IPOs, Revisited

Given that Uber’s upcoming initial public offering is consuming much of the oxygen in the business press lately, not to mention the recent IPOs of Lyft and Pinterest (with Slack, WeWork, and AirBnB not far off on the horizon), it might be timely to revisit the topic of tech IPOs, which I first wrote to you about in a letter some five plus years ago¹.

In 2013, Twitter was the hottest IPO since Facebook. It debuted in November of that year at around $40/share. Revenue was $665 million and operating income was negative -$635 million. Today, revenues have grown to $3 billion and operating income has swung to a positive $453 million. But its share price as of this writing? Still ~$40/share. Even though the result has been nearly identical to that of stashing cash in your checking account, the journey has been far from it. After initially popping in exuberance to over $70/share, TWTR collapsed into the ‘teens. If we did this retrospective two years ago², the number I’d be quoting you would be $15/share.

As an added twist, TWTR shares outstanding were 588 million back in 2013. Shares outstanding as of Q1 2019 is a much heftier 768 million. For all the media attention about companies supposedly wasting money buying back record amounts of their stock, the other side of the equation is that companies, especially Silicon Valley based tech companies, are voracious issuers of stock options that often outpace buybacks. The buybacks exist mostly to prop up share prices which are then sold into the open market by insiders.

This is how it works: you’re upper management. You get stock options. When the options vest, you exercise and thereby create more inventory of stock. Then the company spends money to buy back shares, partially reducing the inventory of stock. The net effect is you have more money and the company has less. You essentially got paid by the company, just in a circuitous manner. In the meantime, the shareholder has been sneakily diluted all the while the company is trumpeting how generous its buybacks are and how shareholder friendly it is.
 
The point is, if you buy a hot IPO stock based on hype, you are probably getting suckered. Some IPOs turn out well, but most don’t. It’s simply not designed for the public to get rich off of. It’s designed for founders and early investors to cash out. It’s designed for investment banks to reap fees and dole out favors to their lucrative clientele. It’s designed to create a new type of currency (stock options) to “attract and retain” employees. As far as stakeholders go, Joe Investor is just about damn near the bottom rung of the ladder.

If you’re a long term investor, you can afford to watch and wait. Every world-beating common stock in the past decade or two, be it Apple or Amazon or Netflix at times experience dramatic declines. Twitter languished for years below 50% of its IPO valuation. Even Facebook’s IPO was widely considered a flop back in 2012³. Shares opened at $40 in May but by August it was below $20. Since then: 10-bagger. The moral of the story is, if you really like a public company, eventually you will have a chance to buy its shares. Just probably don’t do it on the first possible day (or week, or month).

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¹http://blog.incandescentcapital.com/2013/11/the-ipo-of-twitter-to-buy-or-not-to-buy.html

²And, perhaps, if it were not for a certain "Tweeter-in-Chief" ascending to the Oval Office in 2016…

³https://money.cnn.com/2012/05/23/technology/facebook-ipo-what-went-wrong/index.htm

Measure What Matters

During the past quarter I read John Doerr’s Measure What Matters, an ode to a business management framework called OKRs. The acronym stands for Objectives & Key Results, a deceptively simple theory that the core cause of organizations’ underperformance is a lack of clear and measurable goals.

The TL;DR¹ abstract is that successful firms are fanatical about separating the signal from the noise, i.e. measuring only what matters. Select clear, rational Objectives for your organization, then identify measurable Key Results that, if diligently nurtured, inevitably drive said objectives to completion. Far from being just yet another Theoretical Business Guru, John Doerr has a formidable curriculum vitae, having steered his venture capital firm Kleiner Perkins into early investments in Sun, Intuit, Amazon, and Google, where he preached the OKR gospel to them all. The founding father of OKRs, however, was his mentor, Intel founding member Andy Grove, one of the great titans of modern business management.

***

Investing in public markets can feel dauntingly opaque at times. CEOs spout sanitized clichés on conference calls while Wall Street analysts confidently make up numbers and opinions and then change them with little rhyme or reason. The OKR framework has given me a useful methodology to evaluate businesses strategically on an ongoing basis. Do management set sensible objectives? Do they offer transparent key results with which to evaluate their progress and achievements?

For example, one of our banks has embarked on a strategy to reduce balance sheet size in this shrinking Net Interest Margin environment (← Objective) by halting origination of fixed rate apartment loans and focusing instead on variable rate commercial & industrial loans (← Key Result #1). Without pressure to grow assets, they can also re-mix their liabilities by focusing on growing core deposits to replace higher cost debt and preferred stock (← Key Result #2). Their goal is to achieve this within 12-18 months.

This strikes me as rational goals with clearly measurable metrics that, should they be achieved, will inevitably result in better margins and higher EPS. Quarter to quarter, there will be numbers that track these “OKRs”, which help me filter out the noise in each earnings release. If Mr. Market fixates on the macro and tosses this baby out with the bathwater, I can confidently buy more. Conversely, if management tries to spin bad numbers into an alternate narrative or appear to arbitrarily change objectives midway, I can see through the attempted deception and divest.

***

This framework, too, can be applied to Incandescent Capital. Our objective is to generate a double-digit rate of return over the long run. Importantly, what the stock price of our investments are on a month-to-month or even a year-to-year basis is not a key result. Key results are instead whether their underlying business fundamentals remain steady, whether their future prospects have improved, and whether we have purchased their shares at a discount to the estimated present value of its future cash flows. If the answer is yes to all of these, it is decidedly probable we will achieve our objective.

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¹Too Long; Didn’t Read. Cheeky millennial internet slang but hopefully evidence that I’m still with it.

Case Study: Whole Foods Markets (WFM)

One material event to note this quarter is Amazon's pending acquisition of Whole Foods Market (WFM). Recall in my 2015 Annual Letter I mentioned purchasing WFM which, at that time, had declined from a high of over $65 per share in 2013 by more than half¹. Our cost basis was ~$30, which at the time reflected a fair-ish 13x multiple on cash flows ex-store expansion costs.

Shares were relatively range-bound for over a year, but things started heating up in 2017 Q2 after Jana Partners, an activist hedge fund, took a big stake and pressed aggressively for changes. On June 16th, Amazon announced a $42 per share bid for WFM, netting us a 40% gain. Annualized return over our roughly 18 month holding period was a satisfactory 25%.

WFM chart for the duration of our holding period. Things heated up in Q2 after Jana took a big stake.

The only pimple here was that WFM was never larger than a 2-3% position across our accounts. However, I harbor no regrets in not making it larger. It is always with hindsight that one laments not betting everything on black after the roulette wheel deposits the pinball on black. My analysis of WFM was that it traded at a fair price at around $30/share but possessed a platinum brand that would eventually be unlocked, whether through organic growth or M&A. Had shares traded down to sub-$25, we likely would have owned more, but alas, we settled for making not-as-much money. First world problems.

What’s more interesting is that very few people anticipated a strategic merger between these dance partners. Most of the chatter surrounded the possibility of Krogers or Albertsons or even Wal-Mart being the eventual acquirers of Whole Foods. The fact that Amazon, the online behemoth, is paying $13.7 billion, over ten times more than their next largest acquisition², for a footprint of brick & mortar stores across the nation is a hint that traditional retail is in fact not dead. Physical spaces that are well-designed and offer visceral pleasures are alive and well. It is the sloppier ones, the ones with poor product selections, with run-down facades, with demoralized underpaid staff that are doomed³. In the past, they were able to survive because despite being unpleasant to shop at, there were few other choices to buy what you wanted/needed without driving excessive distances. Now, there’s Amazon, and they’re taking their promise of customer delights to a physical store near you.

And so what’s going on is beyond the blasé “online shopping is killing retail” narrative. It is the very idea of capitalism encapsulated in a nutshell: increase productivity or make way for those who can, the ultimate winner being the consumer, who no longer have to suffer the indignities of poor parking layouts or sour-faced customer service reps or waste time driving between stores just to find a particular size in stock and can instead get it all with just 1-Click and then spend all that newfound free time going to places that are pleasant and stimulating and offer experiences that enrich the mind and soul. It’s not about online vs. offline. It’s about better vs. worse. It’s about progress.

“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”

-Jeffrey P. Bezos, 2016 Letter to Amazon Shareholders

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¹Yes, finally a case study in which we profited from!
²http://fortune.com/2017/06/16/amazon-buys-whole-foods-stock/
³I’m thinking of a chain that starts with an ‘S’ and ends with an ‘ears’

Case Study: Valeant Pharmaceuticals

Those that follow financial news on a regular basis can skip this post as I wager there has not been a name more covered than Valeant in the business press since 2015. Sorry to pile on.

Valeant is a pharma company that, until 2015, was thought to have struck gold in pioneering a new business model. It is the erstwhile brainchild of J. Michael Pearson, who took over as CEO in 2010 with the idea of acquiring rather than developing drugs. The thesis: R&D of new drugs is inefficient and unpredictable. Instead, build a platform to market and distribute and then buy up drugs that have already been developed and approved. And as icing on the cake, relocate to Canada to lower the effective tax rate from 25% to 5%.

This worked like a miracle in the early years. Revenues went from $1 billion to $8 billion by 2014, driven by dozens upon dozens of acquisitions in that span. VRX went from $15/share to over $200. At its peak, it was Canada’s most valuable company.

But the rule of thumb in finance is: there is never anything new under the sun. An acquisition oriented growth strategy relies on two prongs: 1.) affordable financing, and 2.) affordable targets. Thanks to the financial crisis, interest rates were at a generational low, so Valeant was able to issue debt with abandon. And as their stock rose, they were able to supplement their shopping spree with equity. The second prong proved to be a problem as they grew ever larger. To move the needle, they needed bigger acquisitions. By 2014, there were only a few targets large enough, and none of them were keen on selling out – at least not at a price anywhere near a bargain.

Mr. Pearson’s solution was novel: team up with a large hedge fund to hunt together. Enter William A. Ackman’s Pershing Square Capital, who in 2014 took a large stake in Botox-maker Allergan and pledged to vote his stake in favor of a hostile $50 billion Valeant takeover. To make a long story short, Allergan fought tooth and nail, and escaped Valeant by wooing a white knight in Actavis to acquire them instead for $66 billion.

Meanwhile, Mr. Ackman took home over $2 billion in profits from his Allergan trade. Pershing Square Capital finished 2014 up 40%. What happens next will form the moral of the story: he rolled his entire Allergan profit into VRX.

Valeant’s consolation prize in the wake of Allergan’s rejection was a $10 billion acquisition of Salix. By then, Valeant’s balance sheet had become bloated with debt. Less than $6 billion in equity was supporting almost $50 billion in total assets. And into this highly levered entity Mr. Ackman invested almost 20% of Pershing Square’s capital.

Almost everything went wrong subsequently. Valeant was discovered to be using extremely aggressive, borderline illegal tactics in pushing their drugs. They were also jacking up the prices on their drugs after acquiring them, sometimes as much as 10 times their original price, raising the ire of Congress and Presidential candidates. Charlie Munger accused them of being deeply immoral. As their stock began to collapse amidst intense public scrutiny, they lost their currency to do acquisitions; nobody wanted to be acquired by Valeant anymore anyway. Doctors began pulling back on prescribing their drugs.

VRX has since crumpled from $260/share down to $10. There is serious doubt whether they will survive their $1.8 billion of annual interest payments. Mike Pearson has been ousted as CEO, and Mr. Ackman, a man with an unquestionably high IQ and nearly unlimited resources, sold his shares last month at the bottom for a $3 billion loss. And it’s not just Mr. Ackman. Scores of brilliant fund managers had piled into VRX, even the venerable Buffett-endorsed Sequoia Fund.

***

As a fellow investor, it’s bad form (and possibly bad karma) to revel in too much schadenfreude. Things can and will go wrong all the time. Management can be dishonest, government can conspire against our interests, consumer tastes can change on a whim. If you’re in the business long enough, you’re not really doing your job unless you have a few deep scars. There are just too many factors out of our control. But what we can control is our buy/sell judgment. Not just whether to buy/sell but how much to buy/sell.

And so the lesson of leverage for us is: look-through. One may be adding implicit leverage to one’s portfolio by investing too much in companies aggressive with debt. If Valeant had been more modestly levered, their survivability would not be in doubt and their stock would still retain significant value (although it probably would not have gone stratospheric earlier either). There would have been more margin of safety, which, in the complex and uncertain world we live in, should be a virtue we strive for.

“I don't have any advice for young people who want to get rich. Basically, I think the desire to get rich fast is pretty dangerous. My own system was to get rich slow. It protracts a rather pleasant process. After all, if you get rich fast all you can do is be robbed by your own employees your yacht and so forth. Whereas if you get rich slow you amuse yourself over a lifetime.”

-Charles T. Munger, 2015 Daily Journal Annual Meeting 

A Special Report: Your Portfolio Manger’s First-Hand Experiences in China

I had spent the majority of October traveling in China. It is a complex country, and anyone who reduces it to a sound-bite like “all Chinese companies are frauds” or “China’s empty skyscrapers proves it is a massive bubble waiting to pop” is doing a grave injustice to the truth¹.

This past trip was the second time in two years that I’ve been to the fastest growing major country in the world. In aggregate, I’ve spent approximately a month’s worth of time in the mainland, mostly in the Sichuan province, but have also spent ~25% of the time in Beijing. I've tried to not just glide through as a simple tourist but to try to feel what it'd be like to live there day to day, to, to my utmost extent, imagine what my hope dreams and fears would be if I were amongst the citizenry.

***

The first impression anyone will have of China is the sheer amount of people in the country. I've lived in American metropolises most of my life, Los Angeles during formative years, then New York for seven years, and perhaps the only apt comparison is that of Grand Central at around 6 PM on a weekday. That would be the median feel. Peak traffic hour feels like when the President is in town and half of the city is gridlocked due to blockades. Or when Penn Station is suffering from technical problems on the Wednesday before Thanksgiving.

The effect is you quickly adopt a very visceral fear of congestion. There is no time or space to be polite. If you try to be a gentleman and you will be consumed by the crowd, stuck in stasis as people nonchalantly push you aside. Any hope of getting anywhere or completing any errand within a decent timeframe will require you to "do as the Romans" and ratchet up your inner aggression. Push forward. Cut into any lane with an open space. Speak loudly in quick clips for any request. Brandish hyperbole liberally. And you will find that, in contrast to the stares and reprimands you may get in western nations for being rude, people generally acquiesce as if it's common protocol, which in a weirdly unwritten way, it is. For example, drivers being suddenly cutoff in traffic strangely generates no road rage. There is copious honking but more of the hi-I'm-in-your-blind-spot-don't-hit-me variety rather than the long, loud, F-you variety. My father-in-law more than once drove on the wrong side of a (small) road, very casually telling me after I startlingly pointed it out that it's because it's less congested on this side.

Beijing subway circa 1800 hours on a Friday

China’s single minded goal of economic advancement has been made into a rallying cry: 趕英超美 — “Chase down England, Surpass the United States”. It is capitalism by edict. The outcome has been wealth creation on a magnificent level, but at the same time, jaggedly uneven. Shooting into the skies in Beijing are modern towers of marvel, but walk a few blocks in any direction and you’re bound to pass ancient dilapidated structures or holes in the wall hawking their wares. The energy required to power this capital of 11 million produce choking pollution that, on bad days, feel like a perpetual sandstorm and such frequent traffic gridlock that it saps the will of its populace to commute beyond the part of town where they live/work. China’s smartphone apps are the most sophisticated in the world, in which you can conduct or receive almost any service you can imagine. However, the delivery mechanism for those services are often grunt laborers biking through smog and congestion, dropping off the food you ordered or delivering the package you sent out or giving you their patented 5 minute haircut or whatnot.

The pursuit of prosperity and the displays thereof has permeated into the culture. Consumerism is the holy text. My wife walked into an old bookstore that she used to love, but left ten minutes later, confused and irritated that the bookshelves are now dominated by how-to’s on getting rich instead of holding volumes representing the diverse tapestry of culture that is China. And while manners are still very much intact in between friends and family, I got the impression it has eroded between businesses and their customers. More than once I’ve witnessed unhappy exchanges in restaurants, drink stands, and stores, the patron certain he or she has been bilked and the waiter/waitress or customer service rep either being forced to take a berating or arguing back aggressively. Such quickly triggered naked displays of dissatisfaction are, it seems to me, symptoms of no longer viewing the other party as a human being but instead as merely the opposite side of a transaction.

This extreme imbalance of population versus available resources and the barely disguised worship of wealth explains a lot, in my opinion. Why do Chinese companies have the reputation of being shady? Because there's less incentive to trust and more incentive to take what they can upfront. In financial parlance, it's the prioritization of Present Value versus Future Value. The discount rate placed on Future Value is extremely high because you never know what tomorrow will bring. Competition amongst 1.4 billion people is maniacal and rule of law is less established than in the west. Also remember: it's not even been one generation since the country exited the Cultural Revolution and advanced out of an agrarian-centric society. The collective memory of the Chinese citizenry have no basis to extrapolate how the future might look. If you have the chance of grabbing a bird in the hand right now versus the mere possibility of two in the bush tomorrow, it's a no brainer. Close your fist and run. Tomorrow is not guaranteed because there's nothing in history that implies it would be. Most importantly, if you don’t take “what’s yours”, someone else will.

***

On the upside, the work ethic of the populace is undeniable. The desire for a good life, a better life, is intense. The primary and secondary education system is light-years ahead of the U.S.  Kids attend long after-school tutoring sessions beginning at a young age and teachers are respected—the best of whom are as popular as rock stars and get paid like it, resulting in a virtuous cycle of attracting the best talent to the teaching profession. Young adults right out of college in Beijing bust their butts like Wall Street investment bankers regardless if they are in finance or not. Leaving the office before midnight is an early night.

It’s no coincidence that Chinese multinational conglomerates like Huawei and Dalian Wanda are eating the cake of its competitors in the global marketplace. The lazy explanation is they have the tailwind of unfair trade agreements, but don’t discount the fact that they just work a lot harder and are not wasteful corporations. In this kind of environment, progress seems inevitable. Mistakes will be made, sure, but as Charlie Munger has said, mistakes are a part of life. The important thing is how fast you scramble out of them. China will plow forward interminably because its citizens are tireless and there are literally billions of them. Those empty skyscrapers will be filled sooner rather than later².

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¹Adding further to this complexity is a personal wrinkle: I was born in Taiwan, a country that is ancestrally Chinese, colonized and modernized by the Japanese, and became the refuge of the Nationalist Party after their defeat by the Communist Party during the civil war, stayed from its certain demise only because they savvily secured the United States’ obligation to defend them during the height of the anti-communist wave in the ‘50s. In other words, although I look and speak the same language as those in China, I was brainwashed as a child to believe we are not one; to, indeed, believe China is a country to be suspicious of and feared.

The truth, of course, is much more multifaceted, and given its antiquity, perhaps never to be unraveled in its entirety. Over the course of decades, good or bad fades away and gives way to tragedy for we all inherit the sins of our fathers. Long story short, I feel fortunate to have developed an independent mind and to have met my wife and her family who is from the mainland. I continue to be fascinated by my own history – learning about China will be a life-long interest.

²“An Update On China's Largest Ghost City” – http://www.forbes.com/sites/wadeshepard/2016/04/19/an-update-on-chinas-largest-ghost-city-what-ordos-kangbashi-is-like-today/#6005ae331e08

Case Study: DreamWorks Animation

My previous case study on Virgin America was received with some enthusiasm. I suppose with all this highfalutin discourse on long-term thinking and intrinsic value one naturally craves something a little more practical. I will endeavor to supply this going forward.

DreamWorks Animation (DWA) is a movie studio controlled by Hollywood luminaries Steven Spielberg, Jeffrey Katzenberg, and David Geffen. Their crown jewels are the blockbuster franchises of Shrek, Madagascar, and Kung Fu Panda.

When we talk about great businesses, we tend to banter about pricing power and high margins and asset-lite models. In layman’s terms, it’s getting people to pay for something that costs you nothing. So what’s great about beloved fictional cartoon characters? They never demand a salary. They don’t get embroiled in real-life scandals. They don’t grow old.

Disney understood this almost 100 years ago. This is also why they acquired Pixar, then Marvel, then LucasArts. They all have intangible, indestructible franchises that live forever. Not only can you keep making movies about them, you can sell tons of merchandise and erect entire theme parks around them. All of this, if managed well, can be a perpetual geyser of profit.

It is, however, difficult and expensive to establish these franchises. It costs a lot of money up front to make movies. Accounting principles then dictate film production costs are to be amortized once revenue beings accruing. As such, most of the expenses are front-loaded. This is a quirk but it is not unreasonable – most filmmaking endeavors are boom or bust; they do not have a long tail. Only by thinking a little harder about the nature of animated films, and more specifically, successful animated films, can one come to the realization of the hidden intrinsic value in companies like DreamWorks.

Here are how their movies have fared for the past five years:

You will note: a string of profitable releases, with a number of blockbusters raking in over half a billion in gross receipts. Although it may not be in the league of the Pixars or Marvels or LucasArts, it certainly should be considered as a reliable hit-maker at this point. More importantly, they are strengthening their franchises, franchises headed by immortal and incorruptible animated characters that represent cost-free revenues in the long run.

The stock market, ever schizophrenic, does not seem very impressed. Over that same period, DWA has been as low as $16 and as high as $35 – a 100% swing from trough to peak:

Meanwhile, the world has been changing. Distribution of entertainment, once comfortably ensconced within the movie theater -> VHS/DVD -> network TV paradigm, is being disrupted by Netflix, Hulu, Amazon and their ilk. Content has become more valued in a world where distribution is being commoditized by the internet. You want people to watch your channel or subscribe to your service? Offer exclusive content.
 
You know how this story ends. In late April, Comcast made a bid for DreamWorks for $41 per share, a 50% premium above DWA’s 52-week high. Intrinsic value wins again.

Unlike the Virgin America case study, it was not guaranteed you would bank a great return if you bought DWA anytime within the past five years. If you bought at the peak at the end of 2013, you only made 6.5% annualized return. One would imagine, though, if you had the conviction then, you would have made additional, larger purchases as the stock sold off over the next two years. As such, a cost basis of anything under $25 within the past five years would have yielded a double-digit compounded return. Within the past three years, it would be in the high teens.

DWA was a stock I had watched for a long time. I never pulled the trigger because I never got comfortable enough with the valuation. Intellectually I understood the thesis, but I kept hoping for it to get cheaper. Patience can be difficult – a dual-edged sword, especially in the stock market. Patience in waiting for a security to become fully valued is a virtue, but excess patience in waiting for a security to reach an acceptable price could result in lost opportunities. Neither is preferable: Not taking enough risks is as big an impediment to wealth creation as taking too many dumb risks. Finding the balance is a never-ending quest, a life-long learning experience.

Case Study: Virgin America

If you’ve flown Virgin America before, you know they are legitimately differentiated from the soul-sucking national leviathans. New planes that pulse like a night club, high tech seatback concierge systems, flight attendants who don’t totally hate their jobs, surprisingly competitive prices, etc. They’ve been gobbling up market share ever since their inception in 2007 and went public in November of 2014.

The airline industry has been consolidating aggressively for several years now. Historically an industry that is in the hall of fame of value destruction, M&A (and collapsing crude oil prices) have helped the players settle into an uneasy but profitable oligopoly. Meanwhile, Virgin America’s success has not gone unnoticed, although you’d never be able to tell if you just looked at the stock price. Here’s a chart of VA’s performance since their IPO until late March:

For a year and four months, the stock went exactly nowhere. Chart technicians call this “range bound”, with “resistance” above $40 and “a floor” around $30. But underneath, business was booming. Gross profits grew 24% year over year while operating profits nearly doubled thanks to cheap jet fuel. Their presence at LAX and SFO grew stronger. And two of their competitors began salivating.

On March 23rd, word leaked out that VA was “in play” – Street Lingo for “for sale”. Shares popped 13%. And then, several weeks ago, on April 4th, Alaska Air announced they were acquiring Virgin America for $2.6 billion, or $57 per share after a frenzied bidding war against JetBlue. VA shares shot up another 47% that day:

If you’re following along with your calculator, that’s a cool 83% return in about two weeks. That kind of return is impossible to the proponents of efficient markets. Of course, no one could have (legally) timed it perfectly, but consider:

• If you bought VA at its closing price of $30 on the day it IPO’d, you earned a 54% CAGR.
• If you bought VA at its peak prior to the buyout (~$42.50), you earned a 21% CAGR.

(The calculated CAGR is assuming you didn’t “trim profits” or “cut your losses” at any point in between, an endeavor that, by my estimation, adds no more long-term alpha than a coin flip, but is an endeavor heavily practiced by the vast majority of market participants.)

So any way you slice or dice it, VA shareholders got paid, ranging from handsomely to a flat-out bonanza¹. And while the stock price may not reflect it, value always matters, especially private value, i.e. how much the business is worth to someone as a whole, someone who can control operations or allocate its cash flows. The timing is unpredictable, but eventually, over the long run (count ‘em in years, not months), the market is a fine arbiter of value – a right proper weighing machine.

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¹And here, buried in a footnote, I humbly beseech you to not ask the question begging to be asked, which is “why didn’t we own any VA?” to which the answer will be an averted gaze and some mumbled variant of, well, hrm, I looked at it last April but, ah, it fell off my radar… A costly error of omission resulting in beaucoup regret.