TLDR:
I went to Philly for a stock pitch contest and left attending the 2023 Barnes Art Ball
A few weeks ago, Brett Caughran (@FundamentEdge) posted a stock pitch contest with the University of Pennsylvania’s WITG Club. I submitted a pitch with a friend but we didn’t make it to the final round, so instead, I watched the finalists in Philly (19 Oct). The five teams, out of 100+ submissions, pitched their ideas (all long ideas, no shorts) to various judges (Brett, Paul Enright, Eric Wolff, Alix Pasquet, Artem Fokin, Andrew Greier, and Derek Vincent), who decided the three best investment ideas were:
Addus Homecare Corporation (ADUS)
Churchill Downs (CHDN)
Sea Ltd (SE)
the other two were: Match Group (MTCH) and Basic Fit NV (BFIT)
The teams and pitches were all great and well-versed, able to answer all the tricky questions the judges asked. More interestingly, though, was the event afterward.
I actually went to Philly again (25 Oct.) for Two Sigma’s stock critiques, ideas below: long Klaviyo (KVYO), nCino (NCNO), & Olaplex (OLPX) / short Weis Markets (WMK)
After announcing the winning teams and pictures, all the students could speak to the judges and learn from their insights. Between various anecdotes, the judges name-dropped books like The Intelligence Trap, the CIA’s Structured Analytic Techniques, The Sleuth Investor, and more, saying, “This book is mandatory at ‘X’ hedge fund” or “We use this to better understand management teams”—but even more applicable, was their advice and research process when making investments. The basic ideas below:
be simple
it’s a small industry
A desk is a dangerous place from which to watch the world1
Everyone knows KISS (keep it simple, stupid), but it’s challenging—do humans like complicating things? Last year, a mentor told me, “If you can’t explain an investment thesis in under 30 seconds, it’s probably no good.” As brutal as it sounds, when one starts to add “X,” “Y,” and “Z” variables, and the gurgle of incomprehension of “if this happens, then this, if, but, if…”—its time to start afresh with a piece of blank white paper. (Paul Enright holds a similar view here on slide 17, *found this on Google, pls don’t sue me*)
Many of the best investments have an actionable and identifiable catalyst (like a secondary/tertiary change) in an underlying business structure (or trend)—and has a variant view [that is not fully priced in]. Fundamental investing and its idiosyncratic risk (“alpha”) comes from this gap between reality and expectations; if there’s no “difference in opinion” there’s no risk—chi non risica non rosica2—or, there’s something you’re missing altogether. But, as most things, it’s easier said than done.
And oh, how small the world is. It appears in that industry, everyone knows everyone, like Hollywood’s Six Degrees of Kevin Bacon. In reality, it’s more like one or two degrees—how powerful and scary. Whether they know them from school, their banking program, golf or tennis, or have worked with them before, everything is connected, so follow Buffet’s advice on reputation.
And now onto “creating ideas”…
Seinfeld’s book is a must read; I don’t think I’ve ever laughed while reading, but this book had me laughing and re-reading the same jokes over and over again. Each joke also ties back to the first point, “be simple”—Seinfeld’s comedic genius lies in interpreting the common things, uncommonly. What do you see that others don’t?
For me, Lotus Bakeries NV (EBR: LOTB), makers of the Biscoff Cookie, is surely undervalued—Long LOTB, Short SJM 0.00%↑ (J M Smucker Co); if you haven’t yet, go to your local grocery store and buy their Biscoff Cookie Butter—it’s addicting. The cookie butter is [probably] made from the broken pieces from their cookie production line, so costs are low—and it tastes better than a PB&J sandwich with less sugar than Nutella or Smuckers. And, you only need to use one knife to spread, rather than two when making PB&Js. After the recent re-balancing of consumer staples equities (post-GLP-1 craze), it's worth re-looking at; they’re using “Biscoff & Go,” small snack-sized packages with breadsticks and cookie butter to drive awareness. (Biscoff drives +50% of LOTB revenue, growing at ~15% CAGR—risk: it does contain some sugar)
The line of reasoning above appears moronic, but for food items—well, for any item—good products sell. The mentor I mentioned earlier told me an anecdote from early in his career; he was new to Japan, and his PM asked him to find good restaurants—food transcends language barriers. He mentioned a few chain businesses, but one, in particular, was a conveyor belt sushi restaurant—his primary research wasn’t GuidePoint expert network or sell-side calls. It was physically going and seeing if the restaurants were good or not.
The judges at this event shared similar anecdotes. Asking doormen to track incoming packages from popular brands to model out purchases before credit card data comes out. Going to casinos and talking to staff at random times to see if customers were there and whether the experience was any good. Buying products every week to track serial numbers to model a company’s actual output. Physically going to the MSG Sphere in Vegas to understand the impact of new display methods for ads and entertainment. And most importantly, visiting companies’ management teams to present research and ask questions—bet the jockey, not the horse?
There’s a plethora of ways to come up with “alternative data,” so stay curious and creative, never forgetting that the physical world is realer than Microsoft Teams and a Bloomberg Terminal… a desk is a dangerous place from which to watch the world.
oh, and they all love to use Twitter—many PMs have anonymous accounts
this marks the first half of my Philly trip—the second half was even better
On the way back from UPenn that Thursday night, I noticed a group of people trying to take a picture; overhearing them speak Japanese, I offered to take a picture for them, and after a brief introduction, one of them coincidentally shared my name. I didn’t think much of it until I saw them again the following morning (20 Oct.) and asked why they were in Philadelphia. The man happened to be the director of the Marie Laurencin Museum in Tokyo and had lent his paintings to the Barnes Foundation for that night’s annual ball and exhibit opening. I was asked about my evening plans—I originally planned to return to New Jersey that afternoon—and said I was free. His sister-in-law then contacted me, telling me to meet them at the hotel lobby at 5:30 for the reception at 6. After meeting, the hotel concierge kindly chauffeured us to the ball in the house car.
The exhibits at Barnes were unique, symmetrically aligning Renoir with Cézanne, Matisse with Demuth, sprinkled in with (early and later) Picasso, Rouault, Chagall, Miró, and more. And of course, the standalone exhibit for Marie Laurencin.
Conversations about how the ‘art world’ operates, life as an expat, international schools and the cultural activities at ASIJ (American School in Japan) (田植え、etc.), and more, filled the night over excellent catering, drinks, and music.
The only phrase that could sum up my two night is 一期一会 , meaning “a once-in-a-lifetime encounter, hence should be cherished as such.” Such serendipity is utterly bizarre, making one wonder if luck just happens or is something created.
Each step, every win and misfortune in life, was necessary [in the exact chronological order] for U to end up where U are today. So—
Make the most of your regrets; never smother your sorrow, but tend and cherish it till it come to have a separate and integral interest. To regret deeply is to live afresh. By so doing you will be astonished to find yourself restored once more to all your emoluments.
Henry David Thoreau
quote from John Le Carre’s The Honourable Schoolboy
“Those who don't take risks, don't eat” — a Tuscan proverb