Blog – Page 16 – Focused Compounding

Geoff Gannon January 5, 2019

Inseego (INSG): A Uniquely Positioned 5g Company

Write-Up by Long-Short Value

With ZTE and Huawei recently shut out of the US and Canadian Market and likely most European Markets, Inseego is uniquely positioned to take advantage and gain market share in mobile connectivity at a crucial time in the 5g cycle. This Chinese OEM ban has pushed several customers to recently sign design and development deals with Inseego.
Inseego’s new management has a depth of experience in telecommunications equipment and has positioned the company for both the 5g Hardware cycle and to expand its Telematics Business (CTrack) into new markets
Inseego’s customer relationships with Verizon and close ties with Qualcomm make it the premier connectivity partner in the US and Canada.
Inseego has recently signed all Tier 1 Carriers in the US and several other carriers in the US, Canada, Australia, and Europe for either their 4G LTE, Gigabit 4G LTE, or 5G products. Several of these recent contract wins have yet to begin producing any material revenues and are expected to ramp up in 2019 significantly.
Inseego’s Enterprise SaaS business (DMS and CTrack) operate in an extremely attractive high margin segment. Recent wins for CTrack in the Aviation space will help propel the segment to high teens to low twenties revenue growth over the next few years.
My base case valuation of Inseego is $7.80 a share, Upside Case could be well above $10 a share if Verizon 5g Fixed Wireless is a success.

Inseego Summary

Inseego is a Telecommunications Equipment and Enterprise SaaS design and development company with products focused on the Internet of Things (IoT) and Mobile Solutions. Inseego is one of the few US based companies that makes Mobile Connectivity products like 4G Hotspots that traditionally compete with Chinese companies like ZTE and Huawei. Inseego is closely aligned with Qualcomm and Verizon highlighted by the new design center they opened across the street from Qualcomm and the recent showcasing of the Verizon 5g NR utilizing the Qualcomm Snapdragon chipset. Inseego has undergone several recent management changes and a restructuring which started with the hiring of Dan Mondor as the new CEO in June of 2017. Dan has a very solid background in the Telecommunications Equipment space with experience as CEO of SpectraLink and as CEO of Concurrent Computer Corporation (CCUR). Dan has assembled a stellar team to position Inseego for the coming 5g Telecommunications Cycle.

Here is a primer on 5g (Mckinsey Link) as it is a key component of the thesis around Inseego. 5g will bring not only faster speeds to wireless but also lower latency, which is important in applications like medicine, connected cars, and many IoT applications. I have done an extensive amount of research on 5g and I believe it is a much larger step change from both a performance standpoint and an infrastructure investment standpoint than the transition from 3g to 4g.

Inseego has two businesses, Mobile Connectivity Solutions Hardware (Mobile Solutions) and SaaS, Software, and Services (Enterprise SaaS). Mobile Solutions is a hardware business …

Geoff Gannon January 5, 2019

Future Bright: A Macau Restaurant Operator with Restructuring Potential

Member Write-up by André Kostolany

Future Bright is a Macau-based restaurant operator with a fascinating history of management missteps. Today, Future Bright’s main businesses are Food & Catering, Souvenirs and Property. The company is primarily owned and run by Chan Chak Mo, a local Macau legislator with deep roots in the region and connections to the casino operators. The company’s market cap is about 600MM HKD, it has 75MM of cash and about 350MM in debt. While some of my comments may seem offhand, I have been following this business for over five years.

Restaurant Business

In Macau, Future Bright runs an easy, toll-road like business built on cash flows from in-casino restaurants, university canteens and other near captive customers. During the good times in 2011, high-rollers easily spent >$200 for a quick meal in between gambling and the core business threw off >30% EBITDA margins. Then Xi Jinping came into power and the anti-corruption campaign happened in 2012. Less high-rollers frequented Macau, instead, they were replaced by tourists with more moderate budgets. In response, Macau attempted to transform itself to a more ‘family-friendly’ destination. While Macau visitor numbers have been consistently growing at a rate of ~7% per annum for the past 10 years, average meal spend per visitor has dropped below $100 due to the shift away from high-rollers, impacting restaurant margins.

When the anti-corruption campaign was announced, management began investing into opening up restaurants in competitive restaurant markets overseas. They have recently admitted failure in Mainland China and are closing down some of these restaurants. They are doing fine in Hong Kong and the judgement is still out whether their Taiwanese restaurants will perform. None of these new restaurants will, however, approach the economics of their existing core business in Macau.

The core restaurant business in Macau is mainly a good business because casinos need higher-end restaurants to accommodate their customers but have shown little willingness to fully manage and operate these themselves. With its experience in managing a wide range of Japanese, Chinese and Western Restaurant concepts Future Bright is a useful partner to the casino operators. Casino visitors are also relatively less price sensitive than your typical restaurant customers, which has led to Future Bright’s unusually high margins on its core business.

Future Bright currently runs 61 restaurants, 4 of which are food court counters. 16 of these restaurants have been opened in the past two years and they are currently planning on opening another 20 restaurants by the end of 2019. As restaurants take about 2 years to reach maturity, and as they are currently spending to shut down overseas restaurants, the restaurant divisions’ economics are currently somewhat obscured. Adjust for one-off charges and annualizing current numbers, one can see that the restaurant division has about 970MM in revenues and is producing an 8% cash margin. Macau restaurants have a cash margin of 14%, Hong Kong 6% and China -22%. While the division currently produces 80MM of cash flow, getting China …

Geoff Gannon January 5, 2019

Sonics & Materials (SIMA): A Profitable Net-Net Building A Cash Pile

MEMBER WRITE-UP BY LUKE ELLIOTT

Quote: $8.00

Shares Outstanding: 3.4 million

Market Cap: $27.2 million

Sonics and Materials Inc. (SIMA) is an American company that was founded in the late 1960’s based on the discovery and invention of ultrasonic welding by its CEO, Robert Soloff. Mr. Soloff patented the technique, and several years later, opened Sonics and Materials. Now, fifty years later, the company has grown from 1 employee to 70 and is still operating in the ultrasonic space. The company stopped reporting to the SEC in 2002 due to the financial burden and is now dark, but financials from the years 1996-2002 are still publicly available. Ownership is closely held with Mr. Soloff owning around 70% of the company and thus, the float is small.

The company mainly sells two types of products to two markets. The first is ultrasonic liquid processors (typically referred to as Sonicators). Sonicators are primarily sold to research institutions, hospitals, laboratories, and pharmaceutical companies, where they are used in a variety of processing applications. Some of these include: reducing the size of particles in a liquid, soil testing, production of biofuels, cell lysis, and much more recently, for nanoparticle dispersion and cannabis extraction (for edibles). The subsidiary that sells the Sonicator product line is called Qsonica.

The second product line is ultrasonic welding machines, which use sound waves to quickly weld components together. Ultrasonic welding is used in more applications than can be listed. The technology is typically used with plastics but can be used to weld metal as well (more common with electronics). Think the wires in your phone, the cap on the back of your sharpie, car headlights, etc. You can also throw ultrasonic sealing machines in with this category. The sealing machines are an area the company has been spending more time and focus on lately.

My best guess is that the company’s revenues are split about 50/50. It could be 60/40 or whatever, but there is some evidence that leads me to believe it’s in that range. The main point to take away is that the company appears to be the largest player in the Sonicator business by a substantial margin, even with only $11M or so per year in sales. Back in 2009, the company acquired the “Ultrasonic Laboratory Products” division from Misonix (MSON) for $3.5M and the Vice President of SIMA (and CEO’s daughter) stated on the record that “acquiring our largest competitor has given us much greater market share.” Furthermore, before this acquisition, the 2002 10-K states, “In the ultrasonic liquid processor market, the Company’s principal competitors are Branson and Misonix Inc. Management believes that Sonics has the largest share of this market.” Competitors in this space appear to all be small and private. This is a key element in understanding the company’s durability.

The ultrasonic welding business faces competition from much, much larger players. Emerson (EMR) is just one example. Mr. Soloff is a true inventor, and between himself and SIMA, holds something to the …

Geoff Gannon November 2, 2018

Argan (AGX): A Cheap, Cyclical Construction Company With a Ton of Cash and No Debt

MEMBER WRITE-UP BY JACOB McDONOUGH

Argan is a holding company that owns a few different businesses, but the most important by far is Gemma Power Systems (GPS). GPS is an engineering, procurement, and construction contractor and consultant. The company mostly provides services related to the construction of natural gas power plants, but also has worked on wind and solar projects in recent years. Argan acquired GPS in December 2006 for $33 million, and since then it has produced over $607 million in cumulative EBITDA. Argan has a ton of cash with no debt, and is selling at a very cheap price based on historical earnings. Also, the company doesn’t require any capital to operate. However, there is a lag time in between projects, which will lead to poor results over the next few quarters.

Invested Capital

In most cases, Argan can operate with negative invested capital. When projects are in process, the business is funded through accounts payable and deferred revenue. In the most recent 10-K from January 2018, the company had total assets of $603.4 million, and cash of $434 million. As long as the company has new business coming in, this cash is not needed for operations. Accounts payable was $100.2 million, and deferred revenue was $108.4 million. If we subtract these items from total assets, this comes to a negative figure of -$39.2 million. If you include the accrued expenses and long term deferred taxes, the invested capital figure becomes even more negative. This is important because the profits Argan generates becomes cash for owners, even when the business is growing rapidly. In 2007, Argan had cash of $27.7 million with $6.7 million in debt. Since then, the company has produced net income of $303.4 million. If you add up the cumulative net income, the 2018 accounts payable and deferred revenue, then subtract the cumulative dividends paid and reduction of debt, this gets us within $18.9 million of the actual ending cash balance in 2018, which is pretty close. The remainder can mostly be explained by acquisitions over the years.

In most businesses, owners must invest money in order to grow. Argan’s cash was able to build up on the balance sheet even during a period of rapid growth. Sales in 2008 were $206.8 million compared to $892.8 million in 2018, which is a compound annual growth rate of 15.8%. The company had a net loss of $3.2 million in 2008, compared to net income of $72 million in 2018. The accumulation of cash during a period of such growth is proof of the low capital requirements of the business.

High Uncertainty and Volatility Ahead

With so much cash on the balance sheet and zero debt, the risk of the business failing is very low. However, the company’s near-term future is uncertain. GPS finished some large projects this year, and will have a lag time before new projects begin in 2019. This lag time will cause the company to have a few rough quarters coming up. The …

Geoff Gannon October 31, 2018

Digirad (DRD): A Cheap Microcap Transitioning into a Holding Company

MEMBER WRITE-UP BY LONG SHORT VALUE

Summary

Digirad is an attractive microcap special situation investment because the valuation is extremely low, there is a high likelihood of the proposed acquisition closing, and the underlying value proposition of Holdco structure is compelling. Digirad announced on September 10^th that they would be converting to a Holdco structure and acquiring ATRM, a modular homebuilder and specialty lumber company with an investment fund segment. The logic behind this structure change is to cut public company accounting, legal, management and board costs and potentially save millions of dollars that will flow to the bottom line of the joint company. I believe these savings will be real and expect a large uptick in EBITDA delivered from a combined company. Cutting costs especially the types proposed are usually an easy way to drive profitability. My valuation of the company suggests in a central case shares could yield a 100% return over the next year, and in my high case shares could yield a return of 179% over the next year (see details in the valuation section). This investment does not come without risk. Major risks include deal risk, underlying performance risk of the operating businesses, and the risk of a dividend cut.

History

To fully understand the risks and potential rewards of Digirad you really need to understand the recent history. This history is also largely the reason that this attractive opportunity exists. Digirad itself was a promising small cap healthcare imaging company a few years ago. The company completed a transformative acquisition on January 5^th of 2016 by acquiring DMS Health Technologies which was poised to roughly double the revenue and EBITDA of the company. The acquisition did not end up as attractive as it was originally held out to be. Margins in the space were pressured and top line revenues struggled to grow as originally projected. On top of a lackluster DMS Health Technologies acquisition, the company lost a major servicing and sales contract with Philips Healthcare in October of 2017, which materially impacted their revenues and profitability. This eventually led to the sale of their MDSS services contract to Philips Healthcare in February of 2018 for a consideration of $8 million. This was a major hit on the underlying business and the stock price crashed from $3.50 down towards its current price of $1.35. This led to a bit of soul searching on what would be the path forward, as the remaining Digirad business was a stable cash flowing business, but lacked growth pathways. That is in part where the idea of the proposed acquisition stems.

All of the companies involved in this transaction are companies that the Chairman of the Board, Jeff Eberwein, has been involved in. This transaction seems to be Jeff’s brain child, to bring together a few businesses that he has financial stakes in into one corporate Holdco in which Jeff will be the sole capital allocator. Jeff will retain the Chairman of the board position in the …

Geoff Gannon October 31, 2018

Follow-Up Interest Post: Resideo Technologies (REZI) – Stock Falls, My Interest Rises

The Resideo spin-off has taken place. And the stock has traded on its own for a bit now. So, I thought I would very quickly re-visit the stock here.

You can check the ticker REZI (Resideo Technologies). It’s $19.56 a share as I write this. Here is a link to the press release announcing the completion of the spin-off:

https://www.otcmarkets.com/stock/REZI/news/story?e&id=1207602

“Honeywell distributed one share of Resideo common stock for every six shares of Honeywell common stock held as of 5:00 p.m. Eastern Time on October 16, 2018, the record date for the distribution.”

Honeywell had 740 million shares outstanding about 17 days before that date. So, let’s assume Resideo now has 740 million / 6 = 123 million shares outstanding (actually, slightly more – but I’m simplifying).

Actual quote from a recent 8-K: “Immediately following the Spin-Off, we estimate that approximately 123,451,420 shares of our common stock will be issued and outstanding.”

Before we re-visit my initial interest post, you may want to read it.

Here’s my initial interest post (where I give Resideo a 30% likelihood of me following up further with it):

https://focusedcompounding.com/resideo-honeywells-boring-no-growth-spin-off-might-manage-to-actually-grow-eps-for-3-5-years/#comment-293

And here are the notes I took when reading the company’s spin-off document:

https://focusedcompounding.com/wp-content/uploads/2017/06/Focused_Compounding_Resideo_Notes_by_Geoff_Gannon.pdf

Now that you have that background. Let’s talk about why I’m upgrading my interest level in Resideo.

So, as I write this…

Resideo Technologies (REZI)

Price: $19.56 / share
Shares Outstanding: 123 million

Market Cap = $19.56 * 123 million
Market Cap = $2.41 billion

Net Debt = $1.15 billion

Taken from this recent investor presentation:

https://www.sec.gov/Archives/edgar/data/1740332/000119312518296364/d617866dex991.htm

(Slide 45)

So…

Enterprise Value = Market Cap + Debt
Enterprise Value = $2.41 billion + $1.15 billion
Enterprise Value = $3.56 billion

Let’s call it $3.6 billion in enterprise value

Now, there are two ways of doing this. One: we can capitalize the environmental obligations and add that capitalized value to the EV and add-back the $140 million a year payment to Honeywell to arrive at some sort of “adjusted EBITDA” figure.

Or, we can just use $3.6 billion in EV and we can fully include $140 million a year payment as an annual expense. We then have to understand that the expense can go down from $140 million toward zero over time.

The easiest way to do this is to assume the $140 million annual payment is a perpetual obligation that will never be less than $140 million a year and will never go away.

In that case…

Enterprise Value = $3.6 billion
Last 12 months EBITDA = $475 million

Enterprise Value / LTM EBITDA = $3.6 billion / $475 million
Enterprise Value / EBITDA = 7.58x

Let’s round that up…

EV/EBITDA = 8x

Is that cheap?

It seems like it. Historically, an EV/EBITDA of 8 was pretty normal for a U.S. stock – paying a 35% tax rate at the federal level – because an EV/EBITDA of 8 translated into about an unleveraged P/E equivalent of 15 or 16. Basically, what I’m saying is that if a company had zero …

Philip Hutchinson October 29, 2018

A few thoughts on Progressive

Geoff and Andrew did a podcast last week where they discussed all of Geoff’s picks when he wrote the Singular Diligence newsletter. One of those stocks was Progressive (ticker PGR). Progressive is primarily a personal auto insurer. The best thing you can do to familiarise yourself with the company is, obviously, to read Geoff’s report.

Progressive’s stock is a lot more expensive than it was when Geoff wrote his report, and it’s a lot more expensive than his appraisal of the company as well. But I really think that of all the stocks Geoff recommended, Progressive is one of the most interesting right now and one that would be of most benefit for members to look at.

There’s a few reasons for this. First, it seems clear to me (and it sounds like Geoff agrees) that the risk he identified relating to autonomous vehicles was overblown. I don’t mean this as a criticism. It was quite right to worry about that when Geoff was writing the report. But this post really isn’t about that. It’s about the second reason – customer retention.

Geoff pointed out that one of the key constraints Progressive faced was its customer retention, which is lower than peers such as GEICO, USAA and Allstate. So, even if Progressive acquires customers at a fast rate (and it does), its snowball is melting faster than those of its competitors. It can still grow, but obviously the higher rate of attrition is a serious limiting factor in its growth and its economics. The reasons for Progressive’s lower retention rate are complex but really boil down to (i) having more single, renting, young people in their customer base, (ii) not offering bundled insurance (i.e., offering only auto insurance, not home and other insurance) and (iii) attracting more high risk drivers as a percentage of their customer base. The impact of bundling is particularly significant. I’ve seen a report that industry wide retention rates are 83% where the policyholder only buys auto insurance, but 95% where auto and home insurance are bundled. This is clearly a huge difference from the insurer’s perspective.

Progressive has recently been posting very strong (20%+) rates of growth in premiums. Obviously a big part of that is strong rates of new customer acquisition (and we could probably talk a lot about how Progressive has restored growth in its agency business). But, it’s also in very large part due to increased customer retention. Progressive has made huge strides in increasing customer retention towards the levels of their peers. There are a few components to this, but one of the really big differences from when Geoff wrote about the company is that Progressive now offers home insurance and so can bundle home and auto. They are attracting more and more customers who buy both home and auto insurance from them – a customer group they refer to as “Robinsons” – and who have by far the highest retention rates. Progressive segment customers into four categories (which they call …

Geoff Gannon October 20, 2018

OTC Markets Group (OTCM): A Far Above Average Quality Company at a Fair Enough Price

Member Write-up by PHILIP HUTCHINSON

Company	EV / Sales
LSE	8.5x
Deutsche Borse	8.3x
Euronext	7.3x
BME	6.2x
CBOE	10.9x
ICE	8.1x

OTCM	5.7x

Overview

Many of you will be familiar with the concept of over-the-counter (“OTC”) stocks. OTC Markets Group is the owner and operator of the largest markets for OTC stocks in the U.S. The company trades on its own OTC market under the ticker “OTCM”. You can find its financial releases, earnings call transcripts and other disclosures at the following link:

https://www.otcmarkets.com/about/investor-relations

And for purposes of full disclosure, OTCM is a stock that Andrew and Geoff hold in the managed accounts they run. The analysis here is, however, entirely my own. It’s not Geoff’s thoughts on the company.

OTCM was originally founded in 1913 and has, for many decades, published the prices of “pink sheet” OTC stocks. It has been run by its current CEO, Cromwell Coulson, since a buyout in 1997, under whose management it has digitised its business and standardised the structure of the OTC markets, while still remaining focused on the operation of OTC stock markets in the U.S.

Established stock market operators such as CBOE, NASDAQ, Intercontinental Exchange Group (“ICE”) (the owner of the NYSE), LSE, Deutsche Börse and Euronext, are all fantastic companies. However, they are in many cases much more diversified than OTCM. Take the LSE. It is undoubtedly a great business. However, it is also very diversified geographically and by business line. It owns the London Stock Exchange and Borsa Italiana. But, it also has a big business in clearing of other financial instruments, as well as owning the “Russell” and “FTSE” series of indices. It is today a much broader business than just a stock exchange.

The exchanges listed above are all good businesses. In OTC Markets, however, you can find a lot of the same financial and economic characteristics, but in a much smaller, more illiquid, more focused company, run by a CEO who is also by far the largest shareholder in the company.

OTCM originally used to simply publish prices of OTC stocks in a paper “pink sheet” publication distributed in a manner similar to old style Moody’s manuals. Under Coulson’s leadership, the company has overhauled its business, creating tiered markets for OTC stocks, with three different designations – the highest quality, most stringent, OTCQX market, the OTCQB “venture” market, and finally the pink sheets for all other OTC stocks. OTCM earns subscription revenues from all companies on the OTCQX and OTCQB markets, but not from any stocks on the pink sheets. It has turned itself from a publisher of stock prices to a standard setter, aggregator, and provider of data and trading services that is the owner of the leading OTC stock market in North America.

Unlike the competitors listed above, OTCM is not, technically, a stock market. The precise distinction between an OTC stock and a listed stock, and between the nature of …

Geoff Gannon October 14, 2018

Vulcan International (VULC): A Dark, Illiquid Company Planning to Liquidate its Portfolio of Bank Stocks and Dissolve

This is another “initial interest post”. I was looking at Vulcan International for the managed accounts I run. As a first step, I write up the company here and rate my interest in following up on the stock – as a candidate for purchase in those managed accounts – on a scale from 0% interest to 100% interest. I’ll reveal my interest level at the end of the post. Now, that I’ve got you hooked with suspense, let’s start the post off with a discussion of just what “dark” means here.

Vulcan International (VULC) is a dark stock. And here when I say “dark” I don’t just mean it doesn’t file with the SEC. I’ve mentioned Keweenaw Land Association (KEWL), Computer Services (CSVI), and OTC Markets (OTCM) before as “dark” stocks. In those cases, all the word “dark” means is that they don’t file with the SEC.

Those dark stocks present less information about some things than SEC filing companies. But, about other things – like appraisals of their land in the case of KEWL and long-term historical financials in the case of Computer Services – they sometimes provide as much or more information. For example, Maui Land & Pineapple (MLP) is listed on the New York Stock Exchange and files with the SEC while Keweenaw Land trades over-the-counter and does not file with the SEC. MLP isn’t really more forthcoming about the likely market value of their land, their plans to develop or sell land, etc. than KEWL is.

Vulcan International though is a truly dark stock. It usually tells the public nothing. In fact, some investors have only gotten information on the company after signing a non-disclosure agreement.

There are two reasons why a company might be extremely secretive. One, management is using being a “dark” stock and not reporting any information to outside shareholders as a way to strip the company bare. It could be that the CEO or controlling family is siphoning off assets and slowly converting shareholder wealth into management wealth. I’ve seen this before.

But, I’ve also seen a second reason for a company to be extremely secretive. Management knows they are valued in the stock market but they have no self-interest in their stock price getting more expensive. They are simply running the company for the long-term. As controlling shareholders, a board, etc. they can always realize the value of the business in a way minority shareholders can’t. Basically, insiders at a very valuable business can always elect to liquidate the business or sell it off to a 100% buyer. Unlike passive minority shareholders, the day-to-day trading in the stock isn’t the way they are going to get out of the business. So, the bid and ask prices you see in that public market just don’t matter to them.

Vulcan International is an example of reason #2. The company was sitting on assets that were very valuable and very underpriced by the market. However, in the last year or so …

Geoff Gannon October 10, 2018

How Much is Too Much to Pay for a Great Business?

A Focused Compounding member sent me this email:

“I’ve just become a FC member and I’ve been listening to the very interesting podcasts from day one. Really enjoying them. Those have convinced me to purchase a membership of 1 year (for now).

I have a question that has been spinning my head for a while now.

Everybody is looking for this gem of a company with a sustainable competitive advantage and consequently… a high sustainable ROIC or ROIIC.

But when you invest in a company at 2 times invested capital doesn’t that hurt your compounding effect big time in the long term (ROIC of 20% becomes 10%?)? Or am I pursuing the wrong train of thought here?”

Yes, it does hurt your compounding. But, paying more than you normally would – in terms of price-to-book – for a great business may not hurt your long-term compounding quite as much as you think. However, there’s a tendency for investors to focus more on how high the company’s return on capital, growth rate, etc. is right now instead of how long those high rates of return on capital, of sales and EPS growth, etc. can last. What matters a lot – as I’ll show using numbers in a minute – is how long you own a stock and how long it keeps up its above average compounding.

Think of it this way. If you buy the stock market as a whole, it tends to return about 10% a year. A great business might be able to compound at 20% a year. So, how much more can you pay for a great business than you would pay for the S&P 500? It might seem the simple answer is that you can pay twice as much for a great business. However, that’s only true if you’re planning to sell the stock in a year. That’s because 20% / 2 = 10%. So, paying 2 times book value gets you the same return right out of the gate in a great business as what you’d have in the S&P 500.

When value investors like Warren Buffett, Charlie Munger, and Phi Fisher talk about how it’s fine to pay up for great, durable businesses – they mean if you intend to be a long-term shareholder and if the company continues to compound at high rates far into the future. This makes all the difference in what kind of price-to-book value you can afford to pay.

To figure out how much more you can pay for a great business and still beat the market, you can actually just sit down and work out the math.

Here’s what matters…

* Price / Asset (equity, invested capital, etc.)

* Amount of earnings reinvested in the business

* Return on that reinvestment

Over shorter holding periods in stocks reinvesting less of their earnings each year – the price you pay matters more.

Over longer holding periods where the stock …