The study of executive compensation can sometimes feel like a tedious and technical exercise. Governance reports give the impression that these plans have been carefully designed by industry consultants to conform to a set of industry standards and norms. A rigorous process has been followed, with approval granted by both the board and shareholders. The corporate governance code has been adhered to.

However, behind this veneer of “compliance” and “standardisation” you can find powerful and surprising insights into the priorities of the executives and the culture…


Can consumers socialise again and still have time or money for gaming and gambling?

Tricky question…

Given the fervour with which the UK (or England at least) seems to have emerged from lockdown this week and perkiness in some UK domestic consumption plays (cf Restaurant Group or Loungers) the market is clearly warming up to the reality that there could be a sharper bounce back in experience-driven consumption.

We have highlighted very high absolute valuations of the travel & leisure sector — Enterprise Valuations sit at all time highs — however this is not the same as thinking about the relative attractions in the context of equity market positioning. …


Will small companies prove to be the easy target the market assumes?

Did they actually die?

Anti-fragility is a concept we have mentioned a few times in Friday Views. Coined by Nassim Taleb it describes a system (or business) that benefits from being put under extreme stress because it helps it get stronger in the long run. Unlike a Ming vase for instance, which would smash on impact with the floor, and is unequivocally fragile, the process of natural selection, as an example, is inherently anti-fragile by producing a better outcome due to a species being placed under extreme stress.

The reason this is worth referencing again is that it partly explains the continued resurgence…


How wrong analysts can be, and usually are, tends to be overlooked

An analysts’ model…

Late last Friday evening ARK Invest published its latest Tesla model with the stupendous assumption that their new price target was $3000 for 2025, and even a bear case was $1500, double current share price levels. The modelling behind this, run on Monte Carlo simulations, has been torn apart on Twitter by Christopher Bloomstran with regard to its insurance assumptions, and FT Alphaville called it a “gish gallop” (or just a clever marketing ruse).

What I wanted to focus on however was the revenue outputs in the model where the CFA credited analyst has $31b in 2020 rising to…


Is the sea ice thawing for UK equities?

Is the ice finally thawing??

Anyone currently watching the new TV series The Terror (via BBC iPlayer) will be reminded of a time when the UK, or rather the British Empire via the Royal Navy, was at its pomp, attempting to forge its way through the wastelands of artic Canada in an effort to discover and chart the North West Passage trade routes. Treacherous winter conditions meant the two ships became stuck in sea ice and a hungry polar bear had its own sailor-stocked fridge.

To some extent investing in UK equities has felt a bit like getting stuck in sea ice and failing…


The buy and hold mantra misses an important aspect of generating returns

Not all turnover is bad…

I was listening to a podcast this week with Ian Cassel — a well known investor in micro caps and founder of MicroCapClub — in which he mentioned that Warren Buffett’s turnover was actually highest during periods in which he had his best performing years. Ian goes on to say that:

Following on from last week’s thoughts on buy and hold strategies and the pitfalls of using…


Is using the last 5 years hindsight bias or justification for a superior strategy?

A 20% compounder over 50 years…beat that!

Away from the UK Budget or problems at Greensill a more pertinent debate has been raging about when you should sell a stock. Baillie Gifford published an opinion piece in the FT earlier this week about why it is usually a mistake for investors to take profits, this was quickly rebutted, in the same column, by Drew Dickson of Albert Bridge who effectively highlighted that much of the evidence seemed like hindsight bias based on some self-selecting winners — the comments section of both articles makes for just as interesting reading.

Underlying the original article from BG was some…


What do signs of inflation mean for the most expensive stocks?

Expensive stocks when bond yields rise…

Earlier this week I received two emails to my Gmail in quick succession. The first was from Sky telling me my subscription was going up by £5 per month (on a base price of £56) the second was from British Gas informing me that my electricity tariffs were changing, with the increases in the order of 10%…I think I can sidestep these specific price hikes as I have switched energy provider using Uswitch and have been debating leaving Sky anyway, as all our TV consumption tends to happen via our Firestick.


The rise of index and ETF investing is creating a dangerous circularity

The office of a passive manager…

I would strongly recommend watching this interview with Mike Green on Zer0es about the distortions being created in the market due to the rising share of passive investing vehicles. The summary was written up in the FT by Carson Block but in essence what was being highlighted was how the demographic push of capital into markets is creating a terrifying market melt up that would seem to have very…


How Buy Now Pay Later is transforming the landscape for consumer companies.

We have mentioned Klarna before and given the current newsflow I thought it would be interesting to revisit this theme, especially in light of the admissions in our JD Sports close out note. JD almost certainly saw a significant sales boost in 2019 due to its early adoption, and promotion, of Klarna back in mid-2018.

For those unfamiliar Klarna (and other BNPL-Buy Now Pay Later providers) offer the consumers ability to defer payments by 30 days, or into 3 instalments, for no cost (ie no interest). Klarna make most of their income from commission charged to the retailer for…

View from Level 39

Honest, independent and fresh views on the world of equity research

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