Daily Observations

 

Today: Roku's IPO, Apple produces monster profits, Cheesecake Factory, Rotten Tomatoes is wreaking havoc at the box office, and Norway has a $1 trillion dollar pension fund.


Chart of the Day

Which company has created the most value since 1926? Apple.[NYT]


Roku, the box streaming service, priced its IPO at $14 and will begin trading today. Ben Thompson wrote a great piece(paywall) on what Roku is and how they can compete as a hardware maker in the age of streaming.[Stratechery]

Roku was originally started by Netflix, who spun the company out after they decided that having a hardware component would hamper their long-term prospects.

From the article:

They codenamed the top-secret project “Griffin,” after Tim Robbins’ character from the film “The Player.” After all, that’s what the team was building: The Netflix Player, a black and boxy device, as plain and compact as a necklace case, which subscribers would hook up to their televisions to stream movies and TV shows from the web. Netflix executives knew it could fundamentally change how the company delivered content to its customers, who were used to waiting days for DVDs to arrive by mail. Soon, Netflix could leverage the digital content deals it was striking with studios to dominate the living room, a war still waging today between industry giants like Apple, Google, and Microsoft.
It was December 2007, and the device was just weeks away from launching. Yet after all the years and resources and talent invested in the project (a team of roughly 20 had been working on it around the clock, from ironing out the industrial design and user interface to taking trips to Foxconn to finalize production details), Netflix CEO Reed Hastings was having serious second thoughts. The problem? Hastings realized that if Netflix shipped its own hardware, it would complicate potential partnerships with other hardware makers. “Reed said to me one day, ‘I want to be able to call Steve Jobs and talk to him about putting Netflix on Apple TV,’” recalls one high-level source. “‘But if I’m making my own hardware, Steve’s not going to take my call.’”
To the surprise of most employees at the company, Hastings decided to kill The Netflix Player, and spin the team out as a separate company. His decision, made almost exactly five years ago this month, was one of the riskiest moves in Netflix’s history. But it also proved to be one of Hastings’ most prescient. By shelving its hardware and remaining an agnostic platform, Netflix was able to transform itself into a digital powerhouse and become the dominant player in subscription streaming video. Its service is now ubiquitous, accessible on computers, smartphones, tablets, Internet-connected TVs, Blu-ray players, set-top boxes, and video game consoles.

Books

I am currently reading Ray Dalio's Principles: Life and Work. It is very long, but I am sure there are good lessons for investors from the man who built the largest hedge fund in the world starting from his apartment. 

I will be sharing various quotes from the book I find helpful.
From the book:

I believe that the key to success lies in knowing how to strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.

Charts

Some recent charts I found interesting. 

Cheesecake Factory(CAKE)

Ticker:CAKE

I have never eaten at a Cheesecake Factory, so I cannot attest to how good the food or atmosphere is. 

I don't know anything about the fundamentals of the restaurant business.

However, Kevin Alexander did a year-long investigation into the state of the restaurant industry in America.

From the article:

The American restaurant business is a bubble, and that bubble is bursting. I've arrived at this conclusion after spending a year traveling around the country and talking to chefs, restaurant owners, and other industry folk for this series. In part one, I talked about how the Good Food Revival Movement™ created colonies of similar, hip restaurants in cities all over the country. In the series' second story, I discussed how a shortage of cooks -- driven by a combination of the restaurant bubble, shifts in immigration, and a surge of millennials -- is permanently altering the way a restaurant's back of the house has to operate in order to survive.

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Extreme Networks(EXTR)

Ticker:EXTR

Price has not traded above $10 since 2004. I primarily base my trades off likely future order flow, not fundamentals.

Since there has not been a trade above $10 in 13 or so years, I believe there is good potential this stock could squeeze higher as long as it stays above $10. We'll see.

I always check out a company's homepage to see how well and how quick they explain what they do. I think it is a helpful practice if you are doing fundamental research. 

Extreme Networks – Connect Beyond The Network.png

I guess you could call that explaining what they do. In fairness, I am not their target customer.


Investing

Just 4% of publicly traded companies account for all the gains. Barry Ritholtz explains why trying to pick winners is hard and should we as investors even try?[Bloomberg]

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Bridgewater's culture is super weird. They have 1,700 employees but only 12-15 know how the investing decisions are made. That seems odd to me.  Matt Levine has opined about this several times.[Bloomberg] For more, this.


Below the Fold

Rotten Tomatoes is causing havoc at the box office. I always check a movie's score before I consider going to a movie. I would guess I have saved hundreds of dollars by not going to a movie based on a bad score.

My general rule is that I will not see a movie at the theatres with a critic's score below 70 unless the audience is in the 90 range. 

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Norway's pension fund is now worth $1 trillion dollars.[CNN]

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Ways U.S. adults watch T.V.

Primary ways U.S. adults watch TV.png

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Age distribution of hospital visits for someone punching a wall. 

WSJ’s Daily Shot-Age distribution of hospital visits due to punching walls.png

Have a great day,

Caleb