👋 Hello, today we’re talking about how Michael Ovitz changed the balance of power in Hollywood, and how thinking about who has leverage and where the balance of power lies within a value chain will help us evaluate this new crop of unicorns going public like Lyft, Uber, and Airbnb.
There are almost 2,000 ETFs in the U.S. Trying to sift through and figure out which ones are worth investing in is arduous.
So we’re building a resource that will surface the top three ETFs in a category and present basic information like AUM, expense ratio, top ten holdings, etc.
We include an ETF’s top ten holdings because it’s important to know what stocks your money is invested in, and ETF titles can be misleading.
If you were bullish on homebuilders, the top two ETFs are ITB (iShares) and XHB (SPDR). But their make-up is totally different.
ITB’s top five positions are Lennar, D.R. Horton, NVR, Pulte Group, and Toll Brothers. All those companies are actually “homebuilders.”
XHB’s top five positions are Masco (building supplies), iRobot (makes robot vacuums), A.O. Smith (makes water heaters), Whirlpool (makes dishwasher), and Fortune Brands (makes faucets and security systems).
There are only TWO homebuilders in the top ten positions. Those companies are in related industries and should benefit if homebuilders prosper but it’s not the same as investing in companies that actually build houses.
The bottom line is there are nuances in these ETFs and we’ll help you parse them out.
Good morning, hope your week is off to a good start. On to the update:
1. A $22 billion company you’ve probably never heard of
Atlassian develops software that helps teams collaborate on projects. They are a SAAS company (software-as-a-service). This means their products are stored and accessed via the cloud. The next few slides are from a presentation they gave in 2017. You can view the whole presentation here.
The rest of the content is for paying subscribers of Pure Alpha. Want to learn more about becoming a subscriber? Click here.
Important: We categorize investments in two ways. Strategic or tactical; occasionally, they can be both. Most of the trades we cover fall into the tactical bucket.
Strategic: Occasionally, we have insight into a specific company or theme and we are willing to make a 5-10 year bet to see if it plays out. In this category, we are looking for a business that has the potential to be a monopoly (legal of course), dominate their category, and build a durable moat.
Tactical: For these trades, we have a specific price target to take profits at and a stop to protect our downside. For more information on how we evaluate these trades, read this article.
Stability leads to instability
The headline is part of a quote by the economist Hyman Minsky. He was referring to the economy in general but we can also apply it in the context of business.
When a business reaches a certain level of success, they can, if they aren’t careful, become complacent. They can lose focus on serving their customers and meeting their needs. And if they aren’t careful, competitors will come in and start encroach on their territory. This process could happen so slowly, that upper management might not notice.
Then one day… boooooom…They’re in a fight for their lives and their very existence is at stake. (think Netflix and Blockbuster or the demise of Sears)
The rest of the content is for paying subscribers of Pure Alpha. Want to learn more about becoming a subscriber, click here.
We have become an “asset-light” economy. Quote from Warren Buffett’s annual shareholder meeting.
FAANG stocks were crushed in October. Rally over?
These categories of smart home technology are poised for growth.
Public offerings: How Moderna Therapeutics wants to revolutionize drug manufacturing.
Two signs a recession “might” be near.
Canada is fragile.
1. Spotify vs the record labels
The above chart is Spotify’s gross margin since 2013.
As a refresher, gross margin is (Revenue – Cost of Revenue).
From an article by Music Business Worldwide:
During the last round of negotiations with the three major record labels (Universal, Sony, and Warner), Spotify was able to reduce their payout to the record labels from 55% towards 52%. Hence the bump in gross margin improvement
The reduction was granted on the basis that Spotify hit steep subscriber targets.
See the problem… The percentage Spotify pays out to the labels has a direct effect on their gross margin.