The idea of iBuying is still a fringe idea by any means. Overall market share is less than 0.5% of all US residential transactions. But it is powerful idea since most middle class families have most of their net worth tied in their primary home.

I believe this space is still one of the biggest opportunity in the market which marries tech and finance together. It allows you to create a strong moat due to regulatory capture. Best examples of great companies executing are Robinhood ($HOOD) and Coinbase ($COIN).

This post will deep-dive a bit more into the iBuying opportunity. Here are my key assumptions :

• 5.3 millions RE transcations. Current real-estate residential is currently frozen due to high rates. So let's use 2019 as the baseline of 5.3 million US residential transacations. Even though I believe it is too conservative since there is a lot of pent-up demand for housing.
• Opendoor can capture 1% to 2% of total US market.
  • There will be always consumers that need the money now and don't want to deal with 3-6 months of uncertainty. Think of a family moving coast to coast for a job and they need to buy a new house with their current home equity.

This is the current contribution profit from the last few quarters :

In my opinion, the most interesting metric is the contribution profit. From last quarter, it came at 20m$.

Let's take a look at a simplified model. The main variables are the following :

• The RE transaction goes back to normal (let's take 2019 number of transactions at 5.3m$)
• OpenDoor market share in US. Base case would be 2%
• Contribution profit per house. 16k$ is a conservative and in-line with past quarters.
• Extra services per house. This is the big opportunity. We put in around 3k$ per house, but it could be a lot more.

In honor of Eric Jackson, my base case also ends up very close to 82$. As of last friday, it closed at 6.5$, so the there is quite an assymetric risk profile for this company. But as long term holding and assuming the team executes properly, this stock can go to 250$+ in a few years.

As a disclosure, we are long this stock and we feel comfortable buying the stock at the current levels (not investment advice).

All green cells below are inputs or assumptions. We are using 30x contribution profit for market cap valuation. This may be conservative (for a fast growing company).

Have a great weekend everyone!! $OPEN army strong!

Opendoor is back in the game with a new exec and board team:

Here's a recap of what happened this week :

• New CEO: Kaz Nejatian (currently COO at shopify $SHOP). Seasoned tech entrepreneur et exec. He brought G&A from 14% of revenues to 4% of revenues. This is exactly what we need for $OPEN
• New Chairman of the board: Keith Rabois
• New board position, ex-founder Eric Wu

So we can say we now have a good team for executing the vision.

One of the big problems with $OPEN is cost. As a marketplace platform, there is no reason why this can't be streamlined. Below is last quarter G&A and Sales/marketing/operation expenses. This needs to be flipped where R&D is prioritized.

Also the real estate market has been in a slump for the last 3 years, thanks to high interest rates.

Remember that in 2022, opendoor did 15b$ in revenues. Some may argue that was a fluke due to RE boom at that time, but again Opendoor had time to grow and become a better company. There are more people in the US, home are more expensives (due to inflation), so I don't see why we can't reach and exceed this level of revenues.

If the team can stay disciplined and get a 1% profit margin, this means : 15b$* 0.01 = 150m$ net income. At 20x valuation, we're talking about a valuation of ~3b$.
But this is where the magic happens.
If the can team can squeeze up the net profit margin to 3%.
I would argue if you add plus-value products (mortgages, titles, home warranty, videos tours, 3D scanning of home, remodeling/staging services, etc...) that could add another 1-2 % profit margin.
So with 5% net profit margin with 15b$ (and 20x), you get : 15b$ valuation (~20$/share).

Once market unfreezes and if opendoor can keep innovating to get faster growth and higher net profit margin then here is the path for the stock price:

• Rev = 15b$. 5% net profit margin, 20x P/E: 15b$ valuation (20$/shares)
• Rev = 30b$. 5% net profit margin, 20x P/E: 30b$ valuation (40$/shares)
• Rev = 60b$. 5% net profit margin, 20x P/E: 60b$ valuation (60$/shares)

If they can move the net profit margin to the 7% range, then we get :

• Rev = 15b$. 7% net profit margin, 20x P/E: 20b$ valuation (29$/shares)
• Rev = 30b$. 7% net profit margin, 20x P/E: 40b$ valuation (58$/shares)
• Rev = 60b$. 7% net profit margin, 20x P/E: 80b$ valuation (116$/shares)

This is what $CRVN looks like with revenues of 5b$

This is a path $OPEN can follow. I am convinced Revenues for $OPEN can exceed 2022 range, as long $OPEN keeps innovating.

Ideas for Opendoor

Small details matter.

Merch store:

Leverage the $open army. Make home ownership a movement. Simple cool gifts (cool lamp, shirts, etc...) so we can give our friends/family to help build brand awareness. Next time, they think about selling their houses, they think about Opendoor first.

Simple explanation of the company's mission

Something like :

• Making buying/selling houses cheap and fast
• Ecommerce platform for buying/selling houses

We, the $OPEN army, and everyone involved at $OPEN need to be able to clearly articulate to anyone what is $OPEN.

Focus on innovation on new products

Follow the lead from $HOOD where they out innovate the competition. Again, keep leveraging the $open army.

Simple ideas like:

• Enabling affiliate marketing and anyone to refer a seller to $open.
• Allow $open user to “swap” to another house in $open inventory at very little costs.
• Allow subscription service (rental) for corporate housing which high deposit (to de-risk any potential damages).
• Allow an option to rent before you buy? With plenty of cash down
• Focus on quality for turnaround of houses. Have contracted quality auditors that verify the house conditions.
• Create insurance product for non-
• Open the API for 3rd party, where non $OPEN users can use Opendoor to get pricing and openDoor guarantees buying the house (with a premium) even if they decide to go with an agent. Effectively buying a put option from $OPEN
• Title services
• Enable better home viewing experience. 3D videos, simple better videos (built with AI), Immersive (Apple Vision Pro) viewing experiences, etc...
• Provide a home inspection report. Those home inspection are mostly BS... like checking if the faucet work, or if there is water damage on the wall. This is where AI can help a lot.
• Mortgage services.
• Bank charter. This one is a long shot (maybe a crazy idea). For this, $OPEN may need to acquire a bank charter. One option is $LC Lending club, which is a profitable fintech with a bank charter.

Have a great week everyone!!

What is going on with the excitements of the last few days on Opendoor. Why all the excitement all of sudden? In this post, we will try to break down the bull case scenarios, and why Opendoor matters.

• iBuying:
  Opendoor is the only iBuying company left. Zillow and Redfin tried back in 2021 to also do iBuying but they couldn't make it profitably. Opendoor is the only company left doing actual iBuying.

Notes: This was before Eric jackson proposed an asset-lite model which I find super interesting. This was written before this.

• eCommercification:
  The bull case for Opendoor is current trend of "e-commercification" of the economy. It started with Amazon (books) in early 2000. Airbnb for short-term stays in 2009. Uber for transportation around the same time. There are only a few markets left such as used-car buying/selling (Caravan) and home buying (with Opendoor).

Back in 2022, Carvana was left for dead. I didn't see the opportunity back then, but Eric Jackson did call it on the compound and friends podcast in June 2022.

In hindsight, it was clearly a great comback story getting close to the 100x bagger status (8500+% from the bottom). Some of the best investments are often the non-obvious ones.

• Housing market:
  Housing in general is where people spend most of their money. When people make more money, the tendency is to upgrade their homes. You can see this clearly in markets where the job market is strong (Sillicon Valley, New York, Austin, etc...) where housing becomes more and more expensive.

• Real estate is the biggest asset class
  Residential real estate market is about 47.9T$ which accounts for ~28% of total household wealth. It is crazy to think that all those transactions are still all done manually with a 6% fee (with a realtor)

• Housing affordability is broken:
  In general, in the West, the housing affordabilty is broken. There are some structural changes that are driving this (immigration, regulations, etc...) but one way to create deflationary pressures on housing costs is with technology. This is also something the current Trump administration have been vocal about it and I wouldn't be surprised if they incentivize companies like Opendoor.

How can Opendoor help with housing costs?

• Reducing friction and make the market more liquid:
  This will allow better pricing (reducing the spread bid/ask). The same happened with the equity markets in the 1970s where the spread was about 1%. Those were due to :
  • Fixed commisssions: Those used to be 2% or more
  • LImited technology : Manual transactions
  • Low liquidity. The liquidity back then was much lower than it is today thus making the pricing more difficult.
  • Market structures : NYSE had human specialist who would set up the bid/ask spread to keep some margin of error (to help manage their inventory)

Today the spreads are closing to 0.01% for liquid stocks. Obviously stocks are very different since each house is unique.

• By having instant-cash offers (iBuying), it simplifies the decision making about selling your house. It would allow americans to become more mobile and overall help allocate the human capital more efficiently around the US. Even the WSJ had this article highlighting that the mobility of the americans is now at an all-time low.

• Assumable mortgages :
  This was proposed by [Eric Jackson] (https://x.com/ericjackson/status/1955344644339892286) for OpenDoor.
  This means if you have a 2% or 3% left on your house you can "assume" the mortgage of the current owner. Obviously, I wouldn't left a "random" buyer assume my mortgage and risk ruining my credit since the seller is still liable. If we could relax the regulations and transfer the liability to a trusted 3rd party (like OpenDoor) to manage the transaction and streamline the legal fees.

To be continued

PS: Huge credit to Eric Jackson. He's the one who made me realize about the potential of OpenDoor. I did remember listening to him back in 2022 on the compound podcast, and I remember being surprised about his picks. Back in 2022, it was easy to be stuck in the regency bias of all those tech stock crash.

$GPRO has been left for dead.
From the high of the IPO of market cap of upward of 10B$ to now a merger ~235M$ MC.

It's an interesting company.

• No Long-term debt
• ~70M$ in cash as of last quarter.
• Book value : ~110M$
• Market cap : ~238M
• EV = 238M$ - 70M$ = 168M$

Let's dive into the balance sheet:

So book value is around 109M$. It's not often that the market give you opportunities like this one.

Peter Lynch famously said : "A debt free company can't go bankrupt."
https://x.com/QCompounding/status/1946147306362880299

The question is how is the rest of the business worth.
They still have a problem where they are burning throught their cash.

Estimating the value

Current EV is around 168M$. Let's stack up if this makes sense.

• IP / Technology :
  That part is a bit hard to evaluate but let's put a number at around ~50M$ to be conservative. 50M$-100M$ range is quite common for pre-revenu companies.

• Brand :
  GoPro is a globally well known brand. This is probaly the most valuable part of the current business. I would easily value this at 100M$.

• Inventory/ Hard assets:
  PPP : 7M$
  Point-of-Purchase display : ~13M$

• Value of recurring revenues
  They currently have 2.57M subcribers at 49.99$/year.
  That's 125M$ ARR yearly. Assuming some meager growth, this brings it up to 200M$ ARR in 2030.
  What would be the present value of that yearly ARR? Average would be 5x revenues, but let's be conservative and only use 1.5x revenues : ~187M$.

So at current trading value (1.5$), it may be properly priced, but those would be fire price sales.

This blog would argue that it appears there are some value.

Convertible notes

There are August 2025 convertible notes expiring. This will create some extra dilution. The conversion price is around 9.33$/share

at an initial conversion rate of 107.1984 shares of Class A common stock per $1,000 principal amount of
the 2025 Notes, which is equivalent to an initial conversion price of approximately $9.3285 per share of common stock, subject to adjustment.

Bull case:

With current boom in AI, having the HW to be able to capture videos and then process it in the cloud, there must be a good story here.
Just take the Jony Ive company that got sold to OpenAI, which may be just a fancier, smaller GoPRo.

Challenges

They definitely have challenges.
They are losing about 0.30$/share (when the stock hit a bottom of 0.39$/share.

They need to start growing the business again.
Competition is very agressive (Insta360).

It seems it would be hard for this company to go bankrupt but a more realistic outcome would an acquisition of some sort.

$GPRO is highly speculative but it seems the risk/reward here seems attractive.
This is not investment advice.

Let me know what you think.

Happy new year 2024!! Turns out, I only end up writing on this blog once a year which happens to be at the turn of each given year. Even though I tell myself each new year I'll be writing more, obstacles get in the way of writing.

2023 was a great year investing wise. Likely because if someone was a bit contrarian like I was at the beginning of 2023, and kept most of your positions long, Mr. Market provided a nice reward. I suspect 2024 won't be as easy since it'll be a more crowded setup, where the consensus seems to be a positive year.

My first acquisition of 2023 was increasing my positions on Tesla (first hour of market open on January 3rd). This year, there are 2 main stories that I also increased my positions in:

• Redfin
• Upwork

Those are both small cap with some very interesting upside. Both are somewhat consumer focused. Let's talk a bit about the Redfin case. We can keep upwork for another post.

Redfin runs a real estate marketplace. Most of their revenues are coming from selling leads to realtor (which is how traditionally most people make money with real estate).

The main reason I like the space is the following :

• Real estate is a huge part of the economy
• Real estate hasn't been disrupted (yet)
• Redfin valuation seems attractive

Real estate is a huge part of the economy

Depending on where you look, it is one of the biggest share of the economy, but comprise of many things. Based on which statistics you look at, it is roughly around 20% of the US GDP.

Real estate hasn't been disrupted (yet)

Real estate hasn't really been disrupted by technology companies. Business operates very similarly as it did in the 1950s. Recently the NAR (National realtor association) got sued and lost a key verdict of colluding to keep RE transactions fee high and was forced to pay damages in the range of 1.8b$. It might impact or even kill the NAR, but that's beside the point. What I find interesting is this is the perfect setup for a technology company to innovate in the space, whereas previously the NAR would have been very active in preventing such innovations. With the verdict, it will distract the NAR and there is a higher change of innovation to happen in the field. But again, this doesn't mean Redfin will be successful.

Redfin valuation seems attractive

When looking around real estate tech plays, I always end up looking at Redfin. First because I do love their products. I've used them for looking/searching for houses, I visited houses with them, and even made a few offers with Redfin although without success in closing a house.

At the low point, the company did trade around 500M$ which is 0.5 P/S with ~30% Gross margin. The company grew by -16% which is impressive for a market that is pretty much shut down due to high mortgage rates. My bet is once mortgage rates cool down a bit, revenues will back roaring with a vengeance.

All the value accrues in the long tail

On a different topic, this idea came from the NZS acquired interview. Most of the value (in absolute terms) come in the long tail of your investments, or your time doing something or even your life. This is the magic of compounding. This is why focusing on activities that allow compounding, learning is a perfect example where compounding applies perfectly. They have an awesome whitepaper detailing more of those ideas here

The example the NZS team provided was with Warren Buffet, where he made most of his money on the long tail with Apple. He originally spent around 36b$ accumulating about 1 billion shares which are now worth about 190$b over a period of 5 years. This means, he managed to generate about 150b$ (in absolute terms) which is by itself a huge amount of money. Let that sink in.

There was some good discussions from the All-In podcast talking about actors and writers, but also more generally about work and purpose.

Some may argue that acting also follows the power law there the winner appear to take all (winner take-all) and the 10000th actor can barely make a living.
This also applies to blogging as well (such as this author wondering why he probably makes a few cents per hour writing this).

Obsession level :

One other good point they made, is if someone wants to pursue a career where the dynamic of power law exists, they need to be obsessed about it. As much as they can't help it but work on pursuing their craft. This is how they can commit up to 60-70 hours a week, and it doesn't feel like much.

People often tend to look for a profession to pay the bills and have a "work/life balance". There is nothing wrong with this, but there is also another class of work where someone would willingly want to sign up to be the best at what they do (and push their craft to the limit). Those are the NBAs, Hockey Player and entrepreneurs of this world.
Nobody will force someone to be in the wrong class of work (work/life vs performance), but having the choice allows to optimal growth and more importantly, provides the choice to the individual.

Knowing where the bar is :

One good point David Sacks made is that people shouldn't compare themselves with the worse person who "made it" but rather compare themselves with the best person who hasn't made. Since those are the real competition.

Note that investment also could be considered a power law business, especially when it comes to hedge fund managers. The value creation of hedge fund over a period of 10+ years still remains to be seen, with a few rare exception (like Renaissance Technologies). Successful fund managers are all but obsessed about which stocks to buy.

Here's the link to the video. Around 46:45 : https://www.youtube.com/watch?v=gpDzcCHERX4&t=2824s

Here's a few notes I came across this week. Without a doubt equity markets were quite horrendous in 2022. Without bragging I can say I was right on inflation but I forgot to make the link that inflation means higher rates and that the risk-free rate would change DCF formula and expected cash flow.

However, let's not get caught up in regency bias. Yes 2022 was awful, but this doesn't mean 2023 will be as bad. As we come out of 2023 (Q3), all eyes will be on 2024 expectations.

There's a great talk for a forever bullish analyst Tom Lee from Fundstrat.
A Very Tom Lee Christmas | What Are Your Thoughts?
Of course, you need to keep your grain of salt since Tom has a default bullish stance. I personally also have a long-term bullish stance (which obviously paid off handsomely in the last 100 years).

Consecutive bad years are rare

Without some kind of very bad extrogeouns event (i.e. 9/11 or the oil crisis), 2 bad years in a row are rare. Turns out war doesn't seem to really affect this, and potentially war could be bullish.

The other interesting data point, other for 1973 (which I'm honestly not that familiar with), the 2001-2003 downturn had the biggest drawdown on the first year.

Like we talked in the past, time in market matters more than trying to time the market

Demographics matter:

Looking at the demographics and which cohort is of prime working age also matters.

As for this blog, I will try to post more regularly in 2023.Remember, no one knows what will happen in 2023. So, I'm not trying to predict anything here. My main goal is avoid getting caught in "regency bias" after a bad year.

In this post we will review one of the key essence of this blog: How do I become free and wealthy? How to escape the rat race?
Turns out, there is a simple solution: build skills that the inputs are decoupled to the outputs.

Wait, what is that? Let's start with the negative example.

What is common to those profession?

• A uber driver
• A practicing doctor
• A factory worker

Both of them are being paid for services they provide. The amount worked is direcctly proportional to the outcome.
A basic example is imagine 2000 years ago and your main job is to cut down trees. If you worked 1 hour, you would get 1 hour worth of trees cut. If you are sick or can't chop any trees down, then you wouldn't be able to get any outcomes. If you work 100 hours a week, you would get 100 times more wood (or outcome).

Basiscally what we are describing here what scale is all about.

An Engineer working on Youtube can have its code generate and be used thousands of times.

So the what is trick? Focus on building skills that have input and outputs decoupled.

What is the best example of such skills?

• Investor: A very sucessful investor can make 2 trades a year and beat hands-down a bad investory day trading 30 trades a day. I believe investing is one of those art where the amount of input (hours spent) is totally unrelated to the outcome.
• Most creative jobs. A musician making music once and selling (or streaming) that song for thr next 10 years.
• Sales jobs. A very good salesman is able to generate a lots of sales just by using his reputation or established marketing.

Note, this idea was inspired from a writing from Nawal Ravikan.

So what skills are you working ok everyday? Are any of thise skills scalable?

It has been a while ride. Lending Club is up 65% in the last month and back down to the 13-14$ range.

The previous LendingClub DD was about 1 month ago. As a reminder, this is not investment advice.

The main catalyst were :

• Fourth quarter Earning report 2020
• First quarter Earning on April 28th 2021 (including Radius Bank first numbers).
• Ark investment stakes.
• Reopening trade in play, 10Y treasuries going to 1.75%

However this rally appears to be mostly fuelled by institutional money. In this article, I will re-iterate the long term vision of Lending Club and how it can achieve a turnaround.

$LC has the potential to have multiple moats

Warren Buffet famously talked about moat in business and why those are the best investments. In my opinion, lending club was able to build a huge moat around it's business. And surprisingly, no one seems to have paid any attention to it. There are in fact 3 moats surrounding it's business:

• Moat 1: The first fintech (since 2001) to have a banking license (with the acquisition of Radius)
• Moat 2: Data advantage : 15 years of data on 3.6M loans.
• Moat 3: Marketplace platform play

Moat 1: Bank license

The banking license is allowing Lending Club to reduce greatly the origination fees. They are expecting about 30M$ in saving for every 1B$ in deposits. In the latest earning, they implied they have about 2B$ of deposit in Radius bank.

Total asset held by lending club.
If we only look at the current balance (without Radius), $LC stands at around 724M$ in assets:

The balance sheet tells us 2 things:

• $LC business held up pretty well during the pandemic
• $LC is well capitalized versus it's actual assets.

But surprisingly, Radius seems to be well capitalized at around 2.6B$. That's from feb 2021, whereas they only had about 1.4B$ at the time of the close. So it's either Radius is an extremly fast growing bank or the stimulus checks are just filling up the coffers.

In summary, at current trajectory, we can assume $LC should have about 3B$ in deposits and about ~800M$ in assets. $JPM stands at 1.9 Price/Book Value (P/BV) and $WFC is closer to 1 P/BV. If we use a conservative multiple of 1 for P/BV this brings us to a target price of ~33$. I think it is possible once investor appreciate the innovation/disruption of API banking to give higher multiple (like Sofi/ $IPOE has). Therefore a P/BV of 2 is very likely which brings us to a target price of ~70$.

An interesting tweet from HRouge about how fintech as either one of 2 things:

• Glorified app renting out balance sheets (Chime 14.5B$ or Affirm 27B$ )
• Bank renting out a balance sheet $TBBK (1.3B$)

But what makes $LC unique is that they are now both. Both a bank (with a balance sheet) and a glorified app (the legacy Lending club business).

From this article, we learn that :

A few things to note, radius bank is using AlloyLabs and Mantl for online checking white label 1

We get more clarity on the radius bank numbers when the earnings are coming up on April 28th.

Moat 2: Data advantage

Lending Club CEO Scott Sanborn talked about it for the first time in the 4th quarter of 2020 as Lending Club having a data advantage. Most newer competitors tout their advantage as "better algorithms".

We cannot underestimate the power of machine learning and algorithms. If any of you had any experience with banks, they solely rely on the credit score for providing loans. This is quite pathetic for 2021.
The hypothesis here is that $LC can take advantage of it's current data to provide a better risk management than traditional bank can do.

To be honest, you don't need very fancy algorithms if you already have about 3M users. Having worked with machine learning algorithms for a long time, any practioners will tell you the data matters the most, and $LC have tons of it. Someone could argue traditional banks have even more, but there is a big structural and organizational step to go from a software company to a traditional bank. Therefore, I believe $LC is at the sweet spot where it is still ran as a Software company with plenty of loan data.

With moe data, you can simply track a few basic things and look up their behavior history as previous borrower. I would argue that those platform and data provide a lot more granularity than a typical fico score. Especially, having that data advantage will allow to price loan better than any traditional banks or other fintech. Take Sofi ($IPOE 8.5B$ post-money) as an example, they build their whole business on the fact that they would also look at your degree and grades (and not just your credit score). This gave them a huge hedge to provide cheaper and more secure loans.

The other interesting information we got from the earning call is that the typical user of lending club tend to be high-income. It turns out, they also have higher debt. I suspect this is a similar demographic that Sofi (IPOE) is going after.

$LC with the bank license, is one of the few fintech that are vertically integrated. They basically now owns the full stack for a personal loan experience :

• Personal loan web-app
• Mobile checking for users direct deposit (i.e.)
• Mobile deposit for loan repayment

From the earning, this is the part that gets the tech investor excited. Banking is a traditional industry that is ripe for disruption.

$LC loan perfomance is 20x better (acccording to the management) than typical FICO scores. I entirely believe this, since I used to be have a very low FICO scores and I also once lost 100 points on my FICO score due to a 25$ subscription fee on a supposedly closed credit card. Bottom line, my personal experience is that FICO is shit. But more importantly, this shows that there is a virtuous cycle of data superiority providing a better product, which is my main argument that $LC is winner take-all platform. And lending could in fact also become a winner take-all market with 1 or 2 main companies. Likely banks are too slow to adapt for this, so $LC seems to have a shot at it since it is the leader. Another contender in my opinion is $IPOE.

Moat 3: MarketPlace

Being marketplace or more generally platform is a winner take-all. There are no doubts about this. Look at Airbnb, Amazon, Google, Facebook, Uber, etc... those are all winner take-all where the bigger the platform, the more supply you have, the better the product and experience is for the users.

Glennbrook partners have a nice table in 1. If $LC+ Radius are able to fill up the "fintech" column, then this where it creates the moat.

Diversify income streams
From the earning call, $LC is intending to keep about 15-20% of loans originated for interest income and sell the rest through marketplace. This will allow :

• Interest income
• Capital light originations fees/ marketplace fees.
  This will also allow $LC to serve more diverse population with other fintech/banks taking the lending risks. $LC will benefit by being the platform consumer interface with.

Loans offer with other fintech:
The power here is combining Moat 2 and Moat 3 to provide users with loans offers. For example, a high income person with bad credit (such as recent immigrant with STEM degree). By using radius as their online bank and taking a loan with Lending Club, $LC could potentially use my previous loan repayment, look for patterns in my checking account, the type of expenses I do, the list goes on, etc... That would give an hedge to Lending Club to provide me a better priced loan and at lower risk for $LC as opposed to a bank that would only look at my credit score.

Acquisition cost:
One amazing thing that $LC was able to prove is that it is able to provide very low acquisition cost. This is similar to what is happening with Airbnb where they stopped all customer acquisition expenses and are only focusing on the current user base. $LC could be close to that scale with 3M+ users. And if $LC can prove they provide better loan terms, users will organically flock to it.

Here's the direction I think $LC could take. Treasury Prime recently partnered with radius bank to provide business checking. Treasury Prime is the poster child of a fintech leveraging bank APIs. They are Y-combinator startup focusing on a particular vertical. If lending club leverage their current platforms with the 3M+ users, they could allow similar fintech underwriting loans for particular demographics, etc.. assuming they have better data or understanding of that target. This creates 2-sided marketplace with winner take-all dynamics and makes it very hard to replicate. This is still speculative at this point, but the CEO pointed at this direction in his blog.

Other concerns

A lot of people got burned by Lending Club and especially in 2016 when the fraud allegations came out. The ousting of the founder didn't help and the decade long decline in market capitalization was direct result of this. But I believe this era is behind us now and $LC is about it pivot it's business. The product itself (personal loans) were still very popular and provided a lot of benefit to it's users even during this tumultuous period.

Peer-to-peer is dead

That's the unfortunate truth: Peer-to-peer lending is bad business model and is dead. $LC management confirmed that when they shutdown all the individual investor notes in December 2020 and now the only investors left are institutional or funded directly (through radius).

Marketing cost

When analyzing companies, the best companies are the ones that need no marketing to bring back their customers. $LC seems to be one of them, since they simply slashed all the marketing costs during the pandemic and even though origination when down drastically, they maintained relatively well.

$LC also did a 30% personel cost.

Reopening play

Banks are the about the benefit greatly from the reopening after covid for the following reasons :

• Bank typically make money with steep yield curve. With Jerome Powell guaranteeing for rates to stay and inflation expectation picking up (high end of the yield curve), this is the perfect environment for bank to outperform the market.
• Banks are not getting the defaults everyone was scared about. Seems the Fed and Biden administration is determined to provide plenty of liquidity or just outright money.
• Economy re-opening, meaning people are spending money again and taking on debt for wedding, travel, housing, etc...

How to value $LC

The hardest question is how to value $LC.

• Is this a bank?
• Is this a tech company?
• Is this a marketplace winner take-all platform?
• How does $LC compare with other fintech valuations?

This is literally the $ billion dollars$ question. This is where us (the retail investor) can shine since we have 2 things in our advantage. One is time and the other is we have no career risk. It's my fucking money after all... no one can fire me, cancel me or dump my fund if I'm wrong. And just a reminder, this is NOT investment advice. I'm just a rando on the internet with no financial qualifications professing a love for a particular security $LC.

What if I'm still wrong??
My strategy is typically to study a company and try to understand business from a operator/technologist point of view. When I'm wrong (and if my investment is down significantly), I typically go back listening and reading about the earnings and the business and try to see if Mr Market is just acting crazy (or not). Companies do get mispriced a lot and I don't personally believe that efficient market theory applies ALL the time. But it eventually converges to a fair(er) value. Our opportunity is to find those mispricing. I found that in turn-around companies (especially tech + turn around companies), most analysts are lost and there are lot of upside gains. Gamestop ($GME) was one great example. I strongly believe $LC (Lending Club) could have a similar outcome.

Valuing as a tech company
A typical tech company growing revenues yoy 30%+ can easily trade a 10-20x multiple of revenues if it is a simple business like SASS with recurrent revenues.

One interesting note we got from the earning call is that $LC will hold loans on the balance sheet which will provide recurrent income stream.
Every 100M$ of loans will generate 12M$ of income. This also breaks the 1 to 1 relationship between loans and origination. So this means, origination can go down and $LC can stil generate plenty of recurrent revenues with the loans.

Also most the GAAP loss for FY2021 is due to CECL. This means $LC need to account for loss provisions upfront for adding the new loans to it's balance sheet. However, if the theory holds and that AI/Machine learning provide less risk, this will create a good money printing machine. So as long as $LC is growing, expect to get GAAP net loss due to those CECL provisions.

Competitions
There are 2 companies that are closest to $LC model but neither are exactly as fully vertially integrated as $LC.

• SOFI ($IPOE): Valuation of 8.5B$. This is the SPAC from Chamath. They are just starting the bank application process and will likely take more than 1 year for it to happen. They offer un-secure loans like $LC but also offer mortgages and investment options.
  • Revenues : 620M$ (2020)
  • 1.7M Users
  • Valution : 8.5B$
• Chime : Is a typical fintech startup. This provides an idea about what Radius can execute and become.
  • Revenues : 500M$+
  • 8M+ Users
  • Valuation: IPO around 30B$ 7

Lending club has an enterprise value of around ~1.5B$ (as of March 22nd) along with about 2B$ deposits.

** EBITDA Positive **
I know that Warren Buffet hates this metric, but it does provide a good direction of where the business is going.
They were able to generate 5% of EBITDA margin out of ~75M$ in revenues for Q4 2020.

Contribution Margin
The other notable metric to follow is the growth in contribution margin. This also provides an idea about future profitability once the acquisition is completed and reopening fully kicks in.

Insider buying
One interesting note is that the CFO (Casey Thomas) bought some more $LC, raising his stakes by 5%. There has been a lot of selling from other exec, but it seems to looks like more cashing out (for daily expenses) than giving up on the business.

Conclusion
In my opinion, the market is not giving enough credit to the turn around for Lending Club. There are still some risks ahead but mid to long term, I believe $LC has the potential to be quite profitable. There are a few cataclysts coming in the next few months namely:

• Full numbers from radius banks
• Reopening play and interest rates likely continuing their trend up.

Stay long here.

Lending club is an unloved and attractive stock for a re-opening play with a great growth story and big vision. I belive it is nice long term play.

On this blog, I typically don't do analysis of individual stocks. However, I do feel LendingClub deserves some love and it is a very misunderstood business.

Lending club initiated as a peer-to-peer lending marketplace. Turns out this was not a great business model to have individual (retail) investor lend to other retail investor. The main issue was friction, the time to get the funding and the availabilty of funding. In december 2020, they shut that down and will focus on getting institutional money to fund the retail loans.

Catalyst

Lending club announced they were acquiring a bank. This was early 2020. It was the first time since 2008 that a fintech acquires a bank. In my opinion, acquiring a bank is genius since it will do the following :

• Save 40m$/ year in funding fees they currently pay to banks.
• Easy access to liquidity (deposits from Radius bank users)

In terms of financial, it looks they are on the right track.
In the last quarter before the pandemic, they managed to turn a profit on a EBITDA basis (about 4.3M$)

The biggest shareholder of Lending Club is ARK Invest. They both 8% of the company which is the maximum their fund allows them to do.

Finally, valuation is quite attractive. They are trading below their entreprise value of ~950M$. They have 570m$ in cash in the bank (before Radius bank acquisition)

Vision

Buying Radius bank will allow Lending Club to become a true marketplace with fintech on both sides. Radius bank is what we call an open API banking banks. Lending club now call themselves a NeoBank.

One of the main issues with fintech is acquisition cost (as it is for the banks). Banks can afford those expensive credit card promotions with their cash flow. However the acquisition cost for fintech is high and without steady cash flow, it impacts their balance sheet significantly.

For an up and coming fintech, this is a win-win since instead of the paying extra acquisition cost, they can simply hop on the lendingClub marketplace and compete for business. Their only acqusition cost is paying Lending Club a fee (only if the customer takes the loan). So they can focus at what they are the best at, underwriting loans.

It is also a win-win to Lending Club, since they can send the loans to multiple underwriter and get the origination fees.
Finally it is another win-win for the customer since they just need to apply for a loan once and get multiple offers at different prices.
Note that this vision is still speculation at this point, but if Lending Club is able to execute properly, this could happen within the next few quarters. And Lending club is very well position to take advantage of this.

In summary this is a winner-take-all approach where fintech firms get business for cheaper than current acquisition costs and lending club makes money as well. In this setup, everyone involved wins, the fintech firms, lending club and the consumers.

In summary this is a winner-take-all approach where fintech firms get business for cheaper than current acquisition costs and lending club makes money as well. In this setup, everyone involved wins, the fintech firms, lending club and the consumers.

I am not a very savvy technical analyst (I usually suck at technical analysis and it seems that all my trade are never as great as they could be), but I mostly rely on my vision on what a business potential it has or could be.

They are reporting earnings on March 11th 2021.

Fairly valued re-opening play:

At this point, there are only a few not so overvalued re-opening play available in the market. I would argue Wells Fargo, Exxon are but these are big companies and potential upside is 2x at most. I wouldn't hold them for the long term.

Uber and Airbnb are amazing re-opening plays (with no debt) and potential to become trillions dollars valuations but they currently fairly valued (Airbnb is definitly priced for a lot of growth).

This is where Lending Club comes in. Right before the pandemic, it has about 40M$ in EBITDA.

Same trend with the GAAP net income :

My assumption is that they will be able to return to this level and this is even without counting the cost saving they have accomplished during the pandemic (30%). Remember, $LC is a platform company, so the cost of servicing extra loans doesn't increase linearly. You can see this with their contribution margin impact. They are now able to achieve higher contribution margin than before the pandemic started:

Of course, during the pandemic, most americans couldn't spend money (or get into debt) with an economy that could collapse at anytime. This was a bad global macro-environment to operate a unsecure-lending platform. However, the consensus is that the worse is behind us.

Finally, I will use an annualized net income for Q4 2019. I do believe this is a pessimistic number since it does not include the cost saving of 2020 (30% layoffs) and the cost savings of Radius bank. Q4 2019 had a net income of 8M$ which I will use 32M$ as future conservative estimation for annualized income.

This gives a multiple of ~30 P/E (950M$/32) and P/S of (204M$* 4)= 808M$/950B$ = 0.85 P/S.

If you remove the cash on balance sheet, those multiples become extremely attractive (950M$- 580M$) :

• Forward P/E : (370M$)/ 32M$ = 11.56
• P/S : 370M$/ 808M$ = 0.45

With the cost savings done during the pandemic, I believe they can achieve better. And note that this doesn't include the Radius Bank acquisition cost saving stated above. However Radius bank is a private company and that is a wild card (we don't know how well this business is ran).

I strongly believe the re-opening play is a once in a lifetime opportunity. It is unheard to have all the major economies of the world in sync about to unlesh a hoard of consumers trapped in their houses for the last 16 months.

I strongly believe the re-opening play is a "once in a lifetime" opportunity. Or at the minimum this IS the play of this decade.

Cathie Wood factor

And to add to this, ARK invest owns ~8% of lending club. I am a big fan of ARK invest, but a lot of people follow them so they move the market for some stocks. Lending Club however, remained an obscure holding at the bottom of their portfolio since it accounts for only about ~100M$ (out of a 58B$ Asset under management).

https://www.sec.gov/Archives/edgar/data/1409970/000110465921024165/tm216840d1_sc13.htm

ARK invest endorsement is key since it signifies that Lending Club is a growth company. ARK only invest to capture a 20% annualized compounded growth. In my opinion this is one of the rare growth and value stocks out there.

In my opinion this is one of the rare growth and value stocks out there.

Summary:

In summary, I like the stock ($LC). A few catalyst are on the horizon for 2021. It won't be an overnight success, but if they keep executing the future is bright for them.

• Radius bank acquisition.
• Ideal reopening play
• Attractive valuation for annualized pre-pandemic (Q42019) multiple minus net-cash of ~11 P/E or 0.45 P/S.
• ARK invest owns ~8% of $LC

Disclosure : The author owns this security in his portfolio. He was dumb/retarded enough to buy at IPO and kept buying all the way down to lows of 2020. He finally managed to DCA (Dollars cost average) out and as of Feb 20th, his positions have a slight miniscule profit. But he has no plans on selling anytime soon and this is a 5+ year hold. This post is only for entertainment purposes, I am not in no-way/shape or form remotely qualified to provide any financial guidance or advice.

Now that 2020 is over, my guess is in 5 years everyone will look back at 2020 and realize how irrational the markets were. It is always in those time of panic that there is most money to be made. Unless you are ready to retire, selling during a panic is usually the worse thing to do. Write a plan ahead of time and work out all the possible scenarios (what if a 30%/50%/70% decline happens). For me, I simply play with the ratio cash/bond/stock. Currently, I'm sitting around 90% stock since ~April. As the economy gradually improves I am planning to sell of my gains, but there is still a long way to go. I have another post about how inflation and how to protect from it.

Yes the corona virus is really bad. Yes the lockdown affects a lot of people and the economic devastation for small busineses is unfathomable. But 2020 also proved that innovation and resilience do pay off and betting for the end of world is never a good idea.

Unlocking the vaccine technology:

For example, we now have a vaccine. This vaccine is based off the mRNA. This is undoubtly a new era for vaccine and for humanity. In summary, as opposed to traditional vaccine where we need to grow and weaken the virus, the mRNA approach simply "prints" the right genetic sequence in a lipid carrier, to bring it to your cells. The traditional method of growing vaccine is very cost prohibitive and time consuming. One thing people don't seem to appreciate is how fast it took to make the vaccine. About a few days.. A FEW DAY!!! It was conceived on January 13th

The implication of mRNA means that it is pretty much game over for any type of CoronaViruses. Even if the virus mutates, we can just print a newer version. Approval process could be sped up since we know and understand the current vaccine. Also in a few years, we will have a very good understanding of the impact, side effects and production techniques of mRNA vaccine at scale. Of course, the media loves (and desperatly need) good stories about how bad a mutated virus might cause more wreck in our societies, but this point is definitely overlooked.

Another thing to remember is that we had this technology for more than 15 years and it never got approved by the FDA. I am extremely grateful for Moderna and others to have spent the last 15 years of their life pursuing a technology that didn't have any commercial applications even though originally if was targetted for cancer therapies. It only took an big event to force regulator to allow new innovations to get quick approval.

Innovation is exponential

The other concept we need to keep in mind is that innovation is exponential and spreads exponentially. It's similar to all of us playing a video game and every time we unlock a new weapon, we get to share with all other players (that is the other 7 billions players out there).
We have also spent enormous amout of money on the covid response. Similar to an Apollo program or a WW2 mobilization. Obviously, all this technology and know-how will stay with us long after the virus is gone. Therefore, we will benefit for 20-40 years for all those investment in infectious disease.

Unlocking gene sequencing/editing

Another technology that is still in it's infancy is gene editing and sequencing. The mRNA vaccine is only the tip of the iceberg of what is possible. What is unique now is that we have the computing power to really understand/simulate and reduce the cost drastically on this technology. The impact of this technology should be greater than "ad tech" which was dominated by Google and Facebook. This is not for tomorrow, but eventually this might happen.

Your money

How does this have any impact on your money? Well plain in simple this year showed you that if you followed your plan and didn't panic, you probably made a very good decent return. If you panicked and left your emotions play with your investments you missed out on one of the greatest bull run.
Also in terms of economic growth, innovation is what drives economic growth. Better technology allows for cheaper products to be used more broadly (think about cars, iPhones, etc...).
Investing is a major part of successful financial independence and I hope this post helps you understand that investing in innovation pays off over long period of time.

One of the most powerful concept in investing is assymetrical returns. This means, if you bet 1$ but you have a chance of winning 10$ or losing your bet. If the odds are anything over 20% of winning, I would take this bet anytime. In markets, there are always periods where inneficiencies happen and odds are usually not that bad, but the upside gain is very assymetric.

Here are some example of assymetric risks :

Investing in yourself:

Let's say you go to college to learn a marketable skill (Software engineer for example). Even if your college tuitions and costs is around 100k$, if you can manage to make more than an extra 50k$ than without this college degree, after 20 years, you made a 1000% return (or 10x) that initial cost. And this is without taking in account inflation.

But something that has infinite upside is you pickup a good book, like this one and learning a new skill. This has infinite upside and no downside except your time. You can even pick it at your local library so you don't have to buy it (no financial investments).

Investing in yourself should be far be the most important investment you should do.
This can be summarized in one of my favorite show (Games of thrones):

Jon Snow : Why do you read so much?
Tyrian Lanister: Look at me and tell me what you see?
Jon Snow : Is this a trick?
Tyrian Lanister : What you see is dwarf. If I born a peasant they might have left me in the woods to die, but I was fortunate enough to be a Lanister [...]
Tyrian Lanister : I must do my part for the honor of my house. Wouldn't you agree? But how? [...]
Tyrian Lanister : My brother has a sword and I have my mind. A mind needs book like a sword needs a wet stone. That's why I read so much Jon Snow.

This is one of my favorite scene in this whole show. I am fascinated on how Tyrian manage to convince people to keep him alive and even fight for him (since he obviously can't himself). All with just the power of his mind.

This perfectly illustrates the nominal cost in time and resource (to buy the book), but the gain is be infinite. Imagine if decide to buy this book which motivates you to start a media venture or a company? Limted cost, infinite gain.

Invest to build a company:

Building a business is probably the second highest asymmetric gain there is. If you are successful, those gains can equate to insane amount (ask the Nvidia founder who spent 300$ to incorporate the company, now worth a few billions)..

Often building a company requires a lot of your time. The cost of your time is nominally low but the reward (a successful venture) is quite high.

Investments: Venture capital model

NOTE : This is only for informational purpose. I DO NOT recommend investing in startups. This is only to show the power assymetric returns.

The best in the business when it comes to assymetric gains are venture capital firms. They are expert in finding very small upstarts or non-established companies and
Similar you can learn in this book how invest in seed venture companies. Note this is highly speculative and can only work if you have enough capital to invest in 30+ startups.
I met once with this venture fund that invested in Youtube 15 years ago. They probably invested in 100s more startups that didn't go anywhere, but that Youtube investment was so lucrative that it kept financing them for years.

However nowadays with syndicate and Angel list, you can learn about this. I would warn our readers again that this is HIGHLY speculative. This only makes sense if you are interested in this industry and willing to learn a lot.

Stock investments:

Next time you invest either in an index fund or in a individual stocks, you need to ask yourself if this company has a potential to provide you a 10x return and what is the probability.

Usually smaller, high growth companies have more potential to grow. If I look at Arlo (camera manufacturer), the enterprise value is close to 250M$ and they have a market cap of ~400M$ (as of this writing). At some point the entreprise value was closer to 0$, so the downside were pretty limited. If this company has a 50% chance of surviving (not going bankrupt), the upside are quite interesting.

Although your main portfolio should consist of index funds, it is ok to dabble a buy a few speculative stocks that hopefully can give you outsized returns.

Understanding Exponential growth:

Viruses grow exponentially. Just take a look at the COVID infection rates. Never under-estimate an exponential growth curve.

But also some companies grow exponentially. This typically applies to tech companies. For example, if you look at Uber number of drivers, you can clearly recognize an exponential curve.

This growth is something to all the fast growing companies at their beginning (Google, Facebook, Uber, etc...). However, as companies matures, it becomes harder to keep this exponential growth. For example, Tesla is still ramping up production (Nov 2020) and exponential growth is just starting. So is Amazon with their robotic warehouse investments.

In this post, I will show you where you can save money on one of your biggest expense: Housing.
I will show you have to save up to 3000$ when doing a mortgage refinance. Explain the pros and cons of refinancing.

Federal fund target rate has been cut to literally 0% (0% to 0.25% to be exact).
I am currently in the process of refinancing my house and I think you should consider first. The beauty of having a mortgage is that your costs are fixed (as opposed to being a renter). If you are a renter, now is a great time to consider investing to become a landlord, but that discussion will be for another post. In this post, we will focus on how a current homeowner can save with refinancing.

First of all, I need to lay down a few assumptions. Even though we are in a depressionary environment, the US debt has increased by more than 30% just in the last 6 months.

US Debt:

Our current debt has been increasing a faster rate since the Obama administration (by both parties to be fair, I'm not trying to be partisan here). Just take a look at this graph:

There are a few ways to pay down this debt.

• Goverment starts taxing everyone more (very politically unpopular)
• Goverment starts a very aggressive austerity program. Same very unlikely politically.
• Use inflation to eat away this debt.

My guess is that with this amount of printed money and increased in debt will bring inflation. Probably not this year or next, but in a 5-10 year period, inflation will be needed to be able to manage this debt.

Peter Schiff has a good view on inflation. This is the interview with Joe Rogan for 3 hours

Why does this have to do with mortgage rates?
Locking long term debt (like 30 years) allows YOU to make a bet against inflation. With interest rates so low, it should be a no-brainer that taking on long term debt with fixed rate means if inflation goes up, servicing your debt becomes easier.

Along with protection against inflation refinancing have a few more advantages:

Pros :

• Lowering your payments: I am able to save about 1000$/mo just by refinancing. This can be accomplished in 2 ways:
  • Lowering your interest rates
  • Resetting the payment schedule to 30 years. I'm currently into my 7th year of my mortage. I can take the remainder of my principal and instead of paying it over 23years, I can move it to 30years. My bet here is that inflation will eat away this debt.
• You can take cash out to prepare for an eventual downturn (make sure you have enough liquidity). You could also take money out (at ~2.5%) and invest it in the S&P instead.

Pros:

• Non-recourse mortgage: If your mortgage is the initial mortgage for a few states (like California), your mortgage is non-recourse. If you refinance, it's still a grey area, so it's unclear.

A non-recourse mortgage means if for whatever reason you don't or can't pay, you can walk away and the bank can only take your house (even if you have the remaining money left in the bank). Basically your downside risk is limited (the max you can lose is your downpayment), but the upside is unlimited. These are the kinds of assymetric risk/gain investors like.

For example in California, this is written into law . Check out California Code of Civil procedure section 580b.

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property [...]
So the law is very clear on this topic.

Mortgage rate forecast:

When looking at the spread between the 10year T-Bill and the 30 years mortgage rates, we can see a big spike since they started lowering rates in March. In general, this trend should follow and revert to the mean, so we should expect rates to keep going down.

Shop shop shop:

Below is a timeline of my process. This is still a WIP. I will provide an update once this is completed.

The best rate I have hit so far is from Loan Depot with a 2.25% fixed over 30 years. My loan is a 700k$ and my loan officer was pretty good. He was the only one able to waive my appraisal (all other tried but none could).
You can use this referral to use the same loan officer:

The downside of shopping is:

• Time. It does take time
• Credit hit.
  • Everytime a lender does a credit hard pull it affects your credit score. Even though this happens through an opaque algorithm, in my case, I had around a ~20 points drop. The good news is that you have a window of 14 days to shop as many as you want before the drop gets registered. So make sure to do your shopping with lenders within that 14 days window.

Why buy mortgage points?

If you plan on keeping your real estate for a longer period (more than 3 years), it makes sense to buy mortgage points.
The only reason not buy points is if you expect to refinance within 1-3 years.

There are 2 main reasons you would want to refinance:

• Investment of 15%+
• Tax deductible but amortized over the life of loan.

Great investment:
Consider my loan offer. My total loan is 700k$. I can pay 2.625% or if I "invest" 12k$, I can lower this to 2.25% and save about ~2.8K$ per year in interests. This means a ~23% return on my investment. Not bad.

Fee breakdown for mortgage refinancing

Below is the breakdown of all the fees, and how to avoid them.

You will get a Loan Estimate which is standardized. They will all look the same.

Save 600$... waive your appraisal
Apparently most refinance need an appraisal even if you have plenty of equity in your loan. However, turns out to get an appraisal waiver the value has to be less than 1M$ and you need enough equity. As soon as the value goes over 1M$, an appraisal is mandatory. In my case, the propery I was looking to refinance had a value of 2M$, but by using 999k$ as the value I was able to save ~650$ (which is the cost for doing an appraisal).

For the other costs, the best way is to shop around and have lenders compete for your business. I haven't found an easy way to get rid of costs.

I used Loan Depot and was able to get a 500$ lender credit per referrals up to 2500$. I had a very good experience with them and I would recommend them. If you are good at referring friends, then this can help reduce some more costs.

I hope this post was useful. Please share you experience. Of all the bad things that happened in 2020, low mortgage rates is probably one of the few silver linings.

I have been trying to think about the impact of transportation in our lives and how technology can change it. In this article, I will explain which stock (securities) to buy to profit from this. This is not a trading opportunity, but rather something you buy and hold for many years (5+ years).

Even though this website mostly talks about financial independence, I would like to share some of my thoughts on a pivotal industry for the 2020s. Just like Internet was for 2000s, mobile was for 2010s, I suspect (and believe) that transportation will define the 2020s.

For the 2010s, the big sucessful companies were Google and Facebook. Both make most of their money through advertising.

Advertising represents about 1.25% of GDP 1.

Logistic is 8.4% and transportation is 5.4% 2. There is an order of magnitude in terms of opportunity.

Which companies to invest in?

If you have extra money, the tech companies that can profit from this trend are :

• Uber/Lyft
• Tesla

Someone could add Google with their Waymo division but it is very difficult to switch from one core business to another (not impossible, but difficult). Google is primarly a Ad company (along with Facebook). You can read more on this in the innovator's dilemna book.

I would avoid any Tesla's copycat (Nikola or Fisker). Those are pre-product companies, with no track record whatsoever.

The interesting thing is that I wrote this article about 7 months ago, before Tesla stock ascention. I'm not suggesting this is a good price now or before, but I rather want to do an analysis in the future prospect for that industry.
What are the competitive advantages of Uber and Tesla:

Tesla:

Tesla is more of a software company than it is of a car company. The same goes with Apple. Nowadays, nobody question the fact that Apple is valued more than any phone companies (think Motorola or Nokia).
In terms of technology, the approach Tesla is doing is very similar approach as Apple did, with the exception that Tesla owns his manufacturing. This makes the execution an order of magnitude harder and also protects against potential competitive threats. Which means, if you can execute, you protect your business even more.

Tesla has the Silicon Valley DNA all over it. It was originally a software battery controller company that would wrap it's IP into a car.

From the 2020 Q2 earnings, we can see that Tesla is well on its way to make ~1.4M cars by the end of 2021. Which is quite astounishing.

I do not want to sound like a perma-bull on Tesla. There is definitely some frothiness going-on and speculation. If you take Apple as an example, the growth wasn't instantaneous. It took more than 15 years (with many pullbacks). Apple in the last 5 years had 5 pullback of at least 30%.

They also have an increasing gross margin (25% now), which is quite a feat for a car company... which again proves the point that this is not a car company.

Tesla is valued at around 100x 2021 earnings. This is not doubt high valuation.

Uber:

Uber is another of my favorite play in transportation. My guess (mine is as good as yours) is that Uber will have to get acquired if it stays at this size (July 28th with a market valuation 54B$).

A few things going for Uber :

• Uber is the typical network effect product (just as was facebook). THe more people use it, the better the product becomes.
• It is currently unprofitable, but growing fast. THe ride sharing portion is profitable, but the food delivery is not (yet).
• The main cost can (and will) be automatized in the future. That is the drivers. It's not a matter of "if" but rather a matter of "when".
• The acquisition of Postmates sealed the deal making sure Lyft doesn't start competiting with Uber. A Lyft acquisition of Postmates would have made a formidable competitor to Uber, this threat is now put to bed.
• Softbank and Masayoshi-Son are having liquidity problems, so they can't afford to finance all the competition (doordash, Instacart, postmates, etc...). My opinion was that Softbank was distorting the market with it huge amount injected in startups. Those startups needed to grow fast (since they got the money), thus forcing price wars to acquire customers.
• It is entirely possible for Uber to get acquired in the range of 100B$ (especially that all other big tech company valuations are so large nowadays). For example, if Amazon acquires Uber for about 100B$, I have no doubt it can add more value with the synergy of the businesses (Amazon Prime for your Uber anyone? or your Uber driver making some Amazon deliveries )
• Finally, I am extremely bullish on their Uber Freight business. The idea of having a single uniform and efficient platform for truck driver is exciting. They already proved they can build a platform for taxis. Apply the same for trucks and drivers, and also this is just a matter of time before it grows and becomes a winner. Logistics is a big part of our econonmy (and growing). You can take a look at this video.
  https://www.youtube.com/watch?v=b9S3BibG9Yk

In a final note, be wary of speculation. Tesla is probably fully priced at this point with limited upside. Only invest money you don't need. But I believe Uber is still being impacted significantly from Covid.

Do you want to build real long lasting wealth? What are the secrets for building wealth? People have consistently done it, without only being lucky, in the last few decades. This post will help you uncover of those secrets to help you build more long lasting wealth.

This is an excerpt from Naval Rakivant twitter storm about how to build wealth. I find it very inspiring and reposted here so I can remember it/read it. If you like this, you should follow Naval (@Naval) on twitter.

Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.

Status, according to Naval, is the worse. Status can be the person trying to impress colleges or friends with frivilous purchases (which the FIRE community is good at avoiding). This can be the big house or the fancy car. But also it can be the employment status, someone being a doctor because everyone thought it was a respectable thing to do.

Understand that ethical wealth creation is possible. If you secretly despise wealth, it will elude you.

Well said.

Ignore people playing status games. They gain status by attacking people playing wealth creation games.
You’re not going to get rich renting out your time. You must own equity - a piece of a business - to gain your financial freedom.

This one of the most powerful statement. Don't rent your time. Don't be employed for other. If someone else is employing you, it means they are making more money off of you.

You will get rich by giving society what it wants but does not yet know how to get. At scale.
Pick an industry where you can play long term games with long term people.
The Internet has massively broadened the possible space of careers. Most people haven't figured this out yet.

With the internet, you have access to 4+ billion people online. You can build something once and have people use it constantly.

Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
Pick business partners with high intelligence, energy, and, above all, integrity.
Don't partner with cynics and pessimists. Their beliefs are self-fulfilling.

Learn to sell. Learn to build. If you can do both, you will be unstoppable.

This is one of the best advice he has. As a trained engineer, I did put a lot of emphasis on the "learn to build" part but I did little on the learn to sell. Selling goes into a lot of things, selling your ideas, selling your skills, selling your vision (to potential business partners).

Arm yourself with specific knowledge, accountability, and leverage.

This cannot be truer in the 21st century. There should be an emphasis on leverage. This also includes the concept of asymmetric gain, lose 1x or gain 10x.

Specific knowledge is knowledge that you cannot be trained for. If society can train you, it can train someone else, and replace you.
Specific knowledge is found by pursuing your genuine curiosity and passion rather than whatever is hot right now.

So true. People think going to college will you learn something. Well if you learned in college in invaluable, how come all the other students graduating every year are learning the same?

Building specific knowledge will feel like play to you but will look like work to others.

This is the trick on how beat your competition. Love what you do, then it won't feel like work to you.

When specific knowledge is taught, it’s through apprenticeships, not schools.
Specific knowledge is often highly technical or creative. It cannot be outsourced or automated.
Embrace accountability, and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.
The most accountable people have singular, public, and risky brands: Oprah, Trump, Kanye, Elon.

Yes I love that. Take accountability and stand for your ideals/ideas. Whatever people are saying.

“Give me a lever long enough, and a place to stand, and I will move the earth.”

• Archimedes

Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).

Leverage is the most powerful force in the universe. Being able to leverage (people, technology, etc...) is the key for success.

Capital means money. To raise money, apply your specific knowledge, with accountability, and show resulting good judgment.
Labor means people working for you. It's the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you.
Code and media are permissionless leverage. They're the leverage behind the newly rich. You can create software and media that works for you while you sleep.

This is a note to self. Keep building media or coding projects for the fun of it. If you love it, then it will feel like a past time for you. If it feels like work to others, then they will spend resources to get it done and ultimately they won't be able to compete with you.

An army of robots is freely available - it's just packed in data centers for heat and space efficiency. Use it.
If you can't code, write books and blogs, record videos and podcasts.
Leverage is a force multiplier for your judgement.
Judgement requires experience, but can be built faster by learning foundational skills.
There is no skill called “business.” Avoid business magazines and business classes.

Ouch.. that's a hard statement. I don't fully agree with this one, but do think that business is a broad field of study like philosophy. As long as you remember that you need specific knowledge and leverage, you can apply your business skills to build wealth.