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Why Greenhaven Road Capital Decided to Invest in Nintendo

August 17, 2019 in Ideas, Letters

This article by MOI Global instructor Scott Miller is excerpted from a letter of Greenhaven Road Partners Fund.

Historically, Nintendo has been a “feast or famine” company that has seen its fortunes rise and fall dramatically depending on the release cycle and reception of gaming platform consoles and the attached games. The gaming console business is effectively a razor + razor blade business. Traditionally, consoles have been sold for very low margins with higher margins on games. For the past 30 years, consoles had a life of 5-6 years before the next generation was released. Videogame consoles are a capital- and research-intensive treadmill where success of the next was by no means guaranteed by the success of the current. Each successive console has faced “chicken and egg” challenges since, generally, developers only want to develop for new platforms when its installed base reaches a sufficient scale to make their efforts worthwhile and consumers only want to buy consoles that have the deepest bench of top-quality games. If either the consumers or the game developers don’t show up, the console manufacturer suffers the double whammy: lackluster sales of not just the console but also the games made for it. To put this in context, Nintendo’s sales fell over 75% from 2009 to 2015 as the Wii U flopped due to the company’s historically minimal marketing efforts.

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Disclaimer: This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private placement memorandum (“PPM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the PPM, the PPM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, Greenhaven Road Capital Partners Fund LP and MVM Funds LLC makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document. An investment in the fund/partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The portfolio is under the sole investment authority of the general partner/investment manager. A portion of the underlying trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the fund/partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Greenhaven Road Capital Partners Fund LP and MVM Funds LLC. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Greenhaven Road Capital Partners Fund LP and MVM Funds LLC, which are subject to change and which Greenhaven Road Capital Partners Fund LP and MVM Funds LLC do not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment. The fund/partnership is not registered under the investment company act of 1940, as amended, in reliance on an exemption thereunder. Interests in the fund/partnership have not been registered under the securities act of 1933, as amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said act and laws.

Rob Galbraith on His Book, The End of Insurance As We Know It

August 17, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019

Rob Galbraith discussed his book, The End of Insurance As We Know It: How Millennials, Insurtech, and Venture Capital Will Disrupt the Ecosystem, at MOI Global’s Meet-the-Author Summer Forum 2019. Rob is Director of Innovation at AF Group.

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About the book:

We live in a world of accelerating change. The advent of new technologies such as IoT, AI, blockchain, NLP, RPA and a host of others enabled by miniaturization of chips, mobile devices, and cloud computing have enabled a host of new and powerful yet intuitive applications, such as GPS which has virtually replaced the need for paper maps.

The tradition-bound world of insurance is not immune from these forces. Insurance has a rich history and powerful longevity as an industry because of the societal good it provides. Insurance enables consumers to drive a car, buy a home and start a business – people buy insurance because they need to (and are often required to) in order to do something they really want to do.

But as anyone that has gone through the process of purchasing and “using” insurance (i.e., filing a claim), it can be a frustrating experience. Insurance is complex: it is a blend between a product and service, a mix of financial instrument and legal contract that is highly regulated and enforced by the rule of law. There are many long-standing and well known problems in insurance that have yet to be adequate solved — until now.

The rise of these new technologies and focused innovation in the insurance industry has led to the rise of “insurtech”. New startups and value propositions, fueled by an era of cheap capital, are created daily to address the “fatal flaws” of insurance. While the industry press is abuzz with daily headlines announcing new breakthroughs and partnerships, the reality is more complicated and shifting rapidly.

The End Of Insurance As We Know It is the book that brings together insurance newcomers and veterans to provide a common framework of understanding. In doing so, it helps foster collaboration that spurs new innovation to bring insurance fully into the 21st century as the perfect digital product that meets the evolving needs of today’s consumers around the globe.

About the author:

Rob Galbraith is the author of the new Amazon bestseller The End Of Insurance As We Know It. He has been called “a global insurtech thought leader”, “a mentor to many in the insurance industry”, “the most interesting man in insurance”, “the prophet” and “the WD40 of insurance” for his versatile skills and ability to solve all manners of problems. Rob is a popular keynote speaker who has spoken at events around the globe on the topics of innovation, insurtech and the future of insurance as well as the role of insurance in disaster preparedness and mitigation as well as climate adaptation and resiliency.

Rob has over 20 years of experience in the financial services industry in a variety of leadership positions with AF Group, USAA, Citigroup, and the Federal Reserve Board. He is a recognized thought leader on P&C insurance who is a frequent media contributor and well-known industry influencer. Rob holds a Master’s of Science in Insurance Management from Boston University and a Bachelor of Arts in Economics from Michigan State University. In addition, he holds the CPCU, CLU, and ChFC professional designation and was previously a member of the CPCU Society Leadership Council from 2016-2018.

Roger Montgomery on His Book, Value.able

August 16, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019, Meet-the-Author Forum 2019 Featured

Roger Montgomery discussed his book, Value.able: How to Value the Best Stocks and Buy Them for Less Than They’re Worth, at MOI Global’s Meet-the-Author Summer Forum 2019. Roger serves as Chief Investment Officer of Montgomery Investment Management.

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About the book:

Discover how to value the best stocks and buy them for less than they’re worth. Demonstrating that market-beating returns are possible and within the reach of all stock market investors,Value.able sets out Roger Montgomery’s three simple steps to successful value investing and online trading. Follow them yourself and you too cannot help but do well, beating the market over the long term. Financial commentator Alan Kohler described Roger as one of the nation’s smartest and most successful value investors. Regularly appearing on CNBC, Sky and Bloomberg, Montgomery is the go to guy for business perspective investing. Value.able is overflowing with the latest cutting edge interactivity, video commentary from Montgomery himself, screencasts from his trading desktop and animated examples of listed companies that meet his criteria and earned him some of the best fund returns. Instructive and entertaining, make ‘Value.able’ the most valuable investment guide book in your library now.

About the author:

Roger Montgomery is the founder of Montgomery Investment Management. He brings more than two and a half decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merill Lynch. In 2010, Roger published his first book, the best-selling investment title Value.able.

Robert Hagstrom on His Book, The Warren Buffett Way

August 15, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019, Meet-the-Author Forum 2019 Featured, Transcripts

Robert Hagstrom discussed his book, The Warren Buffett Way: 3rd Edition, at MOI Global’s Meet-the-Author Summer Forum 2019. Robert serves as Chief Investment Officer and Senior Portfolio Manager at EquityCompass.

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About the book:

Warren Buffett remains one of the most sought-after and watched figures in business today. He has become a billionaire and investment sage by buying chunks of companies and holding onto them, managing them as businesses, and eventually reaping huge profits for himself and investors in Berkshire Hathaway. The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind the spectacular success of living legend Warren E. Buffett. Tracing Warren Buffett’s career from the beginning, Hagstrom told listeners exactly how, starting with an initial investment of only $100 Buffett built a business empire and has an estimated net worth of $44 billion.

The Third Edition of The Warren Buffett Way will focus on the timeless principles and strategies behind Buffett’s extraordinary investment success. There will be new chapters on the important distinctions between investment and trading and an examination of the most successful disciples of Warren Buffett. Some less important material will be deleted and the overall focus will be to create an edition that will stand the test of time, distilling Buffett’s success formula in a way that will provide value to listeners for decades to come.

About the author:

Robert Hagstrom joined EquityCompass as a Senior Portfolio Manager in April 2014 and launched the Global Leaders Portfolio in July 2014. In addition, Robert serves as Chairman of the Investment Management Committee for Stifel Asset Management. Prior to joining EquityCompass, he was the Chief Investment Strategist of Legg Mason Investment Counsel, and before that, he spent 14 years as the Portfolio Manager of the Growth Equity Strategy at Legg Mason Capital Management, where he managed over $7 billion in assets. Robert was the recipient of “Honorable Mention” as Morningstar’s U.S. Equity Manager of the Year in 2007.

Robert is the author of nine investment books, including the New York Times bestseller The Warren Buffett Way, considered the definitive book on how Warren Buffett analyzes stocks and makes investment decisions.

Robert earned his Bachelor’s and Master’s of Arts degrees from Villanova University and is a member of the CFA Institute and the CFA Society of Philadelphia.

Annette Thau on Her Classic, The Bond Book

August 14, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019

Annette Thau discussed her book, The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More, at MOI Global’s Meet-the-Author Summer Forum 2019. Annette is a former municipal bond analyst for the Chase Manhattan Bank and a visiting scholar at the Columbia University Graduate School of Business.

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About the book:

The financial crisis of 2008 caused major disruptions to every sector of the bond market and left even the savviest investors confused about the safety of their investments. To serve these investors and anyone looking to explore opportunities in fixed-income investing, former bond analyst Annette Thau builds on the features and authority that made the first two editions bestsellers in the thoroughly revised, updated, and expanded third edition of The Bond Book.

This is a one-stop resource for both seasoned bond investors looking for the latest information on the fixed-income market and equities investors planning to diversify their holdings. Writing in plain English, Thau presents cutting-edge strategies for making the best bond-investing decisions, while explaining how to assess risks and opportunities. She also includes up-to-date listings of online resources with bond prices and other information. Look to this all-in-one guide for information on such critical topics as:

  • Buying individual bonds or bond funds
  • The ins and outs of open-end funds, closed-end funds, and exchangetraded funds (ETFs)
  • The new landscape for municipal bonds: the changed rating scales, the near demise of bond insurance, and Build America Bonds (BABs)
  • The safest bond funds
  • Junk bonds (and emerging market bonds)
  • Buying Treasuries without paying a commission

From how bonds work to how to buy and sell them to what to expect from them, The Bond Book, third edition, is a must-read for individual investors and financial advisers who want to enhance the fixed-income allocation of their portfolios.

About the author:

Annette Thau is a former municipal bond analyst for the Chase Manhattan Bank and a visiting scholar at the Columbia University Graduate School of Business. She has written more than 20 articles about the bond market for the AAIIJournal and has lectured to groups nationwide. In November 2009, she was a featured speaker at AAII’s Investor Conference.

Annette earned a Ph.D. in French literature from Columbia University and taught courses in French language and literature at the college level. Her first book was a study of the poetry of Max Jacob, a friend and collaborator of Picasso and Apollinaire. She was elected to Phi Beta Kappa, and she has received numerous awards including a Woodrow Wilson Fellowship, a National Endowment for the Humanities Fellowship, and University Fellowships from Columbia University.

Annette wrote The Bond Book to fill a need for a book that would explain bonds and the bond market in clear language that could be understood by any individual investor. The book has been a perennial best seller since its first edition, published in 1990. Its third edition, fully revised and updated, was released in November 2010.

Nick Gogerty on His Book, The Nature of Value

August 13, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019, Meet-the-Author Forum 2019 Featured

Nick Gogerty discussed his book, The Nature of Value: How to Invest in the Adaptive Economy, at MOI Global’s Meet-the-Author Summer Forum 2019. Nick is co-founder and CEO of SolarCoin Foundation.

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About the book:

The Nature of Value presents a theory of how economic value functions and how it drives growth, starting with tiny sparks of innovation and scaling all the way up to the full scope of the economy. Nick Gogerty’s exploration of value borrows from a wide array of disciplines, including anthropology, psychology, physics, sociology, and ethics, but most of all, it examines how evolution’s processes can help investors understand the economy and how investors can use this new understanding to improve their allocation decisions.

Starting with a look at how innovations can help firms succeed, Gogerty looks at the economic niches in which firms compete and explores how firms can create defensive “moats” to enhance their chances of survival. He shows allocators how to adjust their actions for best performance and returns and what to look for when assessing company management, supporting his arguments with extensive data and years of practitioner experience from scientific, social, and economic disciplines. Intuitive illustrations are used to illuminate central concepts and ideas. Gogerty’s practical takeaways, couched in vivid explanations, will help investors of all backgrounds gain fresh insight into market mechanics.

About the author:

Nick Gogerty has been fortunate to live among and learn from many cultures while pursuing roles in technology and finance. He has worked with one of the world’s largest hedge funds and been an associate portfolio manager for a small cap value fund in New York City where he outperformed the S&P 500 by over 5,000 bps during the financial crisis of 2007-09. As an entrepreneur he founded Inclue! social media software in San Diego CA, winning 2nd place in the Southern California Venture Capital competition. As Chief Analyst for Starlab Deep Future Science Research institute in Brussels Belgium, he oversaw the IP committee and worked on commercializing fundamental research projects including genetics, artificial intelligence, robotics, flexible solar cells, protein folding, nano-technology and theoretical research into time travel. As founder of International Monitoring, a technology consulting firm he was chosen as 1 of 7 global specialists to deliver expert testimony to the US Senate about the unique international risks associated with Y2K, the $200b technology problem. Other experts represented the DoD, World Bank, State Dept. Dept of Defense. etc. In London was a Sr. VP Quantitative Foreign Exchange risk researcher and trader at BNP (Banque National de Paris) one of the World’s largest banks trading the world’s largest market.

Early on he was a technology consultant for the Swiss Bank Corporation Chicago, and runner on the Chicago Board of Trade in the 10 yr treasury bond options pit. As an undergraduate he co-founded of ISYS Technologies and researched genetic algorithms and neural networks for bond trading after starting to trade yen futures in high school. Please note none of the quant methods he researched proved highly effective. Later in life he got down to the basics and first principles of studying value creation at FertileMind Capital. This thinking about value yielded useful insights.

Nick holds a BA in cultural anthropology with a special focus on economic sustainable development in Niger, West Africa and a minor in Art History from the University of Iowa. He received an MBA from the Ecole National de Ponts et Chaussees in Paris France where his thesis was on quantitative methods used by hedge funds. He has held Series 3,7 & 63 securities licenses in the US and the FSA designation in the UK and holds the CAIA (chartered Alternative Investments Analyst) designation and is a member of the American Economics Association. His interests include sustainable economic development, poverty reduction, renewable energy and solving large complex problems. He lives in Greenwich, CT with his wife.

Watch our background interview with Nick Gogerty:

GoDaddy: Scale Player in a Fragmented Industry

August 13, 2019 in Ideas, Letters

This article by Jake Rosser is excerpted from a letter of Coho Capital Management.

“Ben Graham had a lot to learn as an investor…. buying those cheap cigar-butt stocks was a snare and a delusion.” –Charlie Munger

The dean of value investing Benjamin Graham beat the market by an average of 2.5% a year over two decades and essentially invented security analysis as a profession. Graham focused his analytical efforts on the discrepancy between price and value and maintained strict rules on selling once the two converged. He was a cigar-butt investor through and through, happy to take the last puff if the price were right. Given his formulaic approach, it is interesting that Graham made the vast majority of his fortune by violating his signature rules; First with position sizing, putting 20% of his assets in a single stock, Geico, and second by never selling, despite Geico’s valuation premium. In what is surely one of the greatest stock investments of all time, Geico rose over 200-fold from Graham’s purchase price.

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James Cortada on His Book, IBM

August 12, 2019 in Audio, Interviews, Meet-the-Author Forum, Meet-the-Author Forum 2019

James Cortada discussed his book, IBM: The Rise and Fall and Reinvention of a Global Icon (History of Computing), at MOI Global’s Meet-the-Author Summer Forum 2019. Jim is a Senior Research Fellow at the University of Minnesota.

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About the book:

For decades, IBM shaped the way the world did business. IBM products were in every large organization, and IBM corporate culture established a management style that was imitated by companies around the globe. It was “Big Blue, ” an icon. And yet over the years, IBM has gone through both failure and success, surviving flatlining revenue and forced reinvention. The company almost went out of business in the early 1990s, then came back strong with new business strategies and an emphasis on artificial intelligence. In this authoritative, monumental history, James Cortada tells the story of one of the most influential American companies of the last century.

Cortada, a historian who worked at IBM for many years, describes IBM’s technology breakthroughs, including the development of the punch card (used for automatic tabulation in the 1890 census), the calculation and printing of the first Social Security checks in the 1930s, the introduction of the PC to a mass audience in the 1980s, and the company’s shift in focus from hardware to software. He discusses IBM’s business culture and its orientation toward employees and customers; its global expansion; regulatory and legal issues, including antitrust litigation; and the track records of its CEOs. The secret to IBM’s unequaled longevity in the information technology market, Cortada shows, is its capacity to adapt to changing circumstances and technologies.

About the author:

James W. Cortada is Senior Research Fellow at the Charles Babbage Institute at the University of Minnesota and the author of IBM: The Rise and Fall and Reinvention of a Global Icon (The MIT Press) and other books. He worked at IBM for thirty-eight years in sales, consulting, managerial, and research positions.

Why We Sold This Controversial Stock

August 11, 2019 in Case Studies, Equities, Ideas, Letters

This article is authored by MOI Global instructor Todd Wenning, a senior investment analyst at Ensemble Capital Management, based in Burlingame, California. Visit Ensemble’s Intrinsic Investing website for additional insights.

As discussed on our Fall 2018 Conference Call, we owned shares of pet insurance company Trupanion in our core equity strategy. In July, we sold our shares prior to Trupanion’s earnings and wanted to provide an explanation of that decision.

Trupanion was an “emerging moat” position in our portfolio. With emerging moat businesses, we are looking to be early investors in companies that are in the process of establishing durable competitive advantages. Given the higher uncertainty around emerging moat companies, they are intentionally small positions in our portfolio.

The ideal situation is to own a rule breaker on its way to becoming a Rule Maker.

Netflix is a perfect example of this dynamic. For most of its history, Netflix was breaking the rules of traditional media on its way to becoming the first global scale media company. Having proven that model, legacy content creators like HBO and Disney are trying to replicate it.

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Investing in an Environment of Negative Bond Yields

August 11, 2019 in Commentary, Equities, Letters

This article by MOI Global instructor Shreekkanth Viswanathan is excerpted from a letter of SVN Capital, based near Chicago, Illinois.

Ben Graham, Warren Buffett’s guru, in his 1949 book, The Intelligent Investor, ascribed human form to the stock market and named him Mr. Market. Ben Graham went on to describe Mr. Market as a manic-depressive, swinging from bouts of optimism to moods of pessimism. While it is more than 70 years since he used a parable to describe a volatile stock market, looking at the last two years one would rightly conclude that the character of Mr. Market has not changed a bit in the intervening years! After a precipitous fall of approximately 20% in late 2018, the market recovered to put up one of the best six-month performances in 2019 since 1992.

So, what is next? While I don’t claim to have any special insights regarding the future economic performance or the stock market in general, I am more enthusiastic about the opportunity set. Sure, there are lots of things to worry about – tariffs, central bank policies, aging economic expansion, high equity prices etc. My optimistic view of the economy and market is based on many metrics that I track, but one in particular that I’d like to highlight is robust consumer demand. What do I mean?

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