[WEEK 26/52]: Half Way Finished, and Leaning in on Video and Stocks
26 divided by 52 = 50%. I hope you open this email and climb over the mountain peak with me, it's all an easy downward slope after the halfway peak :)
Hi Pioneers and Legends,
Hard to believe, we’re 50% of the way done with the 365 day exercise! Week 26 out of 52. Maybe we’re finally starting to find our identity :), below is a video interview for you, and an opportunity to pitch in our next one.
There’s also some really interesting data I put together about how Warren Buffett, Bill Ackman, and Druckenmiller weight their portfolio at the end of the email.
Email don@virtualrealityinvestment.com or DM me with interest to pitch your stock idea on video.
Introduction to Sue Ennis, and Video Recap
First off, let’s properly introduce Sue. She’s a legend amongst small-caps on Wall Street.
She’s raised over a billion dollars for North American structured products and small cap companies, transforming undervalued fintech and digital asset companies into multi-billion-dollar entities.
She has held pivotal roles at Shyft Networks, Coinsquare, Voyager, and Invesco.
I was honored to welcome her a second time for our Special Guest feature series — Thank you to Sue Ennis for joining us for a LIVE chat last week!
We ended up having 200 live viewers on X thanks to Sue offering to re-stream it to her audience. Excellent!
The conversation is a very unique one. Sue was well ahead of the past few major trends. She was an early investor in Bloom Energy
She was an early bag holder of Hut8 as well.
And was a leading voice in crypto all the way back in 2017.
Said simply, Sue skates where the puck is headed.
She says it on the call, but it’s quite clear she has a knack for identifying under-loved early micro-caps, and helping nurture them to success.
So just wait until you here what she is up to now….
(Hint) I couldn’t stop giggling.
Full video here:
Pitch your Stock
Apply to Pitch your Stock Idea at our June 26th Convo
I saw the All In Podcast hosted and episode where four fund managers pitch their Stock ideas like a startup.
I love that.
Like Shark Tank, but you talk your book.
Join us on our Friday livestream where you can pitch your stock pick as if you're on Shark Tank. We'll ask you a handful of questions after your pitch, and hopefully we can all see the value you've discovered! We'll also of course feature links to your social profiles to help you gain followers who appreciate your perspective. Apply here:
I’m looking for the next 2-3 people who want to pitch their stock.
Please email me directly if interested: don@virtualrealityinvestment.com
Portfolio Construction: Research on Buffet, Ackman, Druck, and more.
My current investor challenge revolves around position sizing.
I’ve noticed Druck, Buffett, and Ackman all concentrate 50% of their capital into top 5 positions.
Druck is just a different beast given he trades options as well, but, still clearly concentrated above 40%. He concen-trades (get it!?)
So we know top investors concentrate heavy in top 5 positions. 10% in 5, 5% in 10.
On a 1.5m fund, that’s 150K x 5, and 75k x 10
I need to learn if they concentrate just in the top 5 then diversity the rest, in which case 75K for 10 is likely too much.
let’s see..
Hmmm. Ok very interesting.
EXERCISE OF PORTFOLIO ALLOCATION THEORY:
Everyone hovers their Top 5 around 40-60%’ish.
Next 5 around 20%’ish.
Rest of portfolio varies between 0-30%.
No matter how you chop it, the moral of the story is that great value investors concentrate highly.
That sparks two questions:
what are their top 1 and top 2 position %’s?
of the top 5, what was cost basis vs market value?
What are their top 1 and 2 position %’s?
Even zooming all the way in, we still find heavy concentration.
Doing the math of their % in Top 5, vs % in top 1, I’d estimate they concentrate about 30% of their Top 5 Capital into just their #1 position. Which makes sense because in all scenarios #1 is about about 15% of overall portfolio, and on average top 5 capital is 50%. So double the 15% to get zoomed in concentration.
Fund + Top 5 Concentration:
Now the question which remains... how did those Top 5 get there? By expanding or by initial position sizing? Let’s see.
Of the top 5, what was cost basis vs market value?
Bit more tricky to figure out.
So we see Druck’s largest position is a bit of a mess, trim add trim add. Snip snap, snip snap.
But still, overall the trend is from 415K shares to 3K shares. So It’s fair to say, at least for this position, he scaled in over time. 3 years actually. His initial position was about 10-15% of peak, and ending allocation.
Now let’s check Apple and Buffett.
Apple and Buffett. The entire Apple position was bought 2016 to mid-2018, and the single biggest purchase was Q1 2018. After Q3 2018, Buffett never made another meaningful buy
But more specifically zooming in on his initial positing sizing, and scaling, we see he toyed with the idea until he felt the moment was right. Then he intrestingly went in with his two largest buys 1 year and 2 years after first entering Apple.
He started with $1B, almost as if he only moderatly liked the valuation. Then went in big with $10B and $12B buys in Q1 of 2017 and 2018. Almost all of his buying happened in his 4 most active quarters. And, roughly a year after his first initial tiny buy.
Let’s examine one more, my other fave investor, Howard Marks. Marks’s largest is TORM (TRMD 0.00%↑ ), the shipping company.
Howard Marks TORM position:
This doesn’t help us, totally different beast. He led TORM’s 2015 recapitalization and converted its debt into a controlling equity stake; it only showed up in the 13F in 2018 because that’s when TORM became a U.S.-listed security. So the position was effectively handed to them by a restructuring, and ever since, the story has been distribution, not accumulation
Hm...
Alright, so without going deeper, let’s use common sense to find the moral of the story so far.
Value Investors..........
[1] Concentrate Top 5 (50%)
[2] Concentrate Top 1 (15%+), #2 (10%)
[3] Focus very little capital outside of their Top 10.
Comparing this to constructing a Fantasy Football team.
You have your top 2 Staples up top at QB/RB/WR. I prefer most invested in QB, second most in WR. RB’s are amazing, but durability always a bit of issue. Though, you just want your #2 to be best possible available player in those two roles.
Then, depending on your first 5 key player positions, you orient the rest of your team to fill in those gaps. In case of injury, etc.
I’d think portfolio mgmt is similar in spirit. You orient the rest of your portfolio around diversifying from your top 5 concentration. You first round pick makes all the difference in the world, and your second and third are critical as well. Finding a sleeper undervalued player in the 5-9th round takes a good season to a championship season.
All the same for portfolio allocation. Pick your #1 player, orient the team around that.
If my #1 player is Meta, then I need to be thoughtful about drafting another Big tech in round 2 or 3 given it’ll be harder to find diversity later on in that scenario.
QB - Big Tech
RB1 - These are usually old reliable. Consistent every week. Going to get your points.
RB2 - Either old reliable, but not long term solution. Or, usually younger, potential to become great, but not proven yet.
WR1 - These are usually total stud high flyers. They’ll put up 30 pts in a week.
WR2 - Usually younger as well, these have the potential to turn your team into championships when they work out and help give you two WR1’s.
WR3 - Prefer the rear to be held up by a solid 10 pt / week kinda guy. Gets easier reception points, keeps it safe. Doesn’t wavier far from being consistently slightly above average. Don’t worry about these.
TE - This speciality role almost acts as a commodity. Their value totally depends the game script. But if you have a good one, and game script leans your way, then you’re golden for that week.
If I had to just run the exercise fast off the top of my head:
QB - Meta
RB1 - XOM
RB2 - FSLR
WR1 - CRM
WR2 - INTU
WR3 - ADBE
TE - VEEV
That is soo heavily oriented towards software, or, dependence on AI.
OK, Now back to META.
I’ve gotten far enough along into my research that I feel they qualify for my bar as a clear candidate for #1 slot.
They check all the boxes on my checklist.
And they seem durable:
But, as I said, how do we know how to scale in? Well, if we learned anything from the exercise, it’s more important to be confident that’s your #1, and you don’t need to go big early on. Buff took a year to decide on Apple.
Hm... this is interesting.
“Almost every week there are different companies that come to us from outside asking us to both stand up an API service or asking if we have compute that they could buy from us at some premium to what we’ve bought it at,” he said — adding that “if we get to a point where we feel that we have overbuilt, then that is an option that we have.”
I would love to see a Meta Cloud. But I don’t think Zuck wants to veer from consumer.
We just saw Elon get into the business, it would make total sense to me if Zuck does the same. Mark is great with observing and extending what works.
If you compare Meta to the other Mag 7’s over 5 years.. it’s clear Meta is farthest off it’s ATH.
FWIW, it still looks like by the stochastic it has some way to go down. A 10-15% drop down to its 50 day MA would be iconic.
I’ve got to listen to earnings call, as apparently that’s where he mentions the Cloud concept.
1: ATH FOA engagement
2: Meta AI, super intelligence labs...
3: Customizing own silicon with
Nothing much else interesting.
I want to move on to study others in portfolio. But my gut keeps telling me this is an opportunity more than I recognize.
On that prior earrings call, I see from the livestream stock dropped to $620/share from $670 upon the negative news. And it ended around $630. So that kind of makes me think Meta at $590 is $30 below where peoples gut reaction says it should be.
Let’s listen to the questions portion now.
Yep, first one right on the key topic that matters, ROIC. Zuck stutters....
First one, “Share about the level of investment and the measurement stick for the ROIC of Muse and other products?”
ZUCK (defensive... he should have real metrics for this): “The thing to make sure is that we’re building leading models and products. Our model is build products that can get to 1 Billion people, then focus on monetizing them at scale. We invest in models, convert to products, and then monetize those flagship products. The basic milestones I look at, are technical quality to enable a great product, then second, how is it scaling? and third, how’s monetization and how do we increase profitability? I don’t think we have a precise plan for how each product is going to scale month over month. But we have a sense of the shape of where these things need to be.”
Alright.. he’s glorious on the product hitting 1B users. Let’s test Meta AI then..
I’m going to have them analyze this blog before release...
Not off to a great start.
Yikes.
I’ve tried it 5x, keeps saying ‘something went wrong’
Ugh. This is the reasoning..
Ok it actually sorted itself out.
And caught an error in my math from this article.
So it already added value :)
I’m really curious on business model here. I would use this for free if they can become the most used product.
Wanted to see if Meta AI could code.
It freezes there.
Then I have to manually get it working..
But it is working! Currently, “running a subagent.”
Wow, cool. It coded and executed a live pricing calc for me.
So my takeaway.. this will probably end up as good as Grok, Claude, GPT. It’s nearly already there under the hood, just the UI/UX needs some real work.
But I understand what Zuck is saying as far as, ‘we’re focused on getting this to 1B users.’
This is essentially going to be the Google Gemini playbook. Attach a leading AI free chat service to a giant user base of billions of monthly users. That’s what worked for Gemini.
I bet it works for Meta AI.
And I also feel now that Elon launched a cloud service, Zuck will do the same.
Then he’s executing on the very formidable and profitable playbooks of Gemini (Google) and xAI Cloud (Elon).
Those aren’t confirmed, but if those narratives take hold I think Meta re-rates. But truly, impossible to predict or know.
And I do not think Zuck wants to go cloud, he wants to make META AI bigger than GPT. It’s just hard to imagine it, but how knows, maybe…..
I hope!
~Don
https://x.com/donversationz