Yet Another Value Blog

Ian Cassel on Stock Picker, the book that blew me away | MicroCapClub

Andrew — Tue, 15 Sep 2026 13:34:31 GMT

Ian Cassel has been picking microcaps for twenty years, and his argument in his new book, Stock Picker, is that the edge everyone assumes has been arbitraged away is actually coming back. Not the spreadsheet edge. The one that comes from getting on a plane, spending a full day with a CEO instead of an hour, and learning to sense when something is wrong before the numbers say so. His line is that with AI write-ups everywhere, the only place left to get an edge is the conversations that are not recorded, transcribed or scraped, and that puts the game back where it was 30 years ago.

The other half of the book is less comfortable and, for me, the reason it hit. Ian opens with his mother's death and keeps going: living off your own capital, the maturation of an investor running alongside the maturation of a person, what it costs to be the one who gets the credit and the blame. We get into why most microcaps deserve to be rented rather than owned, the junior miner curve and the 36 month rule, how he decides which company visit is worth the flight, scarcity as a reason a stock reprices, why capital allocation barely appears in a 300 page book about picking stocks, and the losing-streak instinct that kills concentrated managers: doubling down instead of diversifying. I push back on whether the microcap universe he describes still exists in the US. Fair warning, I loved this book and it shows.

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UK stocks are dirt cheap. Why won't the boards act? $ZIG $CRW | Undervalued-Shares

Andrew — Fri, 11 Sep 2026 14:02:53 GMT

A quarter of the companies on the London Stock Exchange's main board have disappeared in four years. Private equity keeps paying 50 and 60 percent premiums and still walking away with a bargain, because the starting valuations are broken. Swen Lorenz of Undervalued-Shares has spent the last few months writing open letters to UK boards telling them to stop waiting to be rescued and start pulling the levers they already have.

I have been calling the UK an emerging market on this podcast for three years, and my problem with the trade is right there in the setup: if the only way you make money is owning the one company that happens to get taken out, that is not alpha. So we spend the first half on what would actually fix it. Swen puts most of the blame on the big domestic funds, in outflow for a decade, pushing companies toward dividends to fund their own redemptions. I put most of it on boards that own no stock, treat the seat as a club membership, and check the dividend box every year. Then we get concrete on two names. ZIGUP (ZIG), which I own a little of, has a plan that pays seven executives up to 69 million pounds if the share price re-rates, trades under four times EBITDA, and still has not bought back a single share. And Craneware, which turned down a 26 pound approach from Bain last year and now trades at 13.

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Zack Buckley on $PRTH's take private

Andrew — Thu, 10 Sep 2026 11:29:41 GMT

In November 2025, Priority Technology's (PRTH, disclosure: long) chairman and CEO offered to take the company private at $6.00 to $6.15 a share, two days after a bad print knocked the stock from seven to five. Zack Buckley wrote a public letter opposing it. His sum of the parts gets to roughly $17 a share, a simpler multiple analysis gets to $19, and the June sale of a comparable payments business at 8.3x EBITDA implies $12 against a stock trading around $5.50. Ten months later the special committee still has not said a word.

Zack walks through why the consolidated company is misread: over 90% of revenue is recurring or reoccurring, and 60% of it sits in Treasury Solutions, an 80%-plus EBITDA margin business built on the Finxera acquisition and CFTPay that has tripled EBITDA in four years. I push back on the payments-pocalypse, on the leverage, and on a Q2 that came in at the high end of the revenue guide and the low end of the EBITDA guide. Then we get to the part I actually care about: the 13D that says the chairman will not sell to a third party, the January 2025 secondary priced at $7.75 that the company said undervalued it, the $3 million of special committee legal costs added back in one quarter, and three straight earnings calls where nobody on the company side would say the word "process." I own the stock, so weigh all of it accordingly.

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September 2026 premium update

Andrew — Wed, 09 Sep 2026 13:32:27 GMT

Before we get to the updates- first, thank you so much for subscribing to the premium site!

Second, please remember you can always reach out to me if you have questions or want to swap thoughts on any…

$TBBB: Tiendas 3B is Mexico's Aldi. Is it too late to buy? | Fruit Tree Capital

Andrew — Mon, 07 Sep 2026 18:13:02 GMT

Tiendas 3B has more than 3,700 stores in central Mexico, opens roughly 150 more every quarter, and earns its money back on a new store in about two years. It is the Aldi model, built by a founder who saw BIM work in Turkey, moved to a country where he did not speak the language, and has spent 21 years compounding it. Alberto Vadia of Fruit Tree Capital thinks it is a hundred bagger from here.

My problem is the price. The stock is approaching $50, it has run a ton, and the bulls I was reading a few months ago were underwriting it in the mid 30s. So I push Alberto on the thing that actually decides this: do the unit economics survive the move from 3,500 stores to 15,000, or does a two year payback quietly become a four year payback once they leave central Mexico? We also get into the two equity offerings from a business that self funds every store it opens, why every other hard discounter on earth stayed private, what Costco at 40 times earnings implies for a Mexican retailer, and whether adding fruits and vegetables is an expansion or a risk.

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GoPro sold itself at 9:20 AM to get ahead of a meme stock

Andrew — Tue, 01 Sep 2026 15:14:20 GMT

GoPro announced a merger agreement at 9:20 AM ET this morning. I have been doing event driven investing for ~a decade. I cannot remember any merger agreement getting announced at 9:20 AM. Honestly, it’s incredibly rare for any PR to get made at 9:20 AM. So why did GoPro announce a merger at such a strange time?

I think it was because their stock was about to meme, and they were going to face some very uncomfortable choices. So they took the deal in front of them and cashed in with a merger they’d likely been working on for weeks (and that allowed shareholders to maintain some upside; shareholders get $1.14/share in cash plus 10% of the combined company) versus facing the unknown of navigating a meme stock while the company was in distress.

But we’ll get there. Let’s rewind to last night, when Bloomberg released an article on YouTube Star Markiplier becoming GoPro’s largest shareholder. The stock skyrocketed; it was up almost 90% premarket today after jumping ~50% on Monday.

What’s curious is that Markiplier filed a 13G on GPRO on August 20th, but the stock didn’t move on the initial filing. It seems it’s only when all the press connecting his YouTube fame to the filing started hitting that the stock started moving.

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Anyway, I have more thoughts on Markiplier’s ownership stake and the rise of celebrity activist owners, and I started to write them up…. but as I started to write them, GPRO announced a fascinating merger agreement, so I’m going to save the celebrity activist owners thing for another day and look at the merger.

What’s so interesting about the GPRO merger?

To me, the most fascinating thing about it is the timing. Look at the timing of the press release; GPRO announced the merger at 9:20 AM ET.

Merger agreements are negotiated over weeks. That means their announcement is generally a timed and highly coordinated thing. For a recognizable consumer brand like GPRO, you’d think their merger agreement would get announced at, say, 7 AM, and then the management teams could go do some quick PR hits or something.

A 9:20 AM agreement seems rushed. And that seems backed up by GoPro’s website and SEC filings; as I write this (~10:30 AM ET), GoPro has yet to file anything on the merger in their SEC filings, and GoPro’s IR website barely mentions the merger (if you go to press releases, you’ll see the merger announcement, but generally a company in a merger would put the merger prominently in their IR page).

I should note it’s not completely unheard of for a company to take some time to file their merger agreement and update their SEC filings…. but this is a complicated merger and GPRO is a well known consumer brand. Both of those suggest that an SEC filing would be made quickly; the fact that there’s nothing so far suggests this is rushed.

Why do I say this is a complicated merger? GPRO’s shareholders get $1.14/share plus own 10% of the combined company in the merger. And the combined company is not a camera company; Starman is a private U.S. optical-photonics business that manufactures optical transceivers, and the merged company is pointed at AI data centers, government, defense and aerospace. So GPRO holders are being asked to value and hold 10% of a private AI infrastructure supplier that has never published a financial statement. You’d generally expect a company to give shareholders lots of information on the combined company (pro forma revenues, expected synergies, the private company’s historical financials, etc.) so that they could properly value and trade the stock. But GPRO gave their shareholders none of that; they just rushed out a PR right before the market opened saying “we are merging; you’re getting some cash plus keeping stock in the new company.”

Here’s what I suspect happened: GPRO has been working on a strategic process for a few months. They were in late stage negotiations with Starman Optical (the buyer / merger partner here), and with GPRO stock trading between $0.60-$0.80 for most of the past few months GPRO could feel comfortable that delivering shareholders >$1/share in cash plus some equity in a combined company was a huge win. They were probably looking to finalize the details over the coming Labor Day long weekend and announce a definitive deal next week.

The Markiplier 13G changed all of that. Suddenly, the stock was spiking. It closed last night at ~$0.90/share (up almost 50%) and was set to open north of $1.70/share today. If the stock held there, shareholders might not be so thrilled by the same merger package.

So GPRO faced a choice: see if it became a meme stock and reassess options from there, or rush out a merger today so they could credibly say “this merger is a huge premium from our closing price of ~$0.90/share yesterday and an even bigger premium to the 30-day VWAP.”

Now, you might say “GPRO should have meme’d and let it ride.” Maybe! It worked for GameStop and several other meme companies! But it’s worth keeping in mind that GPRO was in a financial bind; they burned almost $50m in cash in the first half of the year 1, and they needed to raise $20m in cash from their founder and CEO in early July in order to support their strategic process. That cash did not come cheap, and the fact they needed their CEO / founder to provide it suggests that it was truly “lender of last resort” type stuff.

So GPRO appears to have forgone the meme stock yolo and chosen to take the bird in hand. That was probably the right choice…. but it’s a fascinating one, and you always wonder if a rushed merger agreement will have some holes or issues in it that come back to haunt the company later. And it is perhaps worth noting that the merger agreement appears to pay off the founder’s distressed financing in full; again, the merger agreement may have been the right decision, but is it possible that management / the board were in a position to be much more risk averse than would have maximized value for their shareholders2?

Perhaps we will learn more as information on the deal drips out…. but, for now, just a fascinating deal to look at.

GPRO is a seasonal business, so this may slightly overstate their cash burn…. but they burned ~$25m in FY25 and ~$120m in FY24, so they were far from on stable footing!

The distressed financing included warrants, and the founder owns a lot of stock, so you could say he had equity upside to a meme squeeze too…. but this was distressed financing with the CEO as basically the lender of last resort! Taking a quick profit on the whole thing was probably much, much more attractive than leaving a massive note out there at risk.

$LMB: Limbach missed the data center boom. Is that the opportunity? | 1 Main Capital

Andrew — Tue, 01 Sep 2026 13:21:09 GMT

Limbach spent three years turning itself from a general contractor into an owner direct services business, and the market loved it right up until this summer. Then organic revenue went down mid single digits, EBITDA fell 30%, guidance came down from $90m to $80m, and the stock lost half its value. Yaron Naymark of 1 Main Capital pitched me this name in June 2023, watched it 6.5x, sold most of it, and is back buying it after a 75% drawdown.

His argument is that the EBITDA decline is fixed cost deleverage on a demand air pocket, not a broken business, and that the bigger story is the one Limbach missed. While FIX and EME compounded on data centers, Limbach stayed singularly focused on owner direct work and ended up with effectively zero data center exposure. The CYMCOR acquisition announced alongside Q2 is the first real move to fix that. I push back on the bear case that management knowingly bid a pile of low margin work, on whether owner direct is just general contracting by another name, on whether wage inflation from the data center boom is quietly eating them, and on whether a 2016 de-SPAC ever escapes the gravity of $10 per share. We finish on how Yaron invests around AI without pretending to know who wins: Limbach, IWG, and why he re-initiated KKR.

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$SEE.L: Europe just made this duopoly mandatory. Why is it 11x free cash flow? | Hugo Navarro

Andrew — Sun, 30 Aug 2026 15:52:43 GMT

Every new car sold in Europe now has to watch the driver's face. Two companies in the world can actually do it, Seeing Machines and Smart Eye, and they spent twenty years and hundreds of millions of dollars getting there. Hugo Navarro's argument (see his full write up here) is that the market has not repriced what happens next: a roughly 55 million dollar fixed cost base, automotive production going from 488,000 vehicles in Q4 2025 to 2.1 million in Q4 2026, and 20 to 40 million of free cash flow in fiscal 2027 against a 330 million market cap. If Japan and the US follow with their own mandates, close to every incremental dollar of revenue drops straight to free cash flow.

I push back hard in a few places. There is a 55 million dollar convertible due in October that this company has let get within two months of expiry, and my view is that no healthy business does that. Receivables are up 120% against 45% revenue growth. The fleet business, Guardian 3, is running trials that keep not converting, and "we are in a trucking recession" is the kind of management excuse I have learned to distrust. We also get into whether a new entrant can just build this now that the market is 16 million vehicles, why no tier one ever bought them, and whether full autonomy eventually kills the whole thesis.

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Late August 2026 Random Ramblings

Andrew — Thu, 27 Aug 2026 13:42:05 GMT

Rates just screamed to 20 year highs and stocks have barely blinked (see my piece on it here). That looks to me like the mirror image of the mid-2010s, when Treasuries yielded 2%, the math said stocks should trade for 25x, and they sat in the mid-teens instead because the equity risk premium quietly widened from 4% to 6%. If the premium can widen when rates fall, why would it not widen again when rates rise? That is the double whammy running in reverse: earnings that got a decade of help from the Trump tax cuts and the AI boom, multiplied by a multiple heading the wrong way.

The other thing I cannot stop chewing on is what higher rates do to the AI data center buildout. These are 15 year leases where the NPV of the payments roughly covers the build cost, which means the developer is really underwriting the terminal value 15 to 25 years out. Move rates from 4% to 5% and you have to jack the lease rate up 5% to 10% just to stand still, and you discount that terminal value harder, right as the tenant credit gets scarier. If the AI trade cracks, you get hit twice: your tenant may not be around, and the release in year 15 goes from a $100m NOI lease to whatever the next best bidder pays. I do not think we are there yet, but finance 101 says investment gets crowded out eventually.

Then two management questions. UWMC (see my post on them here) and Cogent both ran capital allocation that looked designed for the CEO's personal balance sheet rather than for shareholders, and I want a way to spot that before the blowup rather than after. And a friend's text about a CEO everyone was calling the next Mark Leonard got me wondering how you would ever know, because a real compounder and one great bet with hidden leverage look identical for the first ten years.

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Rates are screaming and stocks aren't listening (again)

Andrew — Wed, 26 Aug 2026 13:07:15 GMT

Back in the early to mid 2010s, fundamental investing ran into a problem: interest rates were low, and so were stock prices. The two shouldn’t be low at the same time, and it was causing issues with DCFs.

It’s an issue that I’ve been thinking about a lot recently, as I worry we may be about to run into the reverse problem: high stock prices with high interest rates that break DCFs.

What do I mean by breaking DCFs? Technically, the correct way to value any business is to run a DCF on it. You figure out their future cash flows, discount them back to the present, and presto! You have your firm’s value.

Now, it sounds simple in theory… but if it was that simple then anyone with a spreadsheet would generate alpha! In practice, valuing something is much harder. The real skill is getting the assumptions right: figuring out the near term cash flows, figuring out when to set the terminal cash flow number, and figuring out the correct interest rates. It all sounds simple in theory, but in practice it’s devilishly hard.

Of those three major assumptions, it seems like the simplest should be setting an interest rate number. After all, the treasury market is the most liquid market in the world; using the treasury rates plus some equity risk premium (ERP) seems like an obvious choice.

And that is the theoretically correct answer! But, as I mentioned at the top, there was a problem in the early 2010s: interest rates were really low. The 10-year treasury floated around a 2% interest rate for most of that time period. An interest rate that low would suggest stocks should have been much higher than they were if we assumed historical average ERPs.

So practitioners were running into a problem: if you took the market interest rates and used a long term average ERP when valuing basically any company, your model would spit out a fair value that was way, way higher than the current stock price.

Of course, there is a solution to that problem: use a higher ERP number. I’m about to get a little wonky, but bear with me. NYU publishes a long term chart of ERPs; you can find it here. The long term ERP average is around 4.3%; from 2011-2015, the average ERP was ~5.75%. That’s a massive gap: stock indices would have been ~35% higher if the ERP had been sitting at its long term average around that time. McKinsey 1 put it this way, “Given the low interest rates over the past 15 years, the typical large company should have traded in the well-above 20-fold P/E range since the Great Recession. But that hasn’t been the case. Median large companies have consistently traded in the 15-fold to 17-fold P/E range since the financial crisis—despite low interest rates during the entire period.”

Bottom line: the super low interest rates of the 2010s should have resulted in much higher market prices than we saw…. but stocks stayed at largely reasonable / low P/E multiples (for the most part) due to a higher equity risk premium.

Before getting to why, it’s worth dwelling on how much havoc that gap wreaked inside companies. Remember that all capital allocation is a game of tradeoffs. A company can buy back stock, pay down debt, or invest in capex. Which to do often depends on the stock price; if the stock is trading for a 1x P/E, the market is screaming for the company to immediately stop capex and buy back shares. If the stock is trading for 100x P/E, the market is begging the company to issue shares and ramp into capex.

In that way, the higher implied ERP created lots of issues for firms. If a company decided to use a long term average ERP instead of the mark to market number, a DCF would suggest the company’s stock was incredibly undervalued and they should buy back shares like crazy. If they instead used the higher ERP designed to back into today’s stock price, then they’d need to use the same high discount rates when evaluating capex (and thus need to pass on a lot of capex that would have been profitable at a lower discount rate).

Why didn’t stocks take off when interest rates were low / why did the ERP stay so high? I saw lots of arguments for why stocks were so low at the time; for example, McKinsey argued that interest rates were so manipulated by the government that the market simply didn’t trust / use government interest rates in setting multiples. I never liked that argument, but I think it’s an interesting one. It basically flips the ERP argument; instead of arguing ERP’s are at record high levels that may be unsustainable, it argues the ERP is at a normalized level and the interest rates are at unsustainably low levels. Outside of interest rates, I’ve heard people arguing that the market didn’t trust the sustainability of earnings (though, admittedly, this argument was made much more in the early 2010s when people were still worried about a double dip from the GFC). At a company specific level, I think there was a lot to be argued about the market putting capital allocation / management misalignment discounts on companies given some gargantuan pay packages that often did not require the stock to work to vest.

Over the past 10 years, markets have done incredibly well. The S&P 500 has done almost 15% annualized:

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I’d argue a lot of the strong past 10 years for equity markets has to do with the really high starting ERP from 2015 (i.e., stocks starting cheap relative to rates). Yes, earnings growth has been very good, but the P/E for the S&P 500 went from the high teens in 2015 to ~25x by the end of 2025. That was an enormous tailwind for the market (and some of the more steady components of the S&P really benefitted; for example, Costco went from trading with a P/E in the 25-30x range to ~45x, and WMT went from a ~13x P/E to ~40x. Those P/E increases are even starker because they come despite rising interest rates. I don’t think either of those businesses has a materially different competitive moat today than they did 10 years ago; rather, I think investors have just come to underwrite their moats and terminal value with much more certainty).

Fast forward to today, and suddenly everyone is talking about rising interest rates. Treasuries are at multi-decade highs, and the treasury is suddenly intervening in the bond market to drive down interest rates. Despite the sudden rise in interest rates, stocks are sitting at all time highs. My fear is that the outlook for the next decade is the mirror image of what happened in 2015: then, stocks started depressed versus interest rates and rode a P/E expansion tailwind higher. Today, I worry stocks start with a higher P/E and get dragged down over time by high interest rates.

The all time highs in stocks today are not being driven by the ERP suddenly shrinking (as it was during the dotcom bubble). At the beginning of August, ERP sat at ~4.3%, right in line with long term averages (ERP touched 2% during the heights of the dotcom bubble). Instead, stock prices have remained supported by massive growth in earnings over the past few years.

So perhaps my fears are misplaced. Perhaps stocks are priced reasonably and I should be more worried about a cyclical washout / recession destroying earnings than I should about stocks starting at a lofty valuation.

Or perhaps the two are tied together: maybe low interest rates in part fueled the boom in earnings by providing cheap credit, and a rise in interest rates causes a double whammy of falling earnings and a drop in P/E? We’ve already seen something of a preview of that in the recent past: the ERP had compressed to ~4.2% on top of a ~1.5% ten year by the end of 2021. When rates ripped in 2022 (rates ended the year approaching 4%), earnings stalled out (S&P earnings grew <1% from 2022 to 2023) and stocks were crushed: the S&P dropped ~20% and the market’s P/E compressed from ~23x to ~17x as the ERP rose to almost 6%.

So what happens this time? I’m honestly unsure. But the more I think about interest rates, the more I focus in on what happened in 2015.

Time will tell.

Disclosure: I used to work at McKinsey for the authors of this article a long, long time ago!

How to win a stock pitch competition | lessons from an Ira Sohn winner

Andrew — Tue, 25 Aug 2026 09:55:06 GMT

School is starting, which means a dozen college and MBA teams are about to email me asking how to win their stock pitch competition. So I made the answer. The core of it: a pitch is a game, and most people lose it before they open their mouth by picking an idea that does not fit the contest rules or the judges in the room.

From there it is three things. Design the pitch for the timeframe the contest actually asks for and for the people judging it, because what wins with a concentrated-book judge is not what wins with a pod shop. Lead with the one thing only you know, not a sell side price target or a multiple that has compressed. And make your bull case the base case instead of hedging yourself into a 15% price target that reads as average. Then the three traps I see every single year: burning five slides on a DCF nobody will ask about, drowning the room in risk factors, and death by background. I also walk through the La Quinta pitch that won me Ira Sohn in 2018, and why the CSL and DoorDash teams at the Pershing Square Challenge won on legwork rather than modeling.

Fair warning: I had AI build the slides, so do not hold the exact wording on any of them against me.

If you are pitching to get hired rather than to win a contest, the companion episode is here.

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Was Mark Walter’s Lakers investment really a winner?

Andrew — Sat, 22 Aug 2026 19:46:20 GMT

The sports world is obsessed with the implosion of Mark Walter’s sports empire right now. The NYT is averaging about an article a day on the story, and it’s the headline story on basically all of the basketball and sports podcasts I listen to (though, admittedly, it’s a kind of dead period for sports content right now, so they may also just be trying to fill up the airwaves).

The Walter story is pretty wild. At a high level, the allegations seem to be that he used undisclosed related party loans from his controlled life insurance companies in order to fuel his sports empire. When insurance regulators realized what happened, he needed to immediately begin fire-selling his empire in order to pay back the loans… though, having seen the prices and market panics that a true fire sale generates, I will be honest that I struggle to see selling the Lakers for $12.5B less than 18 months after buying them for $10B qualifying as a fire sale! A real fire sale normally looks like what happened to Situational Awareness in July: short sellers get word you’re in trouble, all of your marks go way against you as everyone bets that you’ll be forced to unwind, the bets against you push prices even lower and become something of a self-fulfilling prophecy, and you’re forced to sell to Citadel at a massive discount (I wrote about Situational Awareness twice this summer; see those posts for more).

Anyway, the whole story is pretty insane, but there is one piece that drives me a little batty. Every time I hear a media personality talk about the story, they’ll express some populist outrage that Walter could buy the Lakers for $10B and flip them for $12.5B roughly a year later, and they’ll talk about it like it was some genius trade.

Let me be perfectly clear: Walter’s Lakers investment was not some genius trade. In fact, it was not even a particularly good trade. My dog could have beaten this trade with an index fund.

I get it: ~$2.5B of profit is a big number, and it seems crazy someone could buy a marquee sports franchise and then immediately flip it for billions in profit. And a 25% headline return in ~18 months is, in the absolute, pretty solid!!!

But the complaints I hear seem to be along the lines of “these rich people get access to all of these great sports investments that we don’t.” I’ve spent a lot of time researching investments in sports teams; there’s more than a kernel of truth to that complaint. Sports teams get unbelievable tax breaks, their artificial scarcity creates enormous benefits in a world of rising wealth, and I think the prestige that comes with owning and running a sports team has been perennially underpriced in the private markets.

All of that is true…. but Walter flipping the Lakers for $12.5B has nothing to do with any of that, and I think pointing to the flip as some great investment actually does the arguments around sports investing a disservice.

The fact is that Walter’s investment in the Lakers was, at best, an average investment (and that’s if you put aside the possible jail time it could result in if the allegations on the related party dealings are true!).

Let’s start with the headlines: the Lakers valuation increased from $10B to $12.5B under Walter’s brief ownership. That’s a 25% increase; again, not bad in the absolute….. but equities have been on an absolute tear over the past year and a half. No matter what index you use, Walter’s investment has actually underperformed:

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To put numbers on it: the Lakers are up 25% on the flip, and every index in that chart is up more than that, with the broad market up ~30% over the same stretch.

Now, I can imagine all sorts of pushback to that comparison; at a high level, I’m comparing a privately owned sports team to general public equities…. but I’d argue that those arguments actually further emphasize that the Lakers were a bad investment for Walter! In general, given illiquidity, you’d expect private assets to outperform public equities1. I’d also argue that sports teams are, to some extent, a levered bet on global wealth, so if equity markets are up ~30%, I’d expect sports teams to do better than that. For the Lakers (a trophy franchise in a buzzy sport) to see their price underperform a booming equity market suggests the Lakers trade wasn’t exactly great for Walter (and, again, that’s ignoring the possible jail time).

And none of that considers the complexity and transaction costs of buying a sports team. Assuming you had the money, you could buy $10B of broad-based ETFs in a day with basically no transaction fees, no high priced advisors, and just generally no headaches. In contrast, closing a $10B private transaction like buying the Lakers would involve months of work and likely hundreds of millions of transaction costs once you factor in all of the financial advisors, lawyers, etc. that come along with it. Similarly, you could sell $12.5B of broad-based ETFs in a day, but selling the Lakers at a $12.5B mark would incur hundreds of millions more in lawyer / advisor / transaction costs, to say nothing of your own personal time value from spending weeks or months of your life on the transaction.

Again, I’m not saying it’s not crazy that Walter could allegedly run a scheme like this, get caught, and still make billions in a fire sale of those assets. But I am saying that I hear a lot of people complaining about him making a lot of money like he had access to some secret investment, and the simple fact is that anyone (you, me, a baby, my dog) could have massively outperformed Walter’s Lakers investment with far less headache by buying an equity index and then going about and living life.

People always ignore the value of liquidity…. until they really need it! If Walter really had to sell assets because of the insurance probe, do you think he’d rather own the Lakers and need to negotiate and wait for months for the sale to close, or $10B+ of a liquid ETF he could sell inside of a day?

$ELAL: El Al is a wartime monopoly at 2x EBITDA. Is that a trap? | ASB Partners

Andrew — Thu, 20 Aug 2026 17:34:42 GMT

El Al ($ELAL), Israel's flag carrier, has spent three years as close to a monopoly on flying in and out of Ben Gurion as an airline ever gets. Turkish and Pegasus left and aren't coming back, Ryanair lost its Terminal 1 slots, Delta and United keep pushing their return, and El Al has used the windfall to go from a levered balance sheet to net cash, buy nine planes off lease, and start returning capital. It trades at about 2x EBITDA. Adam Buckstein of ASB Partners (back after his Stride episode) thinks you're buying a hard-asset-backed airline (roughly $1.3B net cash, $1B+ of owned planes, a $700M-ish loyalty program valuation) for less than the parts, with two more quarters of gushing profits still to come. (See Adam’s El Al write up here)

My pushbacks: every "delevered on wartime profits" story I can remember (steel, energy after 2022) didn't work as a stock; a chunk of the cash is customer float that vanishes if flights get canceled; the $40M competition-authority fine for wartime pricing plus the state's right to make them fly uneconomically looks like the worst of both worlds; and El Al flies 24/6 (no Sabbath, no holidays), so should you haircut the EBITDA, or does that create a moat nobody else can copy? We close with a Stride ($LRN) update: the abrupt CEO exit, the Canvas LMS disaster, the lost Texas school, why fall enrollments are the fulcrum, and whether AI is a real threat to virtual public schools.

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Why SaaS stocks might be cheaper at $20 than they were at $10

Andrew — Wed, 19 Aug 2026 13:45:15 GMT

Sometimes in investing, a stock is a better value at $20/share than it was at $10/share. Why? Often the stock is trading at $10/share because there’s some huge existential risk hanging over it, and it’s a better risk/reward at $20/share once that existential risk has been removed. After a wild year for SaaS stocks, I can’t help but wonder if that’s exactly what’s happening now with the sector.

How wild has the year been for SaaS? In mid-April, IGV (the software index ETF) bottomed down almost 30% YTD…. and, from those lows, it has climbed back to being slightly positive for the year.

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That chart probably slightly understates the pain in software. IGV is a reasonably concentrated ETF; the top 6 components each have weightings over 5% and make up just shy of 50% of the index in total:

And two of IGV’s largest components (PANW and CRWD) are having banner years, with their stocks roughly doubling YTD.

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So while the outlook for software is certainly nowhere near as dire as it was back in February, your average SaaS company today is still probably down solidly on the year / trading cheaper than it has for most of the past decade.

Anyway, I’ve spent a lot of time thinking (and writing!) about the SaaSpocalypse this year. See, for example, my podcast with Marcelo Lima from April (almost literally the exact bottom!), or my “Some ramblings on the SaaSpocalypse” or “More SaaSpocalypse at $WIX” posts from February. Hindsight is 20/20, but it obviously would have been a great time to plow into software when I was writing those posts!!!

But this blog tries not to wallow in missed opportunity! Instead, let’s go back to the $20/share versus $10/share framing. Yes, all of the companies have bounced hard off the lows…. but we’ve got a lot of new information alongside that bounce, and all of that information suggests that worst case scenarios have basically been removed. Perhaps SaaS stocks are a case where they are better values today than they were at the height of the panic a few months ago?

What new information do investors have that they can look at and say “these stocks are cheaper at higher prices than they were a few months ago?” I’d point to two different things: earnings season reassurance the bottom isn’t falling out and private equity / M&A bids coming back to the space.

Let’s start with earnings. Q2 earnings season is generally over1, which means investors have had a chance to hear updated numbers and guidance from SaaS companies. This is painting with a very broad brush, but in general software companies have performed much better than feared when the SaaSpocalypse fears were really running rampant. Perhaps every company is going to replace all of their software with internal home brews in the future, but there’s no sign of it happening in the present (as was the fear at the height of the selloff). In fact, it might be just the opposite; a lot of SaaS companies are reporting strong demand for their products driven by the AI trends. Here are just a few examples of quotes from recent earnings releases:

I’m not claiming this is a comprehensive list, but you can kind of pick up and down the board for large software components and you’ll generally find companies guiding to continued strong demand even as AI ramps up. Again, not to say that the shoe won’t eventually drop here, but in the short term software companies’ strong results and guides have generally relieved the “everyone is going to home brew their own SaaS” fears.

The other interesting thing is M&A has come back to the software space in a big way, particularly private equity bids. The big one here is rumors broke last week that Silver Lake is in talks for WDAY; that would be a ~$50B take private and one of the largest software takeouts of all time (heck, you can drop software from that statement; it’d be one of the largest deals ever!). However, the potential WDAY / Silver Lake deal is far from the only one in the space. On the definitive deal side, we’ve seen:

Nielsen buying DV for $2.16b (30% premium)
Thoma Bravo buying ARX for >$4b (~50% premium)
Nuvei buying PAYO for $2.75b (this deal got leaked, but it was a ~44% premium to the pre-leak price)
WEAV2 getting bought by Francisco Partners for $650m (~35% premium)

To be fair, a few of these are software-adjacent more than pure SaaS, but the pattern is the same! Outside of those definitive deals, there have been a lot of rumored deals that I wouldn’t be surprised to see lead to deals in the near future:

Criteo / Vista
CCC exploring a sale after Elliott builds stake
- Note: As I was writing this article, news broke that CCC had multiple bidders, including Copart.
Alkami explores sale after receiving interest

Why are all those deals / rumored deals interesting?

I’m long past believing that private equity is the smartest money in the room or anything. They’re just as prone to cyclical behavior and buying at the top as the rest of us! However, I think they can serve as a very useful signal in industries and theses where there is one obvious and very diligence-able bear point.

Why?

Because private equity has nearly unlimited due diligence budget to throw around running surveys and doing expert interviews to resolve how particular issues are trending. And they also have access to internal data (how their own portfolio companies are spending or responding to a risk) that no one else has.

And private equity doesn’t just need to get comfortable with risk points on their own. Because they generally need to raise debt for take privates, private equity needs to get lenders comfortable that there is real downside protection in these businesses. It’s one thing for a private equity firm to buy a company at a cheap multiple that’s facing terminal value questions (as SaaS is with AI). If they’re wrong, they could have a zero on their hands, but if they’re right they could have multi-bagger upside, so they can take a coin flip chance of a company going bust if the upside is high enough. In contrast, a lender’s upside is limited to their interest payments, so they’re going to be much more concerned with downside protection in a worst case scenario.

Put the two together, and I’d suggest that both the private equity firms and the lenders have internal data and due diligence metrics that have gotten them very comfortable with the terminal value risk for these companies. That’s not to say that they’re right or wrong, particularly if the AI trade accelerates even faster than it already has! It’s just that they’ve gotten comfortable with a very obvious risk, which suggests that (at worst) it’s been priced in and (at best) that the risk is diminishing.

So what’s the playbook from here? My guess is that SaaS is going to be a stock picker’s paradise for the next few quarters. There’s no doubt that some of these businesses are going to be heavily disrupted by AI, and those stocks will bleed out…. but there are plenty of businesses that are still trading at reasonable multiples that will be AI beneficiaries and potential PE takeout plays that the market is still skeptical of. As always, I’m sifting through possible candidates for this, and I may write some up in the near future.... but my inbox is always open if you have any candidates you think are worth looking at that you’d like to swap notes on!

PS- I’d be remiss if I didn’t mention that both WDAY and WEAV gave out some dark arts style grants earlier this year….. perhaps insiders knew in real time that the stock price was too cheap and a private equity endgame was in the cards?

WDAY’s dark arts grants:

WEAV’s dark arts style grants:

Software companies report on weird cycles, so there are a few large software companies that are yet to report / will report in the next month. ORCL, CRM, INTU, etc.

Disclosure: I had a small position in WEAV. A frustratingly small position given the takeout.

Shitcos, Griftcos, and alignment versus enrichment at $IREN

Andrew Walker — Tue, 18 Aug 2026 11:46:27 GMT

One of the best pieces of fintwit slang is a “shitco”1. It’s just so all encompassing and so perfect.

Some stock you’re short is getting squeezed higher? Shitco
Want to complain about a stock you own that’s done nothing for two years while the market has ripped higher? Shitco
Talking to a friend about a company you hate, a business you don’t like, or a management team you distrust? Shitco

Again, the description can be pretty all encompassing, and that is perhaps the only drawback of the term. It just gets applied to too broad a swath of companies.

There’s one particular set of companies that I often hear called “shitcos” that I think are much different. These are “businesses” that aren’t really businesses at all. They’re companies built on the promise of a future that need to raise a ton of money at huge valuations in order to justify that future…. and, along the way, they pay their executives a fortune. These businesses are also often dependent on big government contracts or regulatory support in order to survive. I’ve taken to calling these businesses “griftcos”.

Note that’s not to say that the griftco can’t be insanely valuable. Griftcos are often playing on reflexivity; if the stock price is high enough, they can raise enough money to create their own future. Consider perhaps the GOAT of griftcos, Tesla. For over a decade, Tesla painted pictures of a rosy future where the car you bought today would soon operate as part of a self-driving fleet of robotaxis that earned you money while you slept. While that future has yet to come to pass, Tesla used those promises to boost their stock price and raise an enormous amount of money…. and that money (plus a whole lot of regulatory subsidies) has created a trillion dollar business that earns billions every year.

Perhaps labeling them griftcos carries some negative connotations, and I will admit that, on the whole, griftcos aren’t really my cup of tea. But I also find griftcos fascinating: a lot of investing is exposing yourself to positive right tail optionality, and the reflexivity and opportunistic nature of griftcos often mean they’re the best companies for capturing right tails.

I also find griftcos interesting for another reason: griftcos are not shy about paying their insiders, and they’re often not shy about playing on the edge of the rules as it relates to comp. Given that combo, when a griftco decides to make a “dark arts” style big grant of equity to their executives, it’s generally worth taking note.

So today I wanted to dive into a recent griftco case that made a very interesting dark arts style grant. Not because I think it’s crazy undervalued or actionable (though, as I’ll note in the PS, I’m long a similar one in small-ish size due to a very skewed risk/reward IMO!), but because I think it’s a super interesting case study worth thinking on / using to sharpen the corporate governance toolkit.

Let’s dive right into the company / setup. IREN2 is a former bitcoin miner turned AI cloud powerhouse. They’re a perfect company to highlight in a “griftco” article because no group of companies has better exemplified the griftco model than the bitcoin miners. Almost across the board, the bitcoin miners rode inflated valuations and a promise of a rosy future mining bitcoin to build out massive bitcoin mining projects that would have been way overvalued and destroyed massive amounts of value…. until the rising demand from AI computing created a squeeze on power that the same projects were perfectly situated to fill. Overnight, projects that would have been nearly worthless were worth fortunes!

IREN has handled the pivot better than perhaps any other bitcoin miner; they’re a preferred partner for NVDA and landed a massive contract with Microsoft, and the stock has been on a magnificent run since the pivot started.

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But what caught my eye with IREN is the timing of their recent equity grants. On June 30, IREN gave their Co-CEOs ~9m RSUs each. That is a massive grant; IREN has ~360m shares outstanding, so the grant effectively hands each Co-CEO 2.5% of the company. It’s also a lot of money; IREN’s stock closed at ~$45/share, so it represented a ~$400m windfall for each of them. Quite the payday!!!… but what’s more interesting is that the 8-K announcing the grant specifically notes that the grants were made to cover ~five years’ worth of grants and that the co-CEOs would not “receive a further equity incentive grant until the Company’s 2031 fiscal year.”

So I think there are two ways of looking at that grant. Perhaps the grant is just griftcos grifting and giving management massive paydays…. or perhaps the grant represented the company rewarding and incentivizing management right before some inflection point for the company unlocked value. Or perhaps it was some combination of both!

Regardless, it’s hard not to look somewhat skeptically on that grant given it came in front of IREN announcing $2.8B of new customer contracts and then delivering Horizon 1 to MSFT while achieving NVIDIA exemplar cloud status. Does the timing of that grant raise all sorts of corporate governance and ethics questions? Yes, absolutely (in my opinion!). Remember: a big grant like this (that pulls forward five years of equity comp) is supposed to be done to ensure and encourage alignment between a management team and investors. It's supposed to be something the management team has to work for, and something that pushes them to maximize value along the way. When a board and management team are willing to give out a massive package right before some unlock comes out, you have to wonder if they’re really aligned and focused on creating shareholder value or enriching themselves at shareholders’ expense. The CEOs already owned ~14m shares each, so it’s not like they weren’t already large shareholders who’d want the stock to go higher. Here, the board just gave them a bunch more stock right before some big new deals were announced.

Ethics and governance questions aside, what’s more interesting (again, at least to me) is how actionable that grant was from an investor / trader perspective. I consider “actionable” grants to be big equity grants that signal a company is about to have some major value inflection moment. Generally, those grants have some type of price or performance hurdle associated with them that gives alignment between the CEO and shareholders (i.e. the company gives the CEO 10m shares, but the stock is trading at $10 and the shares only vest if the stock hits $20 in three years, so it’s a ton of money but shareholders need to make out well for the CEO to get paid). Here, the co-CEOs got paid no matter what they did3; their only give was this was their only grant for the next few years (though I’ve certainly seen companies say “this is our only grant for five years” and then find other ways to reward executives when the stock tanks).

So my question is: was there signal in this grant? And does the company’s history as a “griftco” in my telling make that signal stronger or weaker?

No good answers here; just something I’ve been mulling over!

PS- IREN is obviously the focus of this article, but I’ll note they’re far from the only power shell griftco to hand out juicy awards. FRMI (disclosure: long) is a very controversial power shell company that handed out a bunch of torqued awards to their whole C-Suite in late July that would grant them millions of dollars if they landed a big customer (I wrote about it in real time on the premium side). Sure enough, within a month FRMI had landed their first large customer. Nice work if you can get it!

I almost never curse and try to keep this blog family friendly, so pardon my proverbial French. However, the term “shitco” is so popular on fintwit and among investors I talk to and is such light cursing that I doubt I will be offending anyone’s delicate sensibilities by dropping it here!

Credit where credit is due: this trata call on IREN nicely details the potential inflection for IREN that originally turned me on to this situation.

Provided they don’t leave the company (the only vesting requirement is continued employment).

$NU: is Nubank Capital One in 1994 or Capital One in 2006? | Vanshap Capital

Andrew — Mon, 17 Aug 2026 16:36:37 GMT

Nubank ($NU) has 140 million customers, roughly 60% of Brazil's adult population, an efficiency ratio around 20% versus 40-60% at the legacy banks, and ROEs in the 30s. Evan Vanderveer of Vanshap Capital has owned it for four years and thinks the market is still treating it like a risky EM bank instead of what he thinks it is: a tech company that happens to hold deposits, with a founder (David Vélez) who controls it and a runway that runs through Brazil's $100 billion banking profit pool, Mexico, Colombia, and eventually the US.

My pushback is the Capital One question. Capital One was the smartest data-science lender in the room, IPO'd in 1994, went up 13x in 12 years, and then spent the next 20 as a mature bank that lagged the market. Nubank was built by ex-Capital One people, so is this 1994 or 2006? We also get into what the right cost of equity is for a Brazilian bank trading at high-teens earnings with a 30% ROE, whether MELI and Kaspi tell you EM fintech never gets a big multiple, the 13,000-customers-per-employee stat, Brazil NPLs at 15-year highs, the wave of senior departures, whether any banking fintech has ever expanded across borders, Vélez joining OpenAI's board, and my bigger worry that AI eventually commoditizes every financial product and competes away the 30% ROE.

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$DNOW: the boring distributor that could double on 2029 numbers | Firebird Management

Andrew — Fri, 14 Aug 2026 14:28:58 GMT

DNOW spun out of National Oilwell Varco at $35 in late 2014. A year later it was $13. Today it is around $16. Steve Gorelik's argument is that ten years of that chart is one long headwind rather than a broken business: 1,800 US rigs at the spin, under 600 now, global oil and gas investment 40% below 2014 in real dollars, and DNOW still grew margins and bought companies at 4 to 5x EBITDA the whole way through. Rigs have started ticking back up. The MRC Global merger brings $75m of synergies to two businesses that earned $325m of EBITDA apart in 2024. Management has soft-targeted $350m of EBITDA for 2027 against roughly a $3.5B enterprise value, which Steve gets to about $300m of free cash flow on a $3B market cap.

My pushback is that 10x is not deep value, and the double comes almost entirely from multiple expansion back to the 5 to 6% free cash flow yield the market used to pay. Why is 10x the wrong number and not 12 or 14? We also get into the acquisitive compounder paradox, whether the incremental drilling actually shows up in US shale or somewhere else, the Oracle implementation they inherited from MRC and why they are now running it alongside SAP on purpose, the $50m of stock they bought back in the middle of that mess, and whether a business private equity would happily lever to four or six turns belongs in the public market at all. Steve's 2029 case is $30 to $32 per share.

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When AI reads every 10-K, the only edge left is the CEO's flop sweat

Andrew — Thu, 13 Aug 2026 10:18:07 GMT

What happens to active (human) investors as AI gets better? Will there even be a role for humans in the process or will we be out of a job?

It’s a smaller version (and more selfish, given I am an investor!) of a bigger fear on AI displacing / replacing knowledge workers. Those fear probably peaked this April when people started resurfacing a video of Anthropic’s CEO saying AI would destroy 50% of knowledge work and lead to 10-20%+ unemployment. I’ve generally thought those fears were overblown, but I will admit that AI is so revolutionary that my belief that we weren’t about to face some mass unemployment event wasn’t quite as steadfast as I’d like it to be.

For investors, the implications of the rise of AI are basically infinite. You can spend endless hours thinking about how AI will impact you individually as an investor (or the process of investing in general), building out tools to streamline or improve your investing process, or looking for opportunities that AI creates (whether it’s shorting AI losers or buying AI beneficiaries)…. and I have spent a lot of time doing just that!

But today’s article I wanted to focus on something slightly different: the outlook for humans in investing.

A lot of investors1 think of a super-powered AI in investing as some all knowing god that can predict the future and thus sets prices based on things before they even happen (a la Minority Report or some other scifi work). While that’s a cool (and very scary) concept to think about, even super-powered AI cannot predict the future. So the AI bear case for investors isn’t some prophet that knows how stocks will move in advance; the “AI fully displaces humans” bear case would look something like this: at its core, investing is about reading and processing information. An investor generates alpha by either having more information or reading the same amount of information but processing it better. If you imagine a world where a super-powered AI can process all information basically instantaneously and with a super-genius IQ, what hope do human investors have in that world?

That’s not to say that stock prices won’t move or move dramatically! Again, the AI is not predicting the future; there will still be massive stock pops if a company is acquired out of nowhere or stock drops if a company’s plant blows up or something. So new information can and will move stocks, often dramatically2…. but in the AI world I’m laying out you basically have a perfectly efficient market where all known information is already in the price. You could still make (or lose!) a fortune in the stock market by making a big bet on something…. but you’ll make a fortune in the same way you could make a fortune by going to Vegas and betting it all on black. Your fortune came through luck or beta, not through alpha generation.

In that world, I think all of the “analysis” edge goes away. One of the classic stories every investor dreams of having is finding the needle in the proverbial 10-K: some line or number buried deep in an SEC filing that shows a company is undervalued or some event is about to happen. I suspect all of that edge gets competed away (if it hasn’t already!) by AI that is instantaneously reading every SEC filing in real time and comparing it to every SEC filing ever made. Humans simply can’t compete with that!

However, “analysis” edge going away does not mean that all edge goes away. If computers can perfectly analyze all information that they have, that means you can still generate edge through unique data. In fact, that means having unique data might have more alpha.

What does this look like? Well, an extreme example will show this nicely: if your best friend is the CEO of a company and tells you they’re announcing a deal at a huge premium in two days, that is a very unique piece of data. In the perfectly efficient market I laid out above, you will make even more money with that information because a perfectly efficient market means lower trading and liquidity costs and that tail events (like unexpected mergers) generally come with bigger payoffs.

Again, this is an extreme example: what I laid out above is clearly insider trading, so while your bank account might go up on the actual day of the announcement you’ll end up giving all of that up in SEC fines and jail time. But I think it illustrates the opportunity nicely.

So where could we see a (legal) data edge?

I could imagine a few places. Let me start with the simplest, because I think my next ideas build off it: historical stock market data. This might seem basic and easy if you’ve never tried to use historical stock data…. but anyone who has tried is almost certainly nodding their head in agreement at this. Companies get delisted or go bankrupt all the time; how are they handled in the historical data that you’re training your AI on? If the answer is “we’re missing them,” then your AI is going to have a very positively biased view of the world. An example might show this simply: consider a binary like a drug readout and imagine a world where if the drug reads out successfully the stock goes up 10x and if it fails the stock immediately files for bankruptcy and delists. If you train an AI on drug readouts and all of the failures aren’t captured because those companies are gone, then your AI is going to think every drug readout leads to a 10x and buying every drug readout on max margin is a ticket to world beating returns. That’s a recipe for going bankrupt fast! Now, that is a very simplified example…. but you could start getting more and more complicated with it. Is there a world where there’s a cascading data advantage for large firms that have decades of detailed (and accurate!) stock market data to train their AI on?

Of course, historical stock market data is generally publicly available. Perhaps the AI gets so good that it can clean everything up and adjust to those errors I mentioned on its own. So maybe that edge is fleeting or non-existent to begin with.

Perhaps future edge comes from nonpublic data. That kind of makes sense: if the AI can perfectly interpret and price all data, the way to outperform is to have data that no one else has.

What could that look like?

Well, MNPI like the insider trading example I mentioned earlier is one clear example. But let’s assume that you’re trying to avoid jail time and try to think of a few others.

The first that comes to mind is private meetings. If you have a 1x1 with a CEO or some other member of a management team, by its nature that meeting generates data that no one else has. Yes, Reg FD limits just how juicy the data a management meeting can generate, but even small amounts of data could be enough to have an edge in a perfect market, and there are lots of things that are material to an investment thesis that can be revealed in an investor meeting and certainly aren’t part of Reg FD. A somewhat extreme example might show this nicely: imagine that a company has their Q2 earnings call at the end of July and the CEO says “we are confident in our full year guidance” and all of the AIs immediately incorporate that into their models. Then pretend that you have a company visit to see the company in mid-September, and you’re the only one on that visit. After the tour, you ask the CEO about guidance, and the CEO pauses for a second, nervously takes a sip of water, breaks into a flop sweat, and says “I said on the earnings call that we are confident in our full year guidance.” That would be a very juicy piece of information! Feed that into your AI and you’d have a heck of a unique data point.

Now, you might be thinking “but that data point is already unique / actionable in today’s world.” That is certainly true! The point is what happens to the value of that data point in a world where everything else gets priced instantly; I’d suspect it’d be increasingly valuable in the hands of an AI who can use it to tune their model of all sorts of different derivative plays.

The stronger pushback against the “unique data is edge” thesis is probably alt data over the past two decades. A huge amount of money was spent on alt data in the 2010s (credit card data, satellite images of parking lots, etc.) and that edge decayed fast (if you’re the only one with credit card data, you can destroy everyone else when it comes to trading quarterly prints…. if everyone has that data, then you’re all out the cost of the credit card data and no one has an edge!). I get that pushback, but that alt data was generally broadly available if you were willing to pay up. There was nothing unique about credit card data; everyone paid basically the same price and got the same data. The stuff I’m talking about isn’t broadly available; analysts who are good at getting management teams to open up or reveal things that they maybe don’t mean to are creating genuinely unique data. Anything with a price list gets arbitraged away. What’s left is the stuff you have to go get yourself.

And I wonder if the value of getting that unique data goes up in an AI world; maybe knowing the company is likely going to miss guidance causes the AI to come up with all sorts of strange trades that a human could never find (i.e. Apple is going to miss their quarter, so tax revenue in California is going to be lower than expected, so California deficits are going up and we should short Cali bonds while buying Texas munis?).

Again, that’s an extreme example. But you can imagine softer examples that create smaller edges that might be really relevant. Expert calls are the ones that really come to mind here; could they become increasingly important as a tool for generating unique data that feeds the AI’s view of the world in real time?

Maybe I’m overthinking this. Buffett famously said that, in investing, if your IQ is >130 you’d be better off selling the extra points. Maybe the rise of 200+ IQ AI that can instantaneously read and interpret every data point and compare it to all of human history changes nothing for active investors. I sort of doubt that, but who knows. The world is weird!

But I’m increasingly of the view that, in the future, alpha is going to be generated more by people who can find, source, and feed unique data to our AI overlords, and that the major question for most investors is going to be how to do exactly that. Is it being part of a big shop with a huge expert call budget? Is it developing deep sector expertise and industry relationships? Is it remaining small and nimble so you can get unique data across lots of different industries?

I don’t have the answer, but it’s something I’m thinking about all the time (and how I can best position myself for it!).

And at my most pessimistic I’d throw myself into this bucket

In fact, I think you could argue unexpected news will move stocks more dramatically in a perfectly efficient world

$UWMC lost $600m hedging a deal they'd already lost

Andrew — Tue, 11 Aug 2026 10:55:04 GMT

On the heels of losing a bidding war for TWO, in late March UWMC published a fabulous press release that called TWO a “melting ice cube.” I said at the time “that press release definitely does not make me think UWMC’s a bunch of whiny losers who I’d never want to invest with.”

Things have only gotten funnier since then, as UWMC followed up that press release by raising their bid for TWO and thus restarting the bidding war for an asset they had just called a melting ice cube. UWMC eventually lost that bidding war too…. and now they are blaming the busted deal for a ~$600m hedging loss they took in Q2, and that massive hedging loss was partly responsible for UWMC needing to raise some very expensive capital. The only problem with that explanation is the TWO deal had died in March (UWMC had the break fee wired to them on March 31)…. so UWMC spent all of Q2 hedging an asset they were no longer under contract for.

I’ll get to how strange that is in a minute, but let me back up and give a little background (in case you didn’t read my first mention of UWMC / TWO back in March) as well as provide an update on some of the crazy happenings since then that have led to this whole hedging fiasco.

The backstory

I’m a big, big fan of bidding wars. Writing that almost feels trite; what investor isn’t a fan of people competing to pay top dollar for a company they own?

So I’m not exactly breaking new ground saying “I love bidding wars”…. but I do. So much so that I wrote a mea culpa for missing the Metsera bidding war late last year.

Earlier this year, there was another bidding war that almost led to me writing another mea culpa. This one was between UWMC and CrossCountry for TWO. TWO had originally agreed to be acquired for all stock by UWMC back in December. However, UWMC’s stock was hammered after the deal was announced, falling >30% between mid-December and late March:

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Let me pause here: one of my favorite event setups is when a company with a lot of strategic value agrees to sell themselves for stock and then the buyer’s stock collapses. Why do I like that setup? Because it creates an easy opportunity for someone else to step in with cash. A somewhat extreme example might show this nicely: pretend you and I are bidding on a company. I bid $90/share all cash and you ultimately win with a bid of $100/share all stock. If your stock falls by 90% in the next month, suddenly your $100/share bid is worth $10. Now, maybe your stock is down because the industry is imploding and the target company isn’t worth close to the original bid…. but maybe your stock is down for other reasons, and I have an opportunity to lob in an all cash bid at a massive discount to my original bid but a huge premium to the current price and make a fortune for myself (and save a ton of money versus my original deal!).

If you read TWO’s proxy, you could see something similar could play out: multiple companies bid on TWO, including one company who offered 1.15x TWO’s book value at closing in all cash. TWO ultimately chose to go with UWMC’s offer, which valued TWO around 1.15x their tangible book value and offered more closing certainty than other offers. However, even a definitive deal did not stop TWO’s strategic suitors, as the proxy reveals company C1 called TWO up after the UWMC merger had been announced to see if they could hash out a deal.

So I was thinking about writing a “mea culpa” because TWO filed that proxy in early February. Combine that background with UWMC’s stock price melting down, and it seems logical that a competing bid for TWO could emerge. Sure enough, in mid March, TWO announced they had received a superior proposal.

This is where things start to get strange. Generally, when a company has a superior bidder, they run another process and then sell to the highest bidder. So if I had a deal to buy you for $10/share and someone offered $11, the company would hold a mini-auction and sell to the higher bidder. However, that’s not exactly what happened here. A few days after receiving the superior proposal, TWO announced that they were breaking the UWMC deal to enter a definitive deal to sell themselves to CrossCountry for $10.80/share cash…. only for UWMC to come in late April and try to break that definitive deal with an offer of $12/share for TWO. That set off another round of bids for TWO, which saw CrossCountry bump their bid to $11.30/share and then $12/share. UWMC would eventually again bump their bid to $12.50/share, but it had a lot of conditions and limitations and TWO shareholders would eventually agree to the CrossCountry deal at $12/share in cash plus a stub-dividend (UWMC was not happy with how it played out).

Again, I kind of can’t emphasize enough how weird that process is on the UWMC side. In March, they had a signed contract with TWO. A signed contract includes matching rights. Letting TWO break the contract and go with another bidder means UWMC let their matching rights lapse…. then thought better of it and tried to get back into the TWO business! That’s quite strange…. and horribly inefficient. It adds weeks of uncertainty to the business, to say nothing of the increase in advisor and legal fees for ramping a bidding war back up plus the break fee that TWO would owe to CrossCountry if UWMC was successful in breaking the new deal (a break fee that UWMC would not have owed if they had just matched the contract under the original deal!).

The part that doesn’t add up

So it was all just very, very strange…. but it also all happened months ago, so why am I writing about it now?

Last week, UWMC announced ugly Q2 earnings alongside a big new capital raise. The headliner here is a ~$450m net loss driven by ~$600m in derivative losses. That massive loss caused leverage ratios to explode higher; in response, UWMC suspended their dividend, raised ~$1.6b of prefs (on very expensive terms) from Oaktree + the CEO’s family, and will hold a $400m rights offering (backstopped by the CEO + Oaktree).

The surprise raise saw the company’s stock plummet, though it has regained some of that ground. As I write this, the stock is trading for ~$1.50/share (versus the ~$5/share it was trading when they agreed to the TWO deal in December!).

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What’s interesting here isn’t the capital raise (though the capital is very expensive)…

What’s interesting is the reason UWMC is giving for that ~$600m derivative loss. According to UWMC, they put a massive hedge in place when they had a deal to buy TWO. UWMC then took a bath on that hedge and lost out on TWO and thus got hit with a double whammy of losing on the hedge while not getting the gains on the asset they were allegedly hedging. Here’s how the CEO described it on the call (emphasis mine):

Let me go into the hedge loss because I think that’s a handful of other questions here. Can you please explain the hedge loss, what caused it and how investors should think about it?
So listen, hedging in general in the mortgage industry is expensive. And it’s something I actually don’t believe in, in general. We have never hedged our MSR, I say never. We don’t traditionally hedge our MSRs. Our origination machine is so big and strong that if the rates drop, you’ll lose MSR value and equity, but you’ll do so much more business that you’re good. And if rates go up, your MSR values go up and you do less originations, but your equity goes up. That’s kind of how we’ve always played it.
Well, when you’re going through and acquiring a company like Two Harbors and a massive MSR book, then our MSR book became double the size of what we’ve always managed. And therefore, it created a little more risk. So when we did put a hedge on to protect against that risk and then a lot of things happen.
Let’s just be real with whether it’s a war, a lot of different things that happened that created the 10-year to go up -- and then obviously, the Two Harbors transaction went away. And so a confluence of events that created a hedge loss. We hit a certain risk threshold that I said we’re not going to continue hedging regardless because we didn’t want to have more of an equity drain, and we took the hedge off. And of course, that’s the strategy that we’ve always had is let’s not hedge, let’s run the business effectively.
Once again, Oaktree has a strategic perspective on this, and I’ll go through that with them after this process and whether we hedge going forward or not. But once you have $3 billion of equity, you’re really not at a risk of the MSR values go down $400 million for this quarter or go up $400 million, it’s less relevant. But when you’re hovering around $1.5 billion or $2 billion, it becomes a little bit more relevant. And so that became an issue. We hedged -- and it was a onetime event, to be honest with you, because of Two Harbors, we were overhedged, if you think of it that way, protecting against the Two Harbors transaction. The market moved against us, and it’s a onetime event that won’t happen again. We feel like our hedging policies are much stronger now, but also we’re not acquiring another company that has an MSR book like that, at least that’s not the plan of now, and we know how to handle it differently going forward.

On the surface, that sounds reasonable. UWMC put on a big hedge, unexpectedly lost the asset that they were hedging, and thus got hit with a double whammy, right?

But here’s the thing: TWO broke their deal with UWMC in late March. UWMC reported the massive hedging loss in Q2, which runs from April to June. In other words, UWMC is saying they took a $603m hedging loss in Q2 hedging a TWO deal that they were no longer under contract for. And UWMC knew they were out; if you read TWO’s merger proxy with CrossCountry, it notes that UWMC gave TWO the wire instructions for their ~$25m break fee on March 31 (and TWO subsequently wired the money).

So the whole thing is just extraordinarily strange on a host of levels. UWMC got the break fee on March 31 (the last day of Q1) and then just sat on that fee for the entire quarter while their hedges were moving against them? What were they doing?

The obvious defense is that UWMC still thought they were going to win TWO. They were back in with a $12/share offer in late April and a $12.50/share offer in May, so you could argue they kept the hedge on because they expected to own that MSR book after all…. but I think that answer is even stranger!!! Under that version, UWMC desperately tried to re-engage with TWO after letting their first bid lapse and trashing the company and management on the way out. It makes them look like petulant children who are in over their heads. And by the CEO’s own telling, they didn’t take the hedge off when the deal went away; they took it off when they “hit a certain risk threshold.”

It also raises the question of how UWMC has been communicating with the market. UWMC reported Q1 earnings in early May; they noted “rates went up in March, and they've gone up even more in April”, but they don’t note anything about a massive hedging loss. They do note that their leverage ratios “are a little bit of an anomaly based on -- and same thing with the liquidity number based on some trades we have out there to help balance the MSR book,” but they don’t mention some massive hedge to cover the TWO bid or that they have anything out of whack. In fact, they say that the leverage ratios have “already come down a little bit now,” that they have “extremely experienced capital markets team” handling it all, and they talk about how they don’t really want to give UWMC stock away at these levels. It’s pretty hard to square how they talk about the environment and their balance sheet / value with the results they reported and the desperate capital hole they found themselves in.

Perhaps I am missing something. Maybe the hedges were so illiquid that UWMC couldn’t get out of them (though if that’s the case I’d suggest the hedges were very poorly designed to begin with). Or perhaps there’s some other reason they held on.

I don’t know. But UWMC is a wholesale mortgage originator and servicer. Those are businesses that operate on a whole lot of leverage and are very sensitive to interest rates. UWMC’s Q2’26 balance sheet shows ~$17.9B of assets against $985m of equity; that’s a little over 18x leverage. Admittedly, that’s due to the hole left in their balance sheet by the hedging loss, but even in normal times this is a business that runs with lots of leverage. When you’re running that levered, you have to be very disciplined at hedging and maintaining risk in order to survive through a cycle. For UWMC to lose that much money on a hedge for an asset they had already lost calls into question the trustworthiness of management, the competence of management, or perhaps both.

I have no horse in this race, but as someone who follows a lot of quirkier M&A news and a lot of lower quality companies that trot out some really outlandish excuses for awful results, the whole saga was right in my wheelhouse and I wanted to put something up on it!

PS- as I was wrapping this article up, news broke that UWMC is suing TWO for $500m over the failed deal. As someone who has followed a lot of deals, that suit seems like a huge hail mary…. but I’m ready to get my popcorn out!

A future proxy filing would reveal Company C to be CrossCountry, who eventually won the TWO deal.

August 2026 Premium update

Andrew — Mon, 10 Aug 2026 00:47:58 GMT

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