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Ahead of the annual Quality-Growth Investor Conference next week, we are releasing the 10th edition of the Quality-Growth Quarterly early. In this issue we feature articles, letters and podcasts; including with Quality-Growth Investor Conference speaker Michael Mauboussin – plus we feature Bill Ackman, Sagauro Capital, Hosking Partners, J. Stern & Co, Steve Clapham, Jim Osman and also feature a podcast with Mark Beaumont, who will hold a special session at the Quality-Growth Investor Conference next week.
“Hendrik Bessembinder, a professor of finance at Arizona State University, has documented an extraordinary pattern of wealth creation in public equity markets. Nearly 60 percent of companies that have been public in the U.S. over the last century or so have failed to create value, defined as earning total shareholder returns in excess of one-month Treasury bills. And only 2 percent of companies were responsible for more than 90 percent of the aggregate net wealth creation.”
“We also believe that Google has a significant margin expansion opportunity. Despite core Google Services revenue (excluding Cloud and Other Bets) nearly doubling from 2018 to 2022, profit margins have risen only approximately 100 basis points. The company is committed to improving its cost discipline and recently reduced its workforce by 6%. Given the fundamentally fixed cost nature and high incremental margins of the core search business, we believe that Google can deliver operating leverage while continuing to invest in AI capabilities. Google’s Cloud segment reached break-even profitability for the second straight quarter in the second quarter of this year, and Cloud margins should continue to improve given peers like AWS enjoy nearly 30% operating margins.”
“In conclusion, this paper is what it says it is, a primer. It serves as a foundational guide for implementing AI in investment management. The overwhelming emphasis is that the AI disruption is real and that every investment firm needs to begin their preparations for the future, today.”
“The energy transition is the world’s largest construction project – but most construction projects overrun in both time and cost. In this episode, Roman and Rob discuss how investors can navigate this critical period, highlighting how active managers may be particularly well placed to unearth opportunity amidst complexity.”
“A glance at Google trends data suggests that the ChatGPT excitement is waning somewhat – although we must note that users can visit its site and app directly. However short-lived interest in the ChatGPT app turns out to be to be, it has propelled AI into the mainstream. There will undoubtedly be further applications that will revolutionise how we go about our daily work and leisure. We think that AI will be the next computing paradigm. ChatGPT is the first iteration and there will be much more to come.”
“Semiconductors was the best performing sub-segment with 44 companies. Interestingly, only one semiconductor company was a 10-bagger in the prior ten years. Semiconductors is the most cyclical sub-segment within information technology. Semiconductors typically benefit from the introduction of new technology and the mobile phone plus growing internet adoption are likely to have been the biggest drivers in the period. Most semiconductor chips are produced in Asia, yet seven of the ten largest outperformers were American, led by Nvidia in the graphic processing unit (GPU) segment, which returned 5,908%. All but one of the industry’s best performing companies were from Asia.”
“MSFT announced it will initially launch Microsoft 365 Copilot as an add-on of ~$30 per user per month across four Commercial licenses (Microsoft 365 E3, E5, Business Standard, and Business Premium) customers. Unlike other generative AI applications that focus on a single capability, such as real-time transcription or copywriting, Microsoft 365 Copilot boasts a vast array of thousands of skills at your disposal.”
At the London Quality-Growth Investor Conference next week, amongst the many presentations by Quality-Growth Investors, we are also delighted that we will have a special session with Mark Beaumont who is a cyclist, broadcaster, adventurer, businessman and author. There is a huge amount for anyone to learn from Mark. In 2008 he broke the world record for a circumnavigational bike tour of the world, travelling 18,000 miles from Paris to Paris. The new record was set at 194 days and 17 hours, beating the previous record of 276 days. His video diaries of that ride won him a BAFTA nomination.
© Quality Growth 2021