“From 2000, Microsoft added 18,000 employees as the stock went nowhere for 14 years. In fact headcount barely moved at Cisco, Dell, and Intel, despite big stock crashes. So I think it is the wrong variable. It tells us nothing about value creation, especially for cash-rich companies and companies in monopoly, duopoly, or oligopoly situations. I would track shareholder-based compensation’s (SBC) all-in cost before saying productivity is making a record run. The measure to beat all measures is return on invested capital (ROIC), and ROIC was very high at these software companies. Now that they are becoming capital-intensive hardware companies, ROIC is sure to fall, and this will pressure shares in the long run.” – Michael Burry
E.g., Google Analytics is provided by Google—understand their incentives.
Next:
- 5-2a0.1 There are things that cannot be measured
- 5-2a1 You get what you measure
- 5-2a2 What gets measured gets managed
Related:
- 2-1a0c1d1 Focus on the few variables
- 3-1a4a1 The whole must be evoked in explaining the parts
- 12-1e4 Nothing is objectively and independently good
- In headcount example above, more doesn’t necessarily mean better. It might be quite the opposite. But that—that less can be more—is contingent you have sustainable competitive advantages.develop
- At Nvidia, Burry calculated that roughly half of its profit is eliminated by compensation linked to stock that transferred value to those employees
- 3-1a4b4a Financial cycles ≠ Product cycles
- <> the Portfolio Structure gain ≠ the Plan Structure gain
- 3-1a4b4a Financial cycles ≠ Product cycles
- Return on invested capital—and, more importantly, its trend—is a measure of how much opportunity is left in the company. From Burry’s perspective, he has seen many roll-ups where companies got bigger primarily through buying other companies with debt. This brings ROIC into cold focus. If the return on those purchases ends up being less than the cost of debt, the company fails in a manner akin to WorldCom.
- 6-3a2.1 How you achieve something matters as much as what you achieve
- Warren Buffett: “Return on invested capital depends on sales, cost, and the amount of capital required”
- 13-8a2.1 Money is the present good par excellence
- See also Mark Spitznagel’s application of ROIC in his Austrian Investing II: Siegfrieddevelop
- I thinks the same applies at the level of individuals. Always ask—Where can I make the biggest difference?
- 2-1b2b0a Ask - What’s the correct very-long-term solution; How do I solve this using and committing the minimum amount of time possible; Does this really matter (almost always, no)
- 2-1c3 ‘Win and help win’ always outcompete
- Corporate equivalent of ‘synergy’
- 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.
- 7-1a2a1 絶対に勝てるところから勝っていく
- 7-1a5a Finding some distribution arbitrage in your time and place is also a great source for growth
- 6-3a2.1 How you achieve something matters as much as what you achieve