust me, the scale of this problem at some well-known companies will surprise you.
Twitter’s $2.9bn Black Hole
Just in case you didn’t think this “invisible threat” was a problem, I fleshed it out by using Twitter and Meta as examples.
The result? Billions of accounting dollars that just don’t reflect economic reality.
If you’re even thinking about buying a fallen tech name, you need to understand this concept and the numbers I lay out.
In fact, it’s so important that I dropped the paywall for this post. Instead, paying subs got a bonus review on 2022’s best finance book so far (in my opinion).
Decoding The Quality Factor and The Future Of Quality Investing
For most of the last decade, buying and holding “quality” companies was the best way to beat the market (and attract AUM). The point of this two post series was to consider:
a) what drives quality’s outperformance
b) whether or not this is likely to continue
In the first post, paying subs got a deeper look at quality across different industries. In the second, they heard about the quality strategy I think has the most potential for the next decade.
What’s Coming Up
As I said in the post on quality investing, the most important thing for investors is what’s coming next. So what can you expect from my newsletter in the next few weeks?
As always, the emphasis will be on how to study a company’s accounts and make better decisions. We’re now firmly into a time where fundamentals matter again, which should really excite bottom-up investors.
In a slight twist, you’ll also hear my thoughts on a stock that was pitched at a conference I attended recently. Unlike most ideas that go through my “initial check”, this one might actually warrant a closer look.
Thanks for reading so far and stay tuned!
Don’t forget paying subs get extra content and useful datasets with every post. If you’d like to upgrade your membership, you can join for just $16 per month below.
A Bonus History Lesson From Russell Napier
The Library of Mistakes (LOM) was established by financial historian and commentator Russell Napier in the wake of the 2008 financial crisis, to promote the study of the history of financial markets, and to 'improve financial understanding one mistake at a time'.
It opened in Edinburgh in 2014 and is a free public library with a collection of business and financial history books which (coupled with lectures and podcasts) seeks to live up to Russell’s original concept. The library has just reopened in new premises which I am due to visit next month. And it has recently been gifted a collection which includes the first edition of an interesting book, written by John Law.
Law was a Scottish economist who served as Controller General of Finances under the Duke of Orleans, regent for the juvenile Louis XV of France. Banque Générale was set up by Law in 1716, nationalised at his request and renamed Banque Royale. Law also founded the infamous Mississippi Company, funded by Banque Royale. Its chaotic collapse echoed the 17th-century Tulip Mania in Holland and the South Sea Bubble in England of the same period.
John Law bankrupted France. His understanding of the role of paper money in an economy was ground-breaking but, as he discovered, also susceptible to hijacking by politicians. Law, who originally hailed from Edinburgh and skipped to the continent in part because he had killed a man in a duel, was perhaps the world’s first millionaire.
When his venture collapsed, the public came looking for Law’s scalp and he fled France, ending his days in Venice. This was all in 1720, but as early as 1705, Law had written a then cutting-edge book on how paper money could encourage industry and promote economic growth.
A first edition of that book, Money and Trade Considered: With A Proposal For Supplying The Nation With Money has come into the possession of the Library.
It is now just over 300 years since John Law bankrupted France. How appropriate that this edition of his book, resting in Edinburgh since its publication in 1705, will now help to educate the modern investor on how to avoid, or perhaps mitigate, the financial mistakes of the future.
The book is being auctioned to raise money for the Library, a registered charity. Thanks to my friend Russell for the history lesson!