In his recent interview on The Acquirers Podcast with Tobias, Evan Tindell, co-founder of Bireme Capital discussed Finding The Next ‘LeBron’ Stock. Here’s an excerpt from the interview:
Evan: I think it’s just the old adage of a good thing taken too far, like a kernel of truth taken to the extreme. In our letter, we grouped the growth stories in the market today in a few different buckets. One was the transcenders, which was these companies that really do have moats and really do have huge margins and huge cash flows and which have been obviously, some of the best performing stocks of all time. This is Apple and Google and Facebook.
It really was true that if you just closed your eyes and bought those companies when they were knocking the ball out of the park, in terms of growth 10 years ago, you did end up with companies with huge profit margins, huge revenues, and huge investment returns. I think people see that, and they see not only the potential for that to happen, but they see the increasingly successful method of buying things that look like they might be able to turn into that. It doesn’t matter whether the companies actually end up generating the profits five years down the road, at least it hasn’t mattered yet, really. The best strategy was to go back in 2010 and buy Google, it’s like, “Okay, we can’t do that.”
Tobias: Or Microsoft.
Evan: Or Microsoft, or whatever. In 2015, let’s buy things that are growing that fast in our software– and the valuations weren’t that insane back then, relative to their potential. But nowadays, I think people have just seen that the results of that strategy has gone so well, despite the fact that most of those companies aren’t generating the Google-like profits, that they’re just piling in– they’re just bidding up the things that look like they could become the thing. It’s almost like someone sees LeBron James– the analogy being LeBron James is Google today, and saying, “Okay, well, if we can just find a 15-year-old kid that’s a really good basketball player in Akron, Ohio, who’s 6’7”.” It’s like okay, but then they’re paying him $10 million a year. Then, that guy becomes a college athlete and he’s doing okay. The next person says, “Oh, you’ve done well with that, I’ll pay him $30 million year because LeBron’s worth 50.”
Then, you have the next group of GMs, or whichever the analogous investors, they’re like, “Okay, but that 15-year-old in Akron, he was once a 7-year-old. maybe we could look at some other cities that are not like Akron.” There’s a company, there’s a city in China that’s similar to Akron, if you look at the demographics. Let’s go pay a $500,000 or a million dollars a year to this slightly taller than average Chinese person in Guangzhou. That’s the level that we’re at with some of these electric vehicle companies, I think.
Tobias: Yeah. That’s a good analogy. I like that.
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