5/23/23- WFE, AMAT, Team Astley, Titans & A Snake 🐍
"We could often tell when we were wrong, but you didn't always know when you were right."
Welcome back. In a busy world we can be distracted with the trivial many things or we can focus on The Vital Few.
Something that I am thinking about
I am thinking about semiconductor Capital Equipment, left in the graphic below. AKA- Wafer Fab Equipment (WFE), the manufacturers of the machines which in turn manufacture semiconductors🏭➡️💻 for integrated circuits, computer chips, sensors, etc.
Below is one of the best visuals of the semiconductor industry, and its respective submarket category/suppliers. You will recognize many of the names.
Observation on the Size of the respective category box- Generally, the smaller the box, the less competition within that category. And, small boxes also often indicate a natural monopoly/oligopoly has developed. High fixed costs, and high technological know how (Process Power. )
🚨Strategic Economics Reminder🚨-
The 7 Powers by Hamilton Helmer are Scale Economics, Network Economics, Counter Positioning, Switching Costs, Branding, Cornered Resource, and Process Power. Market power is the ability of a company to influence the behavior of another party by imposing costs or creating incentives for cooperation.Below is a slide from the 5/2023 Applied Materials, AMAT 0.00%↑ , earnings call visualizing the entire semiconductor industry and its growth drivers into the near future. A $1T industry revenue in 2030 would be a CAGR of about 8.5% per annum.
The capital equipment (WFE) to service this growing market all comes from a small box on the visual. ASML, LRCX, AMAT, KLAC, TEL. In addition, much of the technology that each of these companies produce serves a different and unique purpose. There is a little overlapping competition between these names, but not as much as one would assume. (I have not seen as much coverage of TEL, Tokyo Electron, and
has just published an excellent write up of TEL, link here.)These are not generally viewed as sexy💃🏽🕺🏽exciting companies. To be sure, they are dull and boring. WFE companies are as exciting as a mashed-potato sandwich. They do earn a high rate of return and they have historically allocated and returned capital to their shareholders exceptionally well.
A large and growing semiconductor market, all serviced by boring super machines. 😐🤥🤭😂🤑🤑💰💰 At the expense of being too direct, I guess I am saying.. “I am a fan of WFE.👍🏽”
3D Animated Computer Teardown
Related to semiconductors, below is a 17 minute video of all the components in the computer sitting in front of you. All of these items are manufactured inside the semiconductor industry. The 3D video teardown is among the best I have seen, and the narration is thoughtful and amusing.
Investing, Companies, Market Past/Future
(I invest in Companies, not in stocks.)
Interesting companies that hosted earnings results or information session since my last edition that I reviewed-
During the Home Depot earnings call they often point out that the median age of US owner-occupied homes is 40 years, and rising.🤔
Housing & Banking - UPST 0.00%↑ , AFRM 0.00%↑ , HD 0.00%↑
Others- DIS 0.00%↑ , TTD 0.00%↑ , RBLX 0.00%↑ , TGT 0.00%↑ , WMT 0.00%↑
Technology- GFS 0.00%↑ , PLTR 0.00%↑ , AKAM 0.00%↑ , CSCO 0.00%↑ , AMAT 0.00%↑
Below are a couple graphs of quarterly revenue over time from Applied Materials. The graph on the left is presented by business segment, and the graph on the right is by geography.
Podcasts
🎧- Song Exploder, Rick Astley- Never Gonna Give you Up.
1.3B views on YouTube, the song was originally released in July 1987. 20 yrs later Rickrolling became a thing. Rick’s then 15 yr old daughter told Rick straight up “Look, this isn’t about YOU. This is just the thing on the internet right now.” Our kids can be brutally honest.🔪The origin of Rick and the song is way more interesting than some internet meme.
Rick didn’t write the song, he didn’t compose the music. Rick was a 19-20 yr old shy drummer with a great voice. [What? 😮I know right!] Sent from a small town to the busy production studio in London while they promised to “figure out a song for him.” At the studio, Rick made a lot of tea, fetched lunch and helped with the studio equipment.
A song concept was hatched for Rick. Rick wanted to sing it lower and slower. The producers told him to sing higher and faster🏃🏽♂️💨. Rick-
I’d never been through that experience before. It was quite hard on me. [..] they’d say “Trust me. I know you feel like your lungs are bleeding. Sing it AGAIN.”
Rick says he looked like a red haired 11 yr old with freckles. Month after month of post production mixing, remixing versions. 6 months into the process Rick’s patience was wearing thin. The studio hadn’t given up, but the progress seemed stalled.
Production staff talk about listening to the song in the office, and that magic🪄 moment:
Pete was coming down the stairs and I was going up the stairs and we both heard it coming out of the office. We stopped in our tracks. 🛑 And we said, “BLOODY HELL, THIS SOUNDS FANTASTIC!” [..] We could often tell when we were wrong, but you didn't know when you were right a lot of the time. But yeah, we heard it there at that moment and realized. It was all hands to the pump. Let's get it out there, let's not hold back.🏎️🏁
Listen to the episode to hear the whole story. Thanks Hrishikesh Hirway 🙏🏽
I was struck by Rick’s flexibility, his patience and his willingness to be part of a team and a creative process. It worked for Rick on this song. It reminds me that I would rather have a small piece of a BIG and GROWING PIE, than a BIG piece of a small shrinking pie.
OMG😯, did I just Rickroll you? ¯\_(ツ)_/¯
Videos
2 Minute video below. THE LINE is a linear smart city presently under construction in Saudi Arabia in Neom, Tabuk Province, which is designed to have no cars, streets or carbon emissions. The 170-kilometre-long (110 mi) city is part of Saudi Vision 2030 project. The city's plans anticipate a population of 9 million (as a basis for comparison NYC ~9M people & LA ~4M.) When watching the video, it seems interesting and original for some future date. BUT, Excavation work👷🏿🚧 had already started on October 2022 along the entire length of the project. I don’t know fam.🤔 It is pretty high density. I would certainly want to visit it, but beyond that, I don’t know. Tell me what you think in the comments.
Books and Articles since my last edition
(Books are like loading software on your brain. I am usually reading 2 at a time, and if I get bored of a book I quit and move on.)
Lessons from the Titans: What Companies in the New Economy Can Learn from the Great Industrial Giants to Drive Sustainable Success by Scott Davis Business & Finance. The book is excellent because of its honesty. The authors describe lagging companies, run by arrogant and short sighted managers. But they also contrast them against excellent long-term focused companies with clear vision, strong culture, innovation, and operational excellence. The authors spill the tea 🫖☕, and I learned a lot from them in the process. Mentions- GE 0.00%↑ , BA 0.00%↑ , DHR 0.00%↑ , HON 0.00%↑ , OTIS 0.00%↑ , CARR 0.00%↑ , CAT 0.00%↑ , ROP 0.00%↑ , TDG 0.00%↑ , SWK 0.00%↑ , URI 0.00%↑ .
This book is a must read, along with The Outsiders, Influence, Poor Charlie’s Almanack, The Big Short, More Money Than God, Thinking Fast and Slow. There are several others. Some times people ask me “Nick, If I was going to read just one, which one?” 🤔🤔
When an airplane pilot👩🏽✈️ goes down her pre-departure checklist, do you want her to pick one item from the long list. Or pick 5 of her favorite from the list? No. In order to match every plane take off✈️ with a lovely plane landing✈️, you want her to attend to ALL of the items on the checklist. “Be methodical and take as much time as you need, pilot.”
So, which book should you read? Read ALL of them. 😍🥰 🫡
Here is a link to many of the books I have read and my 1-5 star rating- Goodreads Books Read
Wild Card🃏
Robinhood and the Time I Tried to Catch a Big Snake 🐍😬
Robinhood released earnings this past week and they announced 24 hour trading. I’m not going to take a strong position for or against HOOD 0.00%↑ . They have brought a lot of new retail investors to the markets. We all were new once, and I continue to make lots of mistakes. Reminds me of Kung Fu Panda’s skill level ZERO. Everyone has to start at the beginning, watch the video.
We will return to Robinhood in a moment.
I don’t own snakes, I don’t particularly like snakes. But, I do enjoy nature and seek to “live and let live.” From time to time in the summer we will get black snakes sun bathing on our driveway (⚠️picture link⚠️), and a few of them have ended up in our garage. The snakes are probably just as frightened of us as we are of them when we find them in our garage.😱
We have a nice neighbor that IS a snake fan and he will come collect them and release them in the woods about 1/2 mile away. Virginia Black Snakes are Nonvenomous. People call it a “Good Snake.” I think beauty is in the eye of the beholder on this one.
My neighbor said “If you need to collect a snake Yourself:
Just grab a trash can and a long stick.
Pick up the tail and scoop it into the trash can.
Then you can simply dump it in the woods. “
No problem, as easy as falling off a log.🪵 [You guys see where this is going right?!]
Some time later, sure enough, there is a snake on the driveway, near the garage and it is big, maybe 5 or 6 feet long. I am not afraid. I get my trash can, a long stick and walk toward it. It starts slowly moving away from me, towards the woods on its own. As I lift up the back of its tail with my stick, its head comes around towards me and it all but says “DO YOU HAVE A PROBLEM WITH ME?!!” [But, of course it had an imaginary lisp because it was a snake.]
A face off with the head of a snake wasn’t part of my plan. So I squealed like a 5 year old child. I dropped everything and I ran in the opposite direction. The last I saw of the snake was its tail disappearing into the woods. I think I heard it call me a “Dumb Ass..ssss”, and the snake was definitely laughing at me🐍🤣😂😂🐍 “haaa hilarious..sssssssss!”
I am not a snake catcher, and I don’t want to be. There are other people that have a passion and a developed skill for it.
How does this relate to Robinhood and retail investing more broadly? We all start at Zero experience, and there is a learning curve involved. But not all tasks are a great fit for everyone. Encouraging people to do dangerous things with their finances is frustrating to watch. Just like no one stopped me from trying to catch a snake, retail investors might be underestimating the difficulty of the task they have suited up for. Respected famous money managers often recommend low cost index ETFs to retail investors for this reason. Like VOO 0.00%↑ or its competitors.
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Disclaimer: All of my posts are for informational purposes only. I might own some of the companies discussed in these posts. This is NOT a recommendation to buy or sell securities discussed. Please do your own work before investing your money.
The Line sounds like a totalitarian nightmare horror film in real life waiting to happen. We'll take a pass.
I really like the semiconductor graphic from "Dr Rudolf Mauch" that shows all the different companies along the process. I think without that graphic, it can be hard to grasp how many companies work on a single semiconductor.