I keep a running note of stock ideas on my Apple devices. Some arrive through screens, some through a filing I happened to read, some because a person I trust mentioned a name, some I stumbled across on X and figured it might be worth a closer look.
The note usually keeps growing at a faster pace than I can get to look at the ideas, and thus, it currently holds around thirty-five companies. I am not going to write thorough deep dives on thirty-five companies – not anytime soon anyway.
So I am doing the next best thing and putting them out as “quick pitches,” with a short overview of each. That’s the idea as I write this, at least (chances are I might run out of steam (way) before I get to idea #35; I’m trying to do at least seven quick pitches). This first stock analysis also ended up much longer than I initially had in mind (as I reread it one final time, the article is about 5,000 words).
Pat Dorsey’s Two-Stage Process
The format borrows from something Pat Dorsey described on a podcast recently – it resonated with my own approach. At his fund, idea generation runs through two stages.
The first is a quick screen built on three questions:
what does the business do,
what is the moat, and
what could the opportunity be.
That is a filter, and it is meant to be easy to apply, because most ideas should die there. That’s the intention most investors should pursue anyway: “kill your ideas” as quickly as possible.
“Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire.” - Charlie Munger
If a name survives this first test, and that’s the second step, someone on the team writes a memo, and the memo covers harder ground:
the vector of the moat; i.e., whether it is widening or shrinking,
the key debate around the stock,
identifying any area where the team might hold a variant perception,
the runway for growth,
whether there is a red flag on management, and
valuation napkin math
The two stages do different jobs in a way. The first one asks whether a business is worth an afternoon. The second asks whether it is worth capital and a third round of even more thorough research (trying to “destroy the idea” one more time!).
What follows in this series is a hybrid of the two, yet it sits closer to the first stage than the second. For each company, I plan to cover four things:
what the business does,
what the moat is and whether one exists at all,
the runway for growth, and
a glance at the valuation setup
I left out the memo-stage pillars deliberately. Key debate, variant perception, and the vector of the moat all require work I have not done on most of these names. Claiming a variant perception on a company I have spent not all that much time on would be dishonest, and you should be suspicious of anyone who does it casually. The intention of this series is to surface ideas that you can research further if they pique your interest, and ideally, provide a good starting point.
The runway for growth made it in because you cannot say anything useful about a business’s valuation without some view on what the business could look like in five years, and the valuation segment made it in because a good business at a bad price is still a bad idea.
But again, what follows are starting points. If a name here interests you, the honest next step is the one I have not taken: read the last five annual reports, work out what the company actually earns on incremental capital, go through all the recent call transcripts, pull up the proxy statement, and find out who is on the other side of the trade and why.
I will try to be critical throughout this series. Where I think the moat is thin or imaginary, I will point you to it. Where the growth story rests on an assumption that strikes me as unlikely, I will flag it. Etc., etc.
And with all of that said, it’s time to get started.
Idea #1 – Japan’s Most Boring Subscription Business Trading at 4-6x Operating Profit
This is where it gets interesting.
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