Full Article: https://andreevdan.substack.com/p/writeup-alphapolis-co-ltd-tokyo-stock?r=4klyy7&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true

Disclaimer Below:"The 18 Degree Journal is a personal research log and blog published strictly for informational, educational, and entertainment purposes. Nothing contained in this publication, podcast, or associated media constitutes professional investment, legal, financial, or tax advice, nor does it represent a solicitation or recommendation to buy or sell any security, asset, or financial instrument. The author is a private investor managing personal capital and is not a registered investment advisor, financial analyst, or broker-dealer in Canada or any other jurisdiction. All analysis, data, and opinions are presented "as is" without any express or implied warranties regarding accuracy, completeness, or suitability for any specific purpose. Investors must conduct their own independent due diligence and consult with a licensed professional before making any financial decisions. Potential Conflicts of Interest: The author may hold long, short, or beneficial positions in any of the securities, companies, or assets discussed in this journal at any time, without obligation to provide updates or notification of changes in positioning."

As the old saying goes: as my publication grows, so does the length of my apologies! I’ll just come right out and say it: moving forward, I’ll be adopting a more “slowly but surely” pace of publishing. I won’t stress too much if some pieces end up living in my drafts for a while (or forever). I’ll simply publish them as I see fit, without worrying about a strict timeline. You may have already noticed the slower pace, and to be honest, I feel much more comfortable working this way. On a lighter note, I want to share that my trip last month concluded wonderfully and successfully. I left with zero complaints and a lifetime of incredible memories.

Also, for those following along, the a → z stock platform I introduced a month back is making good headway and is set to have a preview available in August-September, and I will open the waitlist at www.vollos.net. The rest of the platform will roll out when the waitlist grows to about 50 distinct individuals. If you do click it in the next little while, expect it to be a little broken and making drastic changes; we are still auditing the data, tweaking the UI to take the first steps of the platform.

Again, just like last time, today a piece was found as part of the auditing process. I’ve been digging through what we call “defective data artifacts,” or anomalies, to make sure our platform is accurate. Well, last time we had the very interesting idea in Saramin; this time we have what I call a high-quality overlooked company. Honestly, I still can’t believe it isn’t a widely known household name yet, so today’s piece is dedicated entirely to it.

Finally, as a bit of a change of pace (and inspired by a few recent speeches I’ve been listening to), I’m going to keep this one short and sweet. If you’d like to dive into the deeper details, please don’t hesitate to reach out; I can always expand much further with a lot more boring detail!

So, short and sweet... here we go!

(Automated) Disclaimer Below:

“The 18 Degree Journal is a personal research log and blog published strictly for informational, educational, and entertainment purposes. Nothing contained in this publication, podcast, or associated media constitutes professional investment, legal, financial, or tax advice, nor does it represent a solicitation or recommendation to buy or sell any security, asset, or financial instrument. The author is a private investor managing personal capital and is not a registered investment advisor, financial analyst, or broker-dealer in Canada or any other jurisdiction. All analysis, data, and opinions are presented “as is” without any express or implied warranties regarding accuracy, completeness, or suitability for any specific purpose. Investors must conduct their own independent due diligence and consult with a licensed professional before making any financial decisions. Potential Conflicts of Interest: The author may hold long, short, or beneficial positions in any of the securities, companies, or assets discussed in this journal at any time, without obligation to provide updates or notification of changes in positioning.”

“The Nice & Short Pitch”

A few years ago, I was fortunate enough to read What I Learned About Investing from Darwin (by Pulak Prasad). It fundamentally changed how I think about investing, particularly what it means to own a truly high-quality business (what makes them up) and the underlying goal of building a portfolio around them. Ever since then, I’ve been searching for what I like to call a “Darwin stock.” While I’ve continued to invest in more traditional value opportunities, such as recently written-up Saramin Co., Ltd. (KOSDAQ: $143240), my real goal has always been to find those rare businesses hidden in plain sight that possess exceptional economics, durable competitive advantages, and the ability to compound for decades. I genuinely believe I’ve found one. Let me introduce AlphaPolis Co., Ltd. (Tokyo Stock Exchange: 9467), a Japanese media company that has quietly built one of the most fascinating network-effect businesses I've come across.

Over the past two decades, we’ve watched platform after platform democratize creativity. YouTube, Instagram, and TikTok enabled filmmakers, directors, photographers, and entertainers to find audiences. However, those platforms miss the opportunity to exploit the talents that excel in storytelling through writing. AlphaPolis is built to exploit that opportunity. At its core, it operates one of Japan’s largest web fan-fiction and indie writer publishing platforms, allowing aspiring writers to publish their work to millions of readers. The open secret of the platform is that it's not only a great place for writers to find their audiences but also a chance for writers to earn cash, make a name for themselves and have a chance at signing an exclusive publishing deal (should their work become popular) to turn their writing into a light novel, a manga or even an anime series. AlphaPolis hosts this huge platform not just as a goodwill gesture but as a way to let the market lead them to the next winner they should invest in (meaning, using web traffic data to lead investment decisions). Not only that, they have steadily expanded to have in-house editors, publishers, and even an anime studio to reap the reward through the whole value chain. In effect, the company has built an incredibly asset-light business that discovers intellectual property at almost no cost, validates it using millions of readers, and then compounds returns by monetizing the same story across multiple formats.

On the numbers front, It’s very hard to undersell this business. The gross margins sit at a staggering 74.4%, driven by their high-margin digital manga app. Net margins are currently at 13.9% (which have dipped recently due to the temporary integration costs of acquiring their anime studios (White Fox and NIA Animation) and a few delayed show airings), but that is short-term friction for full vertical integration. The business delivers an ROIC of about 15%+, operates with virtually no debt, and holds about ¥12B in net cash against an about ¥ 30 billion JPY market cap. That means about 40% of the market cap is sitting in pure cold hard cash. If you strip out the cash, the underlying business has an Enterprise Value (EV) of around ¥18 billion (about $115M USD), against ¥1.94 billion in Free Cash Flow (FCF); you are paying an EV/FCF of ~9.4x (and 5.1x EV/EBITDA) for an operating engine that just grew revenue at 22% YoY in FY26. The current price, with a 10% WACC and 2% terminal growth, implies that Free Cash Flow must grow at a CAGR of ~3.2% per year over the next 5 years, even though ROIC has comfortably been over 10% in the last 5 years. Even if I quickly build a DCF averaging out the last 5 years of free cash flow (~¥1.50B FCF average), having a terminal value growth rate of 2% and a strict discount rate of 10%, I get an estimated enterprise value of 17.57 billion, right around today's price…. At the current price of about ¥1,000, the market is essentially pricing this company as if its growth has permanently flatlined at its historical cash flow average, completely ignoring the fact that top-line revenue just grew 22% YoY, digital manga is scaling globally, and 40% of the market cap is sitting in liquid net cash.

Last Words

I believe once you can see the graph of this business or understand the high-scale advantages this business model has, it doesn't take much to wrap your head around the business. Therefore, I didn't see the need to break down every smaller piece of the business; those interested can have a great website and available materials in English, so you can gain some insights there. Management is also quite good communicators, so it's worth your time. Of course, just like in any idea, there are risks to keep in mind, like JPY currency volatility, other competitors such as Naver in Korea (who bought out Canadian Wattpad) who could run a similar playbook (although I have strong conviction that will help grow the market if anything), and risks of compounding costs on failed projects or oversaturation of bad content on the platform….. Anyway, it’s a rare opportunity to invest in a rare public anime media business and what I believe is a very compelling valuation. Manga and anime have rapidly exploded in popularity in recent years, and global demand seems to still be growing.

Anyway, if you’re interested in a bigger write-up with full history, business use-case examples and further valuation work, let me know. I hope you’ve enjoyed!

— Daniel Andreev, 18 Degree Journal

Hope things have been well. I'm still on my journey in South America & quite enjoying some of the beautiful nature here and the breathtaking views. You can have a sneak peek below:

Anyway, as I enjoy the views, I'm also finalizing the logbook to document production readiness. In my audit, I've noticed a few irregularities that have sent me on a small research journey and in the process, I may have uncovered something quite intriguing. A niche, profitable software business that, that due to an asset sale, is currently trading at a negative enterprise value! You are essentially being paid to buy the business, but the question is whether this is a value trap where shareholders will never see the cash, whether the business eats consume the cash pile (or falls to athe cash pile depreciating away), or maybe, just maybe, that there is a hidden gem hiding in plain sight. Let’s dive in and try to figure it out. I'll try to keep this piece flowing, so I might not include all the information. If you want to find out more, don’t be afraid to message me.

(Automated) Disclaimer Below:

“The 18 Degree Journal is a personal research log and blog published strictly for informational, educational, and entertainment purposes. Nothing contained in this publication, podcast, or associated media constitutes professional investment, legal, financial, or tax advice, nor does it represent a solicitation or recommendation to buy or sell any security, asset, or financial instrument. The author is a private investor managing personal capital and is not a registered investment advisor, financial analyst, or broker-dealer in Canada or any other jurisdiction. All analysis, data, and opinions are presented “as is” without any express or implied warranties regarding accuracy, completeness, or suitability for any specific purpose. Investors must conduct their own independent due diligence and consult with a licensed professional before making any financial decisions. Potential Conflicts of Interest: The author may hold long, short, or beneficial positions in any of the securities, companies, or assets discussed in this journal at any time, without obligation to provide updates or notification of changes in positioning.”

THE COMPANY

Ok, ok, I got your attention: a software business that’s still making money and trading way below cash. We all know this year has been nothing but a bashing for software stocks, but could it really be possible one got to a point where it is trading below cash? What is this nonsense, and why does it sound too good to be true? Well, the company today is South Korea’s “leading” (co-leading?) recruitment platform. I believe a “recruitment platform” is a bit too soft a definition of the platform, at least from my Western understanding and use of LinkedIn, Indeed, Glassdoor, Workday, etc. We often hear in the West about the notorious “super apps,” and Saramin could well be considered a “super app” of sorts, specifically tailored to the niche of hiring and job applications. Think of it as the perfect platform with double-sided economics (serving both the company and potential employees) that offers comprehensive reviews, information on applicants (whether they would like the culture, the work, or have the experience to match), salary benchmarks, professional networking, and individual profiles. And now, in the age of AI, it has built-in AI resume builders & coaches, personality tests, databases of past applicants and talent pools, as well as tracking of all these individuals as they move through the system. Maybe it's a little easier if we separate and look through each actor's lens.

Why do job seekers use the platform? They get an almost automated process of applying to jobs. They simply upload their resume once, check it, improve it, and browse thousands of postings with very specific filtering. Before applying, they can read past employees’ horror stories, see real employees, and learn about culture fit, what is prioritized, and what they could realistically expect for pay. They can also have the process further automated with AI job matching, AI interview prep, and even document coaching, all on one platform. Well, then why do employers want to use it? They get a systematic way to post their job openings on a platform with numerous users, and they have the ability to promote their positions, search through the resume database, see candidate profiles, see candidates’ self-introduction letters (자기소개서) (mandatory on the platfrom…), use custom ATS resume filtering and matching algorithms to identify promising candidates, and also buy premium recruitment tools, essentially simplifying the job of HR departments. The appreciation of this whole model is that everything is in one place.

So far so good (?), so how does Saramin make its money? Its main revenue drivers could be broken into 3 parts: The Career Platform & IT, Outsourcing, and Recruitment Consulting (HR solutions).

The Career Platform & IT is the business's largest segment and where the majority of revenue comes from (54.46% in 2025, down compared to other years as other segments strengthened, but still the most important; it is also often 80%-90%+ of all operating profits as it boasts very large margins). This is the primary platform with the two-sided marketplace described above, where job seekers upload their resumes, search for jobs with AI recommendations, etc., and employees post ads, search resumes, buy visibility packages, etc. They also have a built-in Employer-to-candidate direct proposal system, available for a finder’s fee. Saramin makes its money here through sponsored posts or promoted results, granting access to resume databases and search fees for employers, larger visibility packages, and incentive fees (upon successful conversion from the talent pool/direct proposal system). Saramin is the main platform but in recent years seeing the rise of specialized platform in Korea Saramin launched specialized platform for specific hiring niches (mostly to wave of the competition and jump on that trend), therefore, Jumpit (the developer focused platform), Komate (platform for hiring foreigners and international talent with visa support), and Wonderful Senior (platform for jobs and career for mid to senior workers 50+ years old) are also included. The margins in this business segment are insane, often high 90s% when adding another listing, and it is a huge beneficiary of operating leverage, as adding more sponsored postings does not hurt Saramin or cost much (unless, of course, over-saturation of the same sponsored posting, but it seems to be managed well with sponsoring based on filters and employee interests).

The Outsourcing (manpower dispatch/HR staffing) segment is more of a traditional HR services segment (through my research, I found many such services across Asia, and reputation and brand name go a long way here (as do low rates). What happens is that corporations in industries such as manufacturing, logistics, admin, etc have seasonality and need seasonal or temporary workers to push through higher demand seasons. Saramin would hire and dispatch workers to fulfill those contracts and, in return, get a fee. This business is a low-margin business as competition cuts into possible margins (in 2025 this was 29.62% of the revenue).

The Recruitment consulting and HR solutions are the premium advisory services Saramin offers, with customized services for companies (so, at times, it is contract-by-contract) (in 2025, this was 15.92% of revenue). Some of the services that Saramin offers competitors here are helping create end-to-end hiring strategies, headhunting (executive search), HR research and insights, training, and consulting. A lot of these services are analytical and provide numerical benchmarks (like salary benchmarks or talent market reports). It is a better business than outsourcing and is more useful in curing relationship and dependence on the platform.

In the “past,” Saramin had a higher concentration on just the Career platform, with often 80-90% of all revenue from this platform. This part of the business is truly a cash cow operating as an easily scalable enterprise; the problem is that there is a main competitor (we will get more into them in the next section), and Saramin have been trying to create a full ecosystem that allows cross-selling to clients and introduction to the platform to allow fostering relationships and upping their tiers for better margin products. Essentially a way to organically introduce more companies to the ease of the platform and slowly move them through the products, with the added benefit, of course, of creating some stable revenue and profit channels when normal hiring slows down.

I think it’s important to take a moment and understand what really drives a moat in this industry and actually brings staying power. So first of all, Saramin is at the moment exclusively focused on one domestic market: South Korea. This means it’s extremely susceptible to the whims and winds blowing in the Korean employment market. This, of course, is one of the reasons Saramin has diversified its revenue streams. Not only has this expanded their business (with, of course, some loss to favourable business economics), but it has also allowed them to rope in businesses who might not have fully integrated into their platforms. But why would anyone want Saramin over competition, or let’s put it more bluntly, what is Saramin’s moat? Saramin’s whole existence relied on network effects, meaning their whole value proposition (or that of a similar business) is to have the most users & the most job postings, both acting as a magnet for the other (meaning more job postings, more people on the platform, or vice versa). The secret to attracting this positive relationship of user-posting magnet is Data. Data on employers, the employer's culture, salary information, etc, is what brings users to be active on the platform. For non-Korean audiences, think for a second: when you interview, did you not look at possible information on the company online? Try to research what you can find and know what to prepare no matter what platform you find that information on…well, others are not much different, and Saramin makes sure the information you are looking for is in the same place as the job posting. The other things that attract users and are necessary is toolset (that help retention can be commodities if all other platform have it), matching success (which is helped by more users and more data, again bigger you get the harder it is to compete against you), and then of course for employers not only do they need the most possible candidates and databases but they also need specialized filtering tools (that 2 can be commodities but are important to have). So Saramin's business proposition and life depend on retaining users, and to do that they try to grow their data; the data is their point of failure and the point of success.

History Very Quickly

Now, before I get fully ahead of myself, a very quick recap of the company’s history. Founded in Seoul in 2005 as SaraminHR, as a simple online job portal. Soon after (2006-2008) “acquired/integrated” into the Daou Technology group (part of the Daou Kiwoom conglomerate). In 2012, SaraminHR went public on the KOSDAQ (ticker: 143240), and it’s still traded there today. In the 2010s, it became the co-leading and dominant player of two (competing with JobKorea), dominating the job platform market and at times edging out competition as a leading competitor. In 2021, Saramin took a stake in Remember (a business card/linkedin App hybrid for Korea), and the very same stake they sold in 2025 to amass a large cash pile (160 billion KRW). In April 2023, they rebranded as simply Saramin Co., Ltd. With the rise of niche hiring boards and apps in 2023 & 2024, Saramin aggressively launched specialized vertical applications to cater to specific hiring niches. In the last couple of years, Saramin has also been aggressively launching and integrating AI-based tools into the platform, going headfirst into the belief that this is the new vision for how hiring will be assisted. Today they boast 17 million monthly active visits and are a leading HR-tech company in South Korea.

COMPETITION & MARKET

Saramin, of course, is not the only success story in the space; it has a “duopoly” private-equity-backed competitor, JobKorea.

JobKorea is actually a Saramin’s veteran in the industry (it is 9 years its senior), originally founded in 1996. It spent the first couple of years under various ownerships originally held by Monster Worldwide before Korean private equity firms came calling. Between 2013 and 2015, it bought Monster’s stake for about 205bn (KRW), before a fierce battle in 2021, in which Affinity won out and, in March 2021, bought the full stake for about 900bn (KRW).

The two platforms have been at each other's throats, trying to win market share (through crushing or buying up startups entering the market). The two platforms are eerily similar, but based on my synthesis of what I read, it seems both dominate specific industries. Saramin’s real strength is in manufacturing, logistics, production, the service sector, and SME office hiring, skewing toward younger (20- 29-year-olds) and more entry-level candidates, and doing comparatively well outside Seoul. JobKorea’s core strength runs the other way: office workers, experienced hires, and IT/development and marketing roles, with a higher average level of education and experience among its applicants. Saramin has also expanded into verticals to specifically target niche hiring and counter JobKorea with a specialized platform for that industry; IT was one of the main focuses (the platform is called Jumpit, launched in 2021 and was awarded the “#1 developer recruitment platform” award in a 2024 Korean consumer satisfaction survey). Various sources I came across hinted at Saramin having a particularly strong public-sector presence, but through my own research I couldn’t confirm those claims; both platforms run their own mock-exam prep tools for the standardized public-enterprise entrance tests, JobKorea’s own version even claims a bank of over 30,000 practice questions, so this looks like table stakes both platforms offer. The authoritative source for public-sector openings is Job-Alio, the government’s own portal, which is cited in one source after another. I did find claims that seem to be true that Saramin has better tools for foreign hires, but it seems JobKorea is also entering that market. One distinction that JobKorea seems to have a definite lead in is the part-time temp worker market; they have a “superapp,” Albamon, that has a “60%” market share and seems to be the go-to default for those roles. This especially helps them during times like now when regular hiring activity stalls. The platform boasts 38.77 million cumulative active visits in 2025, and 10.03 million in Q1 2026 alone, well ahead of its next competitor, Albachunguk (알바천국), which logged “only” 30.58 million cumulative active visits in 2025.

As for consumer data, there seems to be a 2022 Opensurvey report (1,000 respondents nationwide, aged 20-49) that keeps being cited, mentioning that at that time the two platforms were neck and neck: JobKorea slightly ahead on brand awareness, 81.5% versus Saramin’s 77.5%, and essentially tied on lifetime usage experience, 62.5% versus 62.4%. But Saramin actually led on recent usage, used within the last 6 months, at 38.8% versus JobKorea’s 35%. That mindshare edge showed up in the actual usage numbers too, at least for a while. As recently as the first half of 2024, Saramin was the more active platform by cumulative MAU: 9.22 million users compared with JobKorea’s 7.62 million, but over the last 12 months or so, that pattern has completely reversed. By early 2025, JobKorea had already moved ahead, 6.89 million cumulative users from January through April versus Saramin’s 6.44 million. Here is the “summary" that me and chatbots walked through to compile online data for recent activity (take it all with a big grain of salt):

To gain further insight, I looked at the search results. Now this data is limited to online search activity, since there’s no clean way to actually look at in-app usage, and I’m using Google and Naver as proxies, since between them they hold the two dominant search-engine market shares in Korea. Google Trends data for South Korea (Jul 2025–Jun 2026) shows JobKorea consistently outpacing Saramin in search interest, with a sharp spike around March 2026. This data could again be slightly tainted because JobKorea and English search could be just foreigners looking for work. When looking at Naver DataLab, tracking the same window using Korean search terms (사람인 vs 잡코리아) shows the opposite: Saramin is consistently ahead the entire time. Google’s share of the South Korean search market has fallen from roughly 80% in 2021 to about 46% today, while Naver’s has climbed from around 15% to 44% over the same period; the two are now essentially at parity. When I visited South Korea last year, most people were using Naver (I think it helps a lot, since Naver Maps has much more information and is licensed to operate in Korea). I don’t think you can draw many conclusions from this data, but it just helps set the tone and get a vague direction of the situation on the ground (granted through a very thick fog, as none of the data is conclusive). I compiled the data again and had Claude restructure it to be a bit more visually appealing, so hopefully it provides you with some context.

So what has really been transforming and changing in the two platforms recently? Well, just like most of us feeling the influence of the “AI-mazation” of services, Saramin dove headfirst into heavily investing in building out all the different AI tools. The advantage of having them first (perhaps because of their director rules (lol so the context is that they believe directors only serve 2 years to constantly have fresh blood at the decision-making side to not fall behind technologically)) allowed them at the time to gain popularity (this seems to match with their higher dominance a couple years ago. JobKorea (now operating under the rebranded parent “Worksphere”) of course copied the strategy and now explicitly credits its recent user growth to AI-powered recommendation and matching upgrades, new AI agent features, and expanded community services. JobKorea also directly focuses on areas where its platform was weaker and recently acquired Jobplanet, the company-review and culture-data platform, specifically to feed more signal into that matching engine and distort Saramin’s dominance. Saramin is still running the same race with its own AI resume coaching, mock interview tools, matching algorithms, and recommendation engine, “Avatar Search,” which the company has explicitly modelled on Netflix’s approach to personalization (this is where a lot of the R&D spend goes). From the looks of it, the spend to integrate these systems into the platforms has been enormous, but I did not leave with the impression that this is going to remain a huge cash eater for ongoing development. Yes, they will need to maintain and improve, but the main tools that need to be built out first cost more upfront.

JobKorea's strategic pivot and aggressive acquisition to close the gap with Saramin, as well as recent outgrowths over Saramin, did force me to think about one point: what if Saramin ends up not in a duopoly but as the second player in the business? Silicon Valley taught us that in a software business, the profits and benefits of huge network effects and scale really accrue to the primary player. Here too, the benefits of the business's cogs really rely on a large number of active users attracting business to post on the platform, which then brings in users, who then bring in more business…and so forth. The fear here is that if the divergence in growth continues to hold as it started 12 months ago, Saramin would be at risk of JobKorea breaching past this inflection point/or critical mass point where the scale of the business would act as a magnet to attract the remaining business into itself (and users along with that). The flywheel illustrated by the two turning gears in The Company section is the lifeblood of both businesses. The gears themselves can only be effective if a company's usage doesn't drop below a certain size. The size allows for better spend on things that bring more users, and a gap in the users' experiences allows the switchover between the platforms. The effects could be in this sort of cycle: better UX and accessibility get people in the door, leading to more specialization and purpose-built tools for different hiring niches; that, in turn, drives data accumulation and quality, which is the actual foundation on which everything else sits; better data enables stronger matching, and stronger matching is what builds real employee and employer commitment to the platform. Once you have commitment at scale, the flywheel accelerates; each additional user and posting makes the platform meaningfully better for everyone on it, not just marginally better (I know I'm repeating myself; this is important). If you reach a much larger size than the competitor, it becomes an impossible hill for them to climb.

Current Trends

The last 3 years have been tough for Saramin. Not only has this been the period where JobKorea has outgrown them, but Saramin has also been operating in a less active Korean economy overall. Revenue has dipped and margins have compressed, and the reason for that, of course, is that the highest-margin part of the business, Career Platform, is the one compressing the most in a slower hiring environment, while the lower-margin Outsourcing business becomes a bigger share of overall revenue almost by default. That mix shift alone is enough to drag margins down even before you get into any competitive pressure from JobKorea. You can clearly see it when just looking at the career platform segments:

That said, I don’t think this is really a cause for panic. If you look at actual hiring activity in Korea over this same period, it mirrors what we’re seeing show up in Saramin’s own financials almost one for one, this isn’t Saramin-specific underperformance, it’s the broader environment. I’d flag it here just to make sure it doesn’t deteriorate further and faster than the wider economy does, but it’s not a state I’d be panicking over on its own.

IDEA

Ok, so what is the whole idea (and to summarize other sections in case you skimmed it): My current stance is that Saramin is South Korea's second-largest job board platform. I do not believe the data yet demonstrates that JobKorea is close to breaching the tipping point of becoming the undisputed primary player, which would make Saramin's enterprise value (at least the operating business) worthless. So with that in mind, let's look at what the current price is offering and what we are actually buying. (Adding a small anchor, or important context, here, hopefully without too much anchoring bias: insiders were willing to pay up for shares earlier. Kim Ik-rae, former Daou Kiwoom Group chairman, launched a tender offer for up to 900,000 shares (7.68% of the company) at KRW 18,000/share in March 2026, a 25% premium to the prior close. The offer ran through mid-April, and only 672,387 shares were tendered, about 75% of the target.)

Today, Saramin's market cap is around KRW 170bn, with shares trading in the 15,000–16,000 won range (approx worth $110 million USD). So what do you get for that price? Well, I alluded to this earlier: Saramin sold its stake in Remember in 2025, and because of that, they currently have KRW 213.4bn sitting in cash and deposits, against total liabilities of about KRW 59.7bn, so north of KRW 153.7bn in net cash, on a company with about 10.5-10.7 million shares outstanding (ex-treasury). Most of the cash seems to be sitting in bank deposits and, to my estimate, it seems to be earning around 3% (estimating from short-term bank deposits hovering in the 3% range and the policy rate at 2.5% in South Korea). This alone, depending on whether you net all liabilities or some of them, yields roughly 14,300–19,900 won per share. The amazing part is this is not the only substantial asset they own. Saramin holds a real estate trust valued at about KRW 42.1bn (on the balance sheet at IFRS equity-method valuation, updated regularly). They also converted office space into "investment property," with a carrying value of KRW 8.2bn but a disclosed fair value of KRW 12.57bn. On this property, they also have net rental income of KRW 281.6 million (KRW 489 million in rental income minus KRW 207.9 million in operating expenses, for a yield of 2.24%–3.43%). So this adds roughly KRW 4,700–5,100 per share for the real estate trust plus investment property together, depending on whether you use book or disclosed fair value.

Now I know what you're thinking: we have already breached the market price per share, so the business is being given away for negative value; Is management doing anything to return money to shareholders, or is it just trapped in the company? As a matter of fact, they are. Saramin has a dividend policy, and there's recently been an increase in payouts (they don't have a stated payout ratio policy; it's just been raised compared to previous years). The current dividend is 700 won per share (compared to 500 won last year), with total dividends of KRW 7.35 billion. Management has also authorized a buyback, and this year they plan to cancel about 8.34% of the company (with another 2% allocated to employee compensation). So, with all this in mind, without even touching the actual operating business, what does that leave us with, valuation-wise? The shares themselves should be worth anywhere in the range of KRW 19,000–25,000 per share, based solely on cash, deposits, the real estate trust, and the investment property. Again, this is before we've assigned a single won to the actual recruitment platform itself.

So, since we've already breached the value of the shares by looking only at cash and non-operating assets, let's take a moment to look at a possible framework for valuing the Saramin business itself. Keeping in mind this is mostly a software business, meaning high margin as long as there is scale, and because we've already captured the rest of the value in the share price, we can just do a back-of-the-napkin estimate of what the Saramin business could be worth while assuming a realistic middle bear case with Saramin dying in 5 years and JobKorea running away past the critical point. (Also, for context, JobKorea itself was bought for about 900bn in 2021 when doing over 100bn in revenue and 50bn in EBITDA. IB commentary seems to imply that it was sold at 10x EV/EBITDA, and their part-time job vertical, Albamon, is valued at 20x.)(I will also remind you that Remember was sold for KRW 550bn+, although they are not direct competitors, just laying the foundation for what we could consider). Saramin currently earns about KRW 13.3bn in Career Platform operating profit, and yes, it's slowly declining. Rather than lay out a base and bull case here, I'm just going to call this the bear-middle case, and treat anything better as pure upside (or a free lottery ticket): I'm assuming the business keeps declining, roughly along the trend of the last two years, until it's no longer really a going concern within 5 years (due to JobKorea stealing more market share and killing the customer flywheel). I am also going to assume Saramin's user base and resume database aren't valued at zero. I believe that if Saramin does die, JobKorea, flush with PE money and clearly in acquisition mode already (they bought Nine Hire in 2024 and Jobplanet in 2025, and just rebranded the whole parent to Worksphere), would rather buy up the scraps than let a new, well-funded competitor scoop them up cheap and solidify their grasp on the Korean market. Recent niche HR-platform deals in Korea have gone anywhere from 10 to 50bn+ (Saramin itself paid ~KRW 9.66bn for the Lalajob/동네알바 part-time app back in 2023), and given Saramin's much bigger scale and data depth, I'll assume KRW 50bn here, with no discounting back to today, as rough compensation for the fact it's probably worth more than that in absolute terms by the time we'd actually get there. Before I run the actual numbers: I'm also assuming R&D spend stays roughly where it's been the last few years (about KRW 9.7-10bn annually), which has been flat in absolute terms even as revenue shrank underneath it, meaning it's actually been eating a growing share of revenue (10.2% of separate-entity revenue in 2023, up to 11.8% in 2025). So, running the decline forward at roughly the same ~20%/year pace as the last two years, and discounting each year back to today at 10%:

That's about KRW 2,630 per share from the 5 years of declining profit alone. Add the KRW 50bn terminal sale to JobKorea for the data, left undiscounted since I'm not inflating that number for growth either: that's another ~KRW 4,660 per share. Combined, the business itself is worth something like KRW 7,300 per share in this bear-middle case. Add that to the KRW 19,000–25,000 per share sitting in cash, deposits, the real estate trust, and the investment property, and you get somewhere around KRW 26,300–32,300 per share, even in the scenario where the business actually dies on schedule. Against today's KRW 15,000–16,000, that's 64-102% upside in what I'm calling the realistic downside case with a free lottery ticket of the business and economy recovering.

Risks

So far, almost everything I've said, in one way or another, sounds a little too good to be true… where is the catch? Well, predictably, there are a few.

We can’t talk about cheap Korean stocks without addressing the elephant in the room. South Korea is known for having cheaper valuations and a discount due to the complex “chaebol” family structures that run much of the economy. Essentially, due to complicated corporate governance, family conglomerates operate through a complex web of ownership, with many companies run for the benefit of the family rather than minority shareholders, so investors demand a discount to accept that risk. The conglomerates are incentives for these actions due to South Korea's insanely high inheritance taxes (50%-60%), since a lower share price at the time of succession means a smaller tax bill on the inherited stake. Conglomerates tend to suppress prices until this “hurdle” is overcome.

Saramin has some of that same “hair” and can’t escape the discount. Today, it is controlled by the DaouKiwoom group: Daou Technology is the largest shareholder at 32.59% (pre-tender offer), with Daou Data, Kiwoom Securities, e-Money, and Kim Ik-rae personally all holding stakes as well. There is investor concern about whether Saramin (as it's part of the group) will be used to help other companies in the Daou sphere, and that investors will not reap the rewards of the cash pile. Kim Ik-rae, former chairman of the whole DaouKiwoom group, also seems to have recently gotten into a kerfuffle in the 2023 Daou Data/SG stock-plunge controversy, though prosecutors reportedly didn’t end up indicting him. This ties well with concerns about capital misallocation. Recently, that has been a mini flag as Saramin spent 2025 selling non-core assets; the main one did go to a third-party buyer, but the Vietnamese subsidiary, Applancer, didn’t leave the family at all; it went to DAOUKIWOOM INNOVATION COMPANY LIMITED. Same group, different pocket. That’s not damning on its own, but it tells you the instinct to keep things “in house” exists and has already been acted on once. The whole thesis here depends on that KRW 160bn+ cash pile actually finding its way to shareholders, whether through buybacks, dividends, or a genuinely accretive acquisition, rather than quietly funding whatever the wider DaouKiwoom group needs next. I will also note that the acquired Lalajob (라라잡, operator of "동네알바" (the Tinder for job matching) has recently had a 93% write-down, and I know Saramin is expanding its vertical, but they have had bad acquisitions…Anyway, personally, although I’m confused about the risk associated with being owned by the group, they seem to have a good track record with shareholders. Recently, as we discussed, the strategy was to implement a buyback and raise dividends; they also delivered decent returns for shareholders in other projects, so I’m not convinced they are out to screw us over (hopefully not being blinded…).

The other unavoidable risk is that of JobKorea. It seems like Saramin was the leader of this two-horse race but recently has been losing ground to the noisy neighbour. I won't dive deep again into the whole cliff risk, but I think it's important to repeat that the whole moat is built around being a major player, and JobKorea eclipsing growth is an existential risk as Saramin loses scale. There is also the risk that the 50bn I added for data valuation could prove worthless in the end, but I do feel that all of this is included in this huge margin of safety. Let's not forget that Saramin is still limited to the domestic market, which is itself susceptible to many shocks. Structurally, their demographics put the nation at a disadvantage, and let's not pretend this will shrink Saramin's business over time. Korea has one of the lowest birth rates in the world and a shrinking working-age population. And other structural difficulties, like oil shocks (the 2026 Iran war), show how vulnerable the economy is to slowdowns due to external shocks. Since the war began in February 2026 and Iran effectively closed the Strait of Hormuz, through which Korea routes about 70% of its crude oil, Korea has taken a real hit: the won fell to its weakest level since the 2009 financial crisis, and the OECD cut Korea’s growth forecast more sharply than almost any other major economy specifically because of how energy-import-dependent Korea is. The government’s had to roll out fuel price caps and a roughly KRW 26 trillion relief package. To me again, the whole saramin business is an added bonus as you have a huge margin of safety on that cash.

The cash, however, is not bulletproof; not only do we need to worry about bad hands managing it, but also the stability of its worth. I just mention the won crashing and the entire cash pile; the real estate trust, the dividends, all of it, sits in Korean won. If you’re reading this from outside Korea, like me, you are susceptible to the currency move eating not only your opportunity cost but the actual worth of the business (in your domestic currency). Won strength against your home currency is a tailwind you get for free; won weakness quietly eats into your return, even if every single thing in the thesis plays out exactly as modelled. And given everything above, the won hasn’t exactly been having a good year.

Before leaving the risk, I probably forgot to mention: let's not forget this is an 110 million USD micro-cap trading on the KOSDAQ that is not super liquid. After the tender offer, related-party and insider ownership is sitting somewhere north of 55%. That doesn’t leave a huge free float to actually trade, which cuts two ways: it can make it harder to build or exit a position at the price you want, and it also means there are simply fewer outside shares available to do the “market corrects the discount” job.

Add it all up, and none of this changes my overall view, but let's not pretend that this is an absolutely free, riskless opportunity.

CONCLUSION

So, wow, finally the conclusion. I’m hoping that I didn’t ramble too much and that what I was saying makes sense. Personally, I think Saramin is a very interesting company. I also would have enjoyed using such a service in my own country, and who knows, one day I might. I do think this whole investment thesis is a free HR/IT business with some data moat, sitting on top of a cash pile that acts as the margin of safety. For me personally, the whole thesis rests on the notion that JobKorea doesn’t reach the critical point where its business gears continue to spin faster and faster, and that Saramin has an abrupt end as the flywheel that makes its whole network work collapses. So this is the main flag I’m keeping an eye on, along with any of the corporate governance risks. Hopefully you enjoyed this piece and didn’t mind me repeating myself and jumping around. I have a few more drafts I am working through and hoping to have them out soon, but also trying to enjoy my vacation. Wishing all the readers the best. If you have any questions, please shoot me a message.

Cheers,

Daniel Andreev — 18 Degree Journal

A New Tool For Me

One thing that has really been eating a lot of my time is my “venture” and my striving to keep up with the rapid developments and exploration of “AI” and the new tools available. This is coupled with studying academic literature on the drawbacks of “AI” and experimenting with its current limitations. As I alluded to in my previous memo, I am currently stuck in an ever-growing feedback loop: these tools keep getting better, and I integrate them more into my process (meaning I use them more frequently), allowing me to accomplish a lot more; however, at the cost of now spending more time working (classic...). Hopefully, this loop will break in a way that allows me to dedicate more time to writing and reflecting (again, oops...). As available tools get better and more accessible (heck, I’m currently learning about a new industry while talking with an LLM in a place with no power, something I couldn’t wrap my head around even five years ago, especially fully offline), I believe it’s crucial to constantly experiment, build, and understand the current developments and how new tools can improve my workflow or approach. Part of this is having a collection of micro projects, or should we just call them playgrounds, where I can get my hands dirty and get a better understanding. Examples include automated email reports that summarise and link all major developments in a niche sector with automated scraping, a microapplication to optimize travel routes and maps, and an automatic research tool that compiles spoken content, podcasts, and articles I’m curious about and sends them automatically to my Kindle and of course, many more. Although these micro projects were a great deal of fun, they bore the seed for a much more ambitious project. This main project, which I'm developing with a very good friend of mine (not only a great friend but also an incredibly intelligent person and a joy to work with), is building a grand vision of a future tool that follows our philosophy of human-centric decision-making, aided by automated information processing and gathering, based on my research project back in university. The project was a graphing and network problem-solver for finding relationships among various cybersecurity malicious actors, and we are hoping to port over the same ethos to build relationships between companies, their footnotes and incoming information to help a human focus on important information in the final context, aiding in building relationships between ideas to help identify the necessary areas to further research. This project is a long-term endeavour and extremely ambitious, with a tremendous amount of data to structure, label, and complete, but I’m optimistic about its usefulness, and we are taking the time to build it properly, understanding the years of necessary effort. As part of the data collection steps and building out a log of the logic, we’ve been embedding many microapps into the final system to solve mini-problems I currently struggle with in investing. Not only is the goal here to solve the mini problems I need help with, but also to validate and audit the data already processed and its manipulation.

One of the first limitations (or ideas, depending on how you look at it) was trying to solve for a better visual representation of data I already consume. A prime example is the 13F filing I consume. For those not familiar, the 13F filings are made quarterly by funds holding over 100 million in US assets, with a slight delay. Now they are super useful for gauging market sentiment, prevailing ideas, what the “smart” money moves in and out of, and for studying what some of the people I admire do with their portfolios. There are already great providers such as Dataroma who do an excellent job at this, but for me, it's missing how I consume and visualize data (also numbers can be very deceiving, especially for the human brain, we have all the limitations, as always), so I wanted to build out something that works better for me. So after developing and playing with this, I tried to take the next step and build something I have been on the lookout for for many years, but could never quite find.

Those who know me or have been readers of the 18 Degree Journal have noticed I am a huge fan of Warren Buffett and investors inspired by his approach. One of the hallmarks of how Buffett finds his deals is the A to Z book flip through, where you literally go through all companies to try to identify anomalies. A to Z because back in the day, you had a book with all the companies printed, and you would flip through all of them, sort of like a dictionary. Today, a lot of these manuals have been out of print and digitized or just simply reprinted in another format, not making them as accessible as they used to be. Famously, Buffett flipped through the Moody's manuals, Value Line, and the Japan Company Handbook. Now, many critics argue that you can engineer quantitative search tools to find many of these tools, but the counterargument is that many of these tools can yield abnormal financials, leading to many bargains being overlooked. Personally, I believe that although it's a big time commitment, I think it's a very good thing to go through all the companies, as it helps an individual build a picture of more business models and different economics, and it just exposes one to more ideas. On my personal journey, I have been trying to get my hands on physical copies of these books to go through them, but unfortunately, the best I could get were digital copies I could borrow from the library. When I went to Japan, the Japan Company handbook was no longer in print but only digital. So, as I am collecting a lot of this data and international filings, I decided not to limit myself and to build a Global logbook that will include these 2-page reports for every company I am collecting. The goal of the logbook is to serve as a tool that, within one to two minutes, allows me to determine whether there is any need to study a given idea further or move on. This will not only allow me to go through all the companies and learn about the world, but also, as I go through them, allow me to audit the data and the automated calculations in the data we are collecting for the big project. It’s very much inspired by the predecessor stock manuals and aims to create a virtual quick flip-through experience for investors. The current variation is not bulletproof (or even exactly what I had in mind), but it is very much a work in progress. In order to audit and stress-test it, I plan to go market by market and “flip” through all the companies and in order to bring benefit for others, I will record this on my YouTube as it could be a good doom scrolling replacement (I will probably start with Ireland or the baltics, or maybe jump straight to South Korea, Japan, or the US) and work through the stocks to check whether the data extraction pipeline worked, whether there are any errors, and also to see if anything interesting surfaces worth following up on. So keep an eye on that, and if you have any feedback, please shoot me a message. I am trying to improve and grow this tool, and if you find it interesting or have an inspiration that could make it even better, I would love to hear it.

(YouTube, where I will flip through and where I post https://www.youtube.com/@18DegreeJournal)

Other Developments / Continuation of Other Ideas

Before my abrupt “leave,” I was following up and completing research on a few names; the most notable, and the one I ended up publishing, was Mount Logan Capital, “. Since the first write-up has been on nothing but a downward spiral. When we started writing, it was around $8ish; now it is around $2.80 or so (wow, I wrote this piece a few days ago since then, it's at 3.8 s and is getting ready to be added to the Russel MicroCap Index). I have been trying to develop a thesis to understand whether or not there is any value left in the business, and whether the market is simply acting rationally, because there is quite a lot of negative narrative around private equity at the moment, especially vehicles where you have one arm writing insurance, then using your own deal arm to originate loans, and having your own balance sheet buy them (whether or not there are issues in that credit is a big open question). I have had the fortune of speaking with a few experts in the field and even corresponding directly with some of the company’s executives, which has been genuinely interesting. At the moment, I have not quite finished my research, and I am still sitting on the fence between a few ideas. But one conclusion I have reached is that, before I started writing about this company, it probably should have gone straight into the “too hard” pile. That said, it has been a fascinating journey. I have gone through a mountain of filings (not only corporate but also statutory), really trying to understand the nuances of this industry, and have been developing new frameworks to better understand the risks involved. For $MLCI specifically, they have, in my opinion, still a very interesting and promising business model if done correctly. At the moment, they are stuck in a forced loop where they must inject cash into their subsidiary, Ability Insurance, in order to remain above the regulatory cash buffer. The reason that they need an injection again and again is that there is a cash drain when they write new insurance, as the origination fees are front-loaded and charged at the start. The reason that they are writing a lot of business is that they are in the process of migrating their platform from a majority of LTC liabilities book into the MYGA book. This means it takes time to determine whether the business is doing well. Now, that's not saying there aren't other issues they have had to take write-downs and corporate restructuring for, which have created a huge headwind of costs. Here are some of the other facts I have gathered that are helpful in assessing the company. (Now I'm assuming those interested will read the other two parts to get up to speed on the company developments and understand why some of the things I will list are important). The medco blocks that are reinsured are mostly covered by reinsurance with collateral on the balance sheet (meaning Mount Logan holds cash and securities on their balance sheet to secure the amount owed in the liabilities of insurance payouts) and are rebalanced monthly(?) (some amount audited at different times (not 100% clear)). From my understanding, if there are adverse write-downs of collateral or deterioration in the health of the insurance holder, the reinsured posts collateral to remain within the agreed-upon amount (which includes a buffer). These blocks are at an average age of 84.5 for the policyholder and are at a point where they deal the most damage to the balance sheet. They seem to be at a point where Mount Logan is just waiting for it to age out. Now, a block that is not reinsured is a Guardian block underwritten in the 80s and 90s and part of pooled insurance. From my understanding, it's small, and management is really on top of this block. Other factors that became more detailed during research are that Annuities they reinsure range from 3-7-10 blocks, with an average age right now of about 5 years, and their private credit arm lends at 3-5-year terms. I'll try to save the other facts for whenever I get more comfortable publishing part 3. Whether that hesitation turns out to be a mistake, we will find out, but I do think it is a genuinely interesting company and a great writing opportunity. If you take management at their word, the business appears to be in “great” shape. But of course (and this is the joke) American executives are always selling their business, so how much of that is conservatism versus optimism remains to be seen. Still developing that one.

Other items I have been trying to get to: Nintendo seems to be a very interesting company, and I may write a full write-up on it soon, a few small caps I cannot quite get my arms around yet, and some others I am still working through the latest filings and transcripts on (where transcripts even exist, that is). So, a few ideas are developing in the background; the final markets always leave space for entertainment and curiosity.

I have also pushed my annual report out to cover a year and a half now. I will try to finish it sometime during this trip. For those waiting for guest interviews, unfortunately, at the moment I'm on a bit of a roadblock streak, but I'm trying to get a few guests to come on in the next little while. And again, thank you all, genuinely, for the patience you have shown and for the ongoing support. I will try to be a little more consistent now that I have some breathing room. Hopefully, you enjoy the ride.

Until next time!

Cheers,
Daniel — 18 Degree Journal

Important Disclosure: All content provided in this publication is for educational and entertainment purposes only. The author is investing personal funds only and is not a registered investment advisor or broker-dealer. No content here constitutes a solicitation, recommendation, or offer to buy or sell any securities or financial instruments. I do not accept, and will not solicit, outside capital. Investing involves risk; please consult a professional before making financial decisions.

It's been a almost a year since we started, and I'm extremely thankful for your support & feedback. I hope to keep growing alongside you all.

I decided to try to capture some of my thoughts on the current AI narrative, and I hope at least some parts of it are comprehensible.

Thank you and cheers!

#AI #GenerativeAI #LLM #ArtificialIntelligence #SaaS #SoftwareEngineering #FutureOfSoftware #AILimitations #MachineLearning #AITools #VibeCoding #ProductDesign #CloudComputing #LocalAI #TechTrends #18DegreeJournal #AIDebate #FutureOfWork #TechPodcast #GenAI

Hope everyone is doing well. For those celebrating this week and the next, happy holidays to you (also hopefully not getting too sick of my content…).

It is now almost one year since we began having a Substack here at 18 Degree Journal, and what a year it has been! We now have almost 100 subscribers (I guess I will have to follow up with the traditional acknowledgement in Substack notes once we hit it, per Substack's unofficial rules…), we have readers from 25 different nations (with about 150 regular unique readers!). So thank you so much to each and every one for your support, attention, and feedback. I appreciate you being part of the 18 Degree Journal, and I am excited for the improved content for years to come, as well as the connection we are making along the way. So, thank you and to more years ahead.

Back to the topic at hand, the last couple of months have introduced many stimulating discussions and debates about the future of the “AI” technologies and how they may shape our lives. There was a big debate on whether the SaaS (Software as a Service) businesses will be competed away, debates about the replacement of engineers (and other roles), fear over growing capex spending for the mega-scalers (with Oracle’s credit default swaps spiking in rates), and I’m sure you can extrapolate all the other growing fears surrounding “AI”. So I decided to try to add to the conversation to first capture how I am feeling in April 2026 (to avoid future biases impacting my worldview) and also to gauge how wrong or right I am. I think the field has been changing at an exponential rate, and the human brain struggles to keep up with the changing dynamics. Most of the growing fears surfaced with the release of the December 2025 models and with professionals adopting AI, seeing huge jumps in performance and efficiency, now being able to predict (or maybe over-predict) how it may affect us in the future.

I think from the get-go it's good to establish that it’s very hard to see how this field will grow, change, or where it may bottleneck. The future, as always, is uncertain and mysterious, but I'm of the strong belief that humans in any time period have unifying characteristics, and we may be able to make a few arguments with that in perspective. As for any expertise I may have, as some readers will know, I have a Bachelor’s in software engineering and have had the pleasure of working in the industry for years (granted, not a whole lot in the grand scheme of things). I have had the pleasure of touching a few technological sectors and interacting with many senior minds and debating this AI revolution, not to mention using these newfound tools now on a daily basis. Although my points may be naive, I can still bring forth my current understanding to the discussion.

I think the term AI has been thrown around a bit too much lately and a bit too loosely. So, for this article, whenever I mention AI or the protagonist of the essay, I'm referring to current generative AI technologies such as LLMs. To better constrain the conversation, I will break down each point into a sub-problem that generative AI is facing or the issue I have trouble seeing how it will solve. Otherwise, I feel the topics become too open-ended, and there is no systematic way to wrap my head around them.

I think a good way to set the tone for the conversation is to address the fundamental question of how we communicate, “What do we want?” Or to be more precise, how do we convey our request, vision, goals, and contain them in a box so that we may be able to produce it? To show a small issue an AI could have with this, I'll take you back to my university days. I remember when I was still in university, I took a requirements engineering course. This course centers around how to produce requirement documents (aka documents that encompass the client's request to produce a product). The hardest part of the class and the biggest glaring warning the professor would emphasize is that most of the time, your client doesn't yet know fully what they want, not to mention not being able to communicate it. Moreover, there are numerous other issues that come with working with clients, such as scope creep (when the expected product scope keeps containing more and more features), changing requirements, miscommunications, etc. These lessons and insights carried over to my personal experiences, whether it was producing software for clients, working with managers within an organization, or even working on a personal project (…oops). Now we introduce a new abstraction level for natural language AI that takes your plain English request and determines the right coding language abstraction to produce your vision…Who is to say what you asked for is the right thing? There is a lesson that most computer science/software engineers learn early: that computers, by essence, are not smart; they do what you tell them to do, how you tell them to do it. The current Gen-AI is a lot more sophisticated than this understanding, but at the end of the day, it still relies heavily on proper communication to get your mission across. Who is to say the vision you presented is accurate or that the different levels of abstraction captures what you needed? Steve Jobs famously said, “People don’t know what they want until you show it to them”. A Gen-AI that is prompted to act by a user is not meant to overreach and create a new vision; it's there to find the average best representation of what you have described at the time you described it. Also, to come back to my main point on customers introducing new visions that dilute requirements or evolving a product into some sort of mutation of the original idea, a Gen-AI is not really meant to be pushing back against the production, yes we can put guard rails, questions about priorities, etc., but all of that is useless if a client can override and force their way (true with live engineers but I don’t think its quite the same).

Now, if we can nail down this communication and vision layer, my next question is: “If something goes wrong or is not as expected, whose responsibility is it?” Say we purchase a product from a vendor or have an internal team make a product, when things go wrong, there is always a responsible party, one that will take the heat, try to fix the issue, or in some cases take the downfall for the issue (sadly human structure especially in private sector leads to people getting the short end of the stick). Now we can argue the person who delegated the task to the AI, the creator of the AI, or perhaps the vendor of the AI, takes the blame, but I think this structure would not be sustainable, and management and the firm will want more layers of responsibility (for some to selfishly protect themselves from blame). The reality of many enterprises, especially software enterprises, lives in an ecosystem of a lot of different moving and evolving parts, and something constantly changes in a way that will break your systems, especially if you have technical debt (everyone has some), and issues are completely unavoidable (especially with malicious actors always trying to break [into?] things). I am having a lot of trouble seeing an automation of a lot of processes because I can't map out the responsibility question, and a way around any of the social fragility of corporate structures. Other than the responsibility and blame game, I think Gen-AI systems introduce non-deterministic problems that are a lot harder to audit, reproduce, or find what component to blame, since Gen-AI output itself is not consistent (aka not the exact same output) it introduces a novel issue of not being able to reproduce all issues the system found In my view this could add another complexity on existing blame game dynamics.

I think a conversation about Gen-AI, especially today, requires a look at what risks and compromises you accept when using it exclusively. When using Gen-AI technology, such as an LLM, you are essentially working with a large collection of data, trying to find the most probable output for each request. This process itself is a collection of statistical problems, and the output varies in ways that is statistically bounded but not guaranteed, meaning that you are likely to generate the same or similar output, but you will not necessarily get it. I'm going to better illustrate it (there's an image below), but you are working within a frame of a bell curve. Engineers are working hard to shift your average output as much as possible toward quality while reducing variance. However, the whole driver of improved LLM output has been a drive for larger models with larger context windows (according to recent studies I read, having a strong positive relationship with model size and model output). This means these huge foundational models built largely on global internet data are exposed to not the best quality of information, increasing the difficulty to improve the “average” of average internet data. On top of that, you are significantly bottlenecked in your ability to utilize these tools to their best potential in order to even guarantee the best possible output to generate from them. I think we all noticed that people use Gen AI in different capacities and with different levels of understanding. I think the current latter framework is the best in grouping different classes of users:

• Level 1 User: Uses Chat Function (Q&A format). Conversational use, quick answers, casual prompting. Treats the Gen-AI like a search engine.

• Level 2 User: Uses LLMs for task delegation. Uses it to draft documents, summarizing content, or generating content (such as email, Excel files, reports). Usually this user is more familiar with the basics of improving output with proper prompting and formatting as well as aware of double-checking output.

• Level 3 User: Uses Gen-AI for workflow integration. Embeds AI into their process, such as advanced autofill (like code completion), uses tools, APIs, and chained prompts. Thinks about outputs critically and knows how to set the domain of the model and context to shift the curve toward their domain and catered output. Is somewhat informed about the limitations of output and tries to minimize output pitfalls.

• Level 4 User: Uses different agentic/autonomous processes. Multi-step pipelines, coding agents, and build systems with AI. Understands limitations deeply and is constantly experimenting with better utilization techniques. Knows how to create a systematic approach to generate output and sets limits to the context.

• Level 5 — The Pro Users. They know or do fine-tuning and architecture on their models. They shape the model itself, use their own custom datasets, and specialize in deployments. Borderline experts to be able to create their very own Gen-AI Tools.

Of course, this model is not all-encompassing and has its own limitations as a framework to understand the different categories of users. But the frameworks allow us to understand that there are “levels” to using Gen-AI, and most users are not maximizing their potential output when using these tools. What this leads me to think is how averse most corporations and people are to change, especially when the status quo works. So it's very hard for me to imagine a huge incentive for average workers and organizations to optimize using these tools to actually achieve the best possible results they can. Along the same line, you may have noticed that more services are likely facing significant downtime, especially those services that are relying on AI automation and are making some reliability mistakes. Part of the problem stems from how these tools are applied, and the majority of users operating these tools well below the level needed to extract consistent, high-quality output (The majority of professionals who have transitioned to using Gen AI tools operate at Level 1 and Level 2). The other part (without going into tremendous detail) is the structural ceiling given by context windows (and LLMs prioritizing context in the context window). For its parts and practical purposes, the majority of the best output in Gen AI is produced within a very limited scope (a small problem), and once a large complex problem is introduced, the output seems to fall short. The LLM’s probabilistic nature currently prevents it from handling large, complex problems. I think this issue is deeply connected to the fact that you are only limited to the average output, and the dataset of code you are trained on contains bad code; your average output is contradicted by the ratio of good to bad code, and with plenty of bad quality samples, it anchors your average output. Many of the best lines of code are written by fantastic, amazing engineers whose output is incomparable to the average… There is a good reason that top-performing engineers are sometimes paid more than some CEOs.

I've been discussing the frontier Gen-AI tool, but what might the future hold for them? Well, I have a strong conviction that as this field progresses, the current Gen AI tools will converge more and more toward a similar experience and output. So today, having frontier companies such as Anthropic, OpenAI, Google, QWEN (Alibaba), Kimi, Mistral, etc., are all training on the biggest dataset we have…the internet or in some cases (cough cough) on each other, summarization or structure on internet data. The differentiating factor in how they fine-tune and optimize their models is very limited, and with the ability to replicate any secondary toolkit, the competition will, over time, converge into an undifferentiated product. Even today, anecdotally many users are sticking to one or two products and are not incentivized to switch as the products themselves are not that different. Now with that out of the way, say we agree for a moment that development work and other automated work do get automated on the software side, is it no longer viable to build any software businesses or products? Well, I'll have my comment about the SaaS business in the next section, but for development, I want to say it may not be dead, but it just might have different priorities. As a user who has been using AI from almost the beginning of its public release, I can confidently identify AI elements on websites, in writing, and in general content generation — and if we extrapolate this commoditization of models and the automation of creation of products. I think everything will return to first principles software, and other programs will still very much exist, but the Steve Jobs artist factor (the ability to build unique, different experiences) will become the dominant factor driving the industry. On the internet, worry of whether or not AI will “make the art while humans wash the dishes,” I am of the strong opinion that the human element of taste, art, and fashion will drive the next wave of product uses. In a world where functionality gets commoditized by generative AI, the user's feeling of a product's uniqueness will be the main magnet (well, that and the network effect of having a lot of individuals on a platform driving more users…). I think this taste and art feeling is severely overlooked. Jimmy Iovine was on David Senra's podcast (goated podcast you need to check out, here is the episode:

) and made the excellent point that AI will enable the mediocre to be better, but the true artist with taste will excel regardless, and I think this is the case with any new technologies, the true artist will be enabled by this technological revolution, the commoditization might happen to the functionality of the product, but not their experiences. Why don’t I believe that this creativity can be automated away? Well Gen-AI systems are trained on datasets of past history , to use a cliché, are always looking in the rear view mirror, and can only synthesize from what was already produced. yes, yes you can tweak parameters to induce hallucination creative behaviour but it's still a statistical recombination, in contrast a true artist, who creates from genuine feeling, often without logic or any justification has a competitive advantage that no autonomous system can replicate. Maybe my last analogy I want to bring forward (I promise I’m about to move on…) is from history, but I see similarities between the production of AI vibe-coded software and the saturation of the Video Game market back in the 80s. In the 80s once video games were shown to be a profitable enterprise the market became flooded with cheap, bad products to force the quantity sales of as many software games as possible…leading to the complete collapse of the video game industry until Nintendo brought it back with the Nintendo seal of approval of games this seal demonstrating quality brought consumers back to buying video game products. The production of AI products will do the same; the quality product will continue to thrive once the average vibe-coded product slowly dies.

Well, I think we covered a lot of the main points I wanted to touch on before getting to the hottest topic of February: whether the SaaS business model is dead or gone (or restructured). Again, we are circling back to the argument above about the commoditization of software, but here I want to take a slightly different angle (also, um, I will probably, in one form or another, repeat some of the points spread across other sections). I think there’s a disconnect between understanding why the SaaS business model grew so fast and why it hasn’t really been disrupted by other models. Traditionally, when a company wanted to develop a feature or function, they would invest in an expensive, slow process with a dedicated team to develop that product for each and every feature they needed. This also means a dedicated developer to maintain that one functionality, improve it and take responsibility for it. SaaS abstracted this and solved it by allowing a business to come in, take on that one specific feature, build maintenance on it, and sell the same solution across multiple businesses and therefore bring per business under service costs way down, in turn boom large margins for the SaaS business as marginal additions of new businesses needed to one function cost almost nothing as the product is already developed. Again, the process of developing a feature or function and maintaining it for one client is expensive and a very low-margin business, but going out and selling the same or very similar product to other companies is what allows SaaS businesses to really make money. So if we now take this back to teams managing and creating their own internal function, you are bringing it back to each team to spend on the same function, and assuming per seat in a Gen-AI would replace the quality or output of the function (also one subscription for another, although it seems people forget that tokens are limited or charged for). Now I get the argument: you could have a copycat product showing the same exact product, but the switching costs of habits and restarting are massive and very hard to push for in bigger companies. The accountability, trust, and assurances of existing solutions often outweigh the reputation of new incumbents. Furthermore, it seems like a lot of the time we are forgetting existing SaaS companies can optimize with the same Gen-AI to systematically bring down some of their own costs and perhaps evolve their business to slightly worse economics by passing savings to consumers, but it’s still a very much sustainable business model as long as scale reduces costs.

Although a lot of the ideas I presented have been issues, I'm having trouble wrapping my head around explaining Gen-AI replacement. I wanted to spend a small part talking about another notion I have been mulling over: whether we are moving toward a future where Gen-AI models are run on local devices. If we look today, we already have both existing and impressive capacity. Heck, I am writing this article on my MacBook Pro, which can run a decent small/medium model by itself (enough for level 1-3 users, maybe Level 4?) and has worked with an industrial-grade GPU, so it can really fly through local models. This capacity of course is not super cheap and comes with its own limitations, but the fact that we are already running very decent local Gen AI tools may foreshadow what our future might look like. However, even when I extrapolate how the future might look, I am troubled by the physics that may make local models less meaningful for professionals (aka your phone, watch, non-fully-built desktop PCs, or even notebooks). So far, scaling laws have been pretty fairly unambiguous; larger models produce meaningfully better output, and the energy and physical surface area required to reproduce that output have consistently favoured data center infrastructure over local hardware. The smaller the components and the more power they need to reproduce the same output, physics and thermodynamics dictate that an immense amount of headroom would be required on the chip, and I can't imagine the hardware cost of small, perfectly moulded components will be more than a larger chip with similar characteristics. So, say we take an extreme example of having a local LLM on a smartwatch, the watch’s hardware hits a ceiling determined by heat dissipation and die size, limiting what you can physically put on it, and the argument that we really need it to be placed on such a small chip to my head doesn’t make sense. Say we take the same watch and instead of locally it’s just ping a server with your request, the difference in experience changed simply by latency is almost negligible (it would take a few milliseconds for the request to travel from your watch to the server and back…), not to even mention that your request will be processed better on server hardware…. I don’t think there are many applications where there is a requirement for real-time production of output (some applications that do require it could be self-driving, surgery assistance systems) and the only other logical constraint could be privacy concerns. But in this case I just invented more personalized hardware and similar smaller scale servers per organization requiring the local interfacing. Of course, there are exceptions such as remote areas or failsafe systems needing local output, but a realistic world where the best output is produced in the cloud and served to consumers with failsafe local systems seems to be the most realistic version of the future reality to me, and I think in the future the majority of Gen AI computation is completed in the cloud.

Before I close my article, I did want to add some remarks on how these AI generative technologies have been integrated into my workspace and my feelings about them. First, I want to say agentic coding agents, especially in the last couple of months, are extremely revolutionary, they allow me to do so much more and find a lot of my mistakes in my production and sometimes in real time. It has been extremely helpful and has saved me hours of time. You may assume that, since it saves me hours of work, I may be working less. However, the more I rely on these tools, the longer my workday gets. The coding agents are a huge enabler of touching more parts of my project at the same time, meaning as I become better, I'm doing bigger parts of the project in a shorter time, and usually leading me to have longer days to get those parts across the finish line, only to restart the next day. So, as to the perfect metaphor, the coding agents have become a sort of double-edged sword. The other notion is that the field is progressing extremely fast. The number of papers I have to constantly follow to understand newfound limitations of current implementation of generative AI, or better methods to use it, is constantly growing, not to mention the bombardment of constant new tools, tips and tricks to get better at using current offerings. At times, it can be overwhelming, but it's a constant balancing act between being behind and being informed. I think many are burned out, and we are starting to see a wave-like progression in informed users (better to say, up-to-date users). What do I mean? Well, for lack of a better way to explain it, I think the pattern of individual developers and users of these platforms is: The general user of generative AI technologies is informed on a wave with peaks and troughs of being in the loop vs before. I felt the pattern resembled a wave, where you ride it up (your catching up to status quo) and down (to much information comes out and you fall behind).

Well….. I hope that was somewhat comprehendible, still working on getting my communication to a better level. I am excited to see how wrong I turn out to be in my assessment. The world is changing really quickly, and I am sure there are many things I will not see until it slams me in my face. There is definitely a lot I wasn't able to say in this piece or capture in some of the nuances, like, for example, the biases introduced by Reinforcement Learning from Human Feedback (RLHF), hallucination of output introducing false or inaccurate information, the energy or environmental costs as well as any intellectual property issues, or the compounding issues of compounding error problems in agentic systems, but I hope I prioritized some of my main ideas. I think I am fortunate (hopefully not unfortunate) to live through the monumental evolution in our tools; I think it is one of the greatest inventions and will lead to many great advancements in the future. Thank you for reading, and I hope you enjoy some of my thoughts. Feel free to DM me to debate or comment below. Always nice to talk to readers and guests,

Cheers!

Daniel Andreev - 18 Degree Journal

Full Article: https://open.substack.com/pub/andreevdan/p/writeup-mini-intro-write-up-dfm?utm_campaign=post-expanded-share&utm_medium=web

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author holds a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.

As always, it takes a bit of time to get back up and running, and I'm working on 14-18 write-ups (although honestly some are half-ideas that may be forever drafts) as I try to focus on what makes more sense for me to do at the moment and balance a few priorities outside the journal. For those following the sega and awaiting an update, no worries, it is coming! (wow, what a bloodbath these months have been for teh stock), They recently reported earnings, and, to say it politely, investors are justifiably not the happiest (coupled with private credit fears, market uncertainty, and the huge goodwill write-off…). I recently got to meet some of the management, who have been the most generous in humouring my questions and explaining the mechanisms behind the business. I got a bit more insight and a bigger list of questions to get through, and once it's wrapped up, I will be sure to post part 3. But for those wondering I have, through the experience of studying MLCI, added a few things to my pilot checklist and can admit I perhaps should have put it into the too-hard pile. I know that Buffett and Munger state that you don't have to make money the same way you lose it, so once I'm certain I can't fully make sense of it or lose my thesis, I will sell, but today, I still see some value in the company and building upon that view with new information and going through competitors and industry fillings. I'm just not certain how much, given the new information I’m learning. Overall, a great educational experience, and thank you to the Mount Logan team for taking the time to sit down with me. I will be sure to get over the hump shortly. Today, since it's been a while since I had some content. I decided not to starve the audience and gave a brief write-up on an idea that needs more work but is quite interesting. Those who have been following for a while will remember that I’m a big fan of $GPW in Poland and was a little saddened it was going up so quickly in price before I could accumulate a full position, but as the price moves and my confidence in it grows, I may grow that position and do a full breakdown of the business. So today it rhymes in that same flavour, and I'm here just to introduce an interesting company, welcome $DFM, the Dubai Financial Market.

History:

The Dubai Financial Market ($DFM.AE) was established by Dubai Government Decree No. 14/2000 on March 26, 2000. At the time, it was the first and only stock exchange in the UAE, and the only one to operate under Sharia principles. Initially, it was fully owned by the government, but in 2006 (listing in March of 2007), it went public via an IPO (which was allegedly oversubscribed 118 times). The IPO floated only 20% of the business; the remaining 80% continues to be held by the government today through the Borse Dubai holding company. In 2009–2010, the business consolidated when DFM acquired a majority ownership stake (67%) in Nasdaq Dubai (formerly called DIFX). This created a dual-exchange structure, with the DFM serving the domestic market and Nasdaq Dubai facilitating international investors and dual-listed stocks. Today, it remains one of the largest exchanges in the region, operating alongside notable regional public peers such as the exchanges in Kuwait, Saudi Arabia, and Israel.

(Also, as a side note, their annual reports are full of infographics and storytelling; you will easily learn everything you need to know about the company just from their reports, so kudos to them!)

Recent News

I think it’s dishonest to write these pieces without highlighting recent regional tension and conflict. The general markets in the region are down, and there is a question mark hanging about what it means for the thesis for the emirate and regional patterns becoming the Switzerland of the Middle East, and the meaning to future population growth and international attraction.

Idea

The business can be viewed through two compartments: the traditional operating franchise and the asset pocket.

In the traditional business, there are the regular operating activities you would expect from a stock exchange. That includes trading commissions (based on the volume of the exchange), clearing and settlement fees, listing fees, and market data fees. Meaning, if you want to trade equities or futures, list sukuks (Islamic bonds) or traditional bonds, settle trades, lend or buy securities, trade carbon credits, or go public via the ARENA (private placement platform), you have to pay DFM (with an additional 67% of all fees flowing from Nasdaq Dubai). I don’t want to go into great detail, but if your curious how it usually works here a different series:

It is a phenomenal business; you are a government-mandated monopoly and are a toll collector to most financial activity in the public markets in Dubai. However, let's not get overexcited in comparison to international peers. The business is quite small, and there are not as many investors as you would see in Hong Kong, Tokyo, or Canada, let alone the major players. There are ( I believe) a total of 23 brokers and 5 market makers, and if you look at the margin of operation, the neighbouring Kuwait exchange boasts a more capital-light model with higher margins. The majority of the stock trading is government privatization projects (concessions, for example), REITS, Regional Banks, local Oil, and local airliners.

The second compartment is the asset pocket. Here you have your cash, land (such as the investment property that was sold last year), liquid securities, bonds, and sukuks. While some of this is required for regulatory capital, the remainder acts as a buffer or a source of yield for redistribution to shareholders, though the valuation of this portfolio is naturally exposed to broader macro headwinds, including recent regional geopolitical conflicts. For more details, here we have AED 4.11 billion (about 66% of holdings) in depository receipts parked with UAE institutions earning 4-5.5%/year, there 1.12 billion AED ( about 18%) in equity securities held at fair value (will drop with current market drawdown), Sukuk of about 0.8 bilion ( about 13%) and the rest is cash (0.18 billion - 3%) and Managed funds (25 milion) (also for those curious goodwill: AED 2.88 billion (from that 67% Nasdaq purchase) & other intangible assets: AED 1.75 billion).

Admittedly, there is some accounting noise in the recent financials that we have to adjust to gain a better understanding of the underlying business. Last year, DFM paid out a massive AED 520 million special dividend, funded largely by the proceeds of a one-off real estate sale of AED 461.9 million, which artificially inflated reported headline earnings. Because of this, standard financial screeners can be highly misleading, making the stock look artificially cheap on a trailing P/E basis. Furthermore, those same screeners often miscalculate DFM’s Enterprise Value by treating its entire gross cash balance as available to owners. While DFM holds substantial liquid assets, roughly AED 2 billion of that is restricted cash tied to unclaimed investor dividends and clearing collateral (but DFM earns some interest on it).

However, even after stripping out those restricted funds, the true Enterprise Value remains meaningfully lower than the market capitalization. With a current market cap of roughly AED 11.3 billion and AED 2.3 billion in true unrestricted cash, the adjusted EV sits at AED 9.0 billion. With zero debt on the balance sheet and normalized core operating earnings of AED 593.3 million, the business is currently trading at a clean, cash-adjusted EV-to-Normalized-Earnings multiple of 15.2x. As I mentioned though, these cash-adjusted valuation figures, however, do not fully capture the intrinsic quality of the business until you examine its underlying cost structure. DFM essentially operates as a state-backed, regulated toll bridge ( a regulated monopoly!). In order to access public capital or execute most financial trading, you need to pass through their highway in Dubai, a growing regional hub with an expanding population. The business is built on significant fixed costs (such as servers, routing technology, data centers, and regulatory compliance) but operates with exceptionally low variable costs. Once the core digital infrastructure is online, processing an incremental trade or facilitating a new IPO costs the exchange practically nothing. The only question remaining is the scale and growing it as every additional dollar simply flows to the bottom line. There is also a network effect in play. In order for this business to truly be a gem volume, listing and trading need to pick up; the more businesses it attracts, the more likely it is to be new listings and hence raising the volume. This structure provides DFM with massive operating leverage. If you look at how this dynamic has played out over the last four years, the scalability is obvious. If you take a look at their cost between 2022 and 2025, operating expenses grew by barely 8% (creeping from AED 207.1 million to AED 224.0 million). Over that same exact period, operating income more than doubled, surging from AED 256.9 million to AED 530.7 million. I do want to remark that Dubai has made strives to make the environment more business friendly but they have different regulation that are not always market friendly for example there are some regulatory hurdles on shorts that do not allow the same behaviour as in other markets, thereby limiting price discovery.

Closing

Ultimately, the investment thesis is straightforward: you are investing in a regional monopoly tied to the growing Dubai market that has attractive, scalable qualities. The primary downside risk is regional geopolitical uncertainty and any shifts in Dubai’s position on the world stage. However, as any student of history knows, people’s memories of geopolitical shocks are remarkably short, and global wealth will always demand a secure, tax-advantaged hub. Dubai’s aggressively pro-business environment has allowed it to continuously capture global market share from traditional financial centers. So, do you think this center is dead? I also want to remark that we (as in humans) are not primed to think in exponential terms, and the true value of the whole ecosystem is really wonderful at the end of the tails. As a small business, an exchange business, it is not truly remarkable and therefore needs a very long-term view to allow the business to reach a scale.

Hopefully, you enjoyed this introduction to the idea and will keep an eye on the business. There is always some risk of misaligned incentives when the majority of the business is government-owned, but I believe the government's incentives are aligned with DFM's and the economics of teh business are trending toward the right side.

Anyway, keep an eye out, I'll try to publish more as I get through my priorities. Hope you have a great weekend,

Cheers,

Daniel.

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author holds a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.

Apologies for not posting. I have been sick and also without my laptop. According to FedEx, I will get it back from repairs tomorrow (so fingers crossed). Once I have it, I will be able to slowly go through my backlog and post my drafts.

So today, a mini update. Last time we explored the old archive, and today I’m here to share a very cool Spotify channel that turns the OID Archive into podcast episodes. It seems to be slowly growing in the number of episodes, but stay tuned.

Spotify Playlist

Hope all is well,

Cheers!

Hope you’re doing well. Today I have a special treat for everyone. Hopefully, you’ll find it as neat as I do.

Recently, I had some fantastic advice from a fund manager out in California. In our exchange, he hinted at checking out the old OID (Outstanding Investor Digest) articles and learning from them. For those not familiar, OID was a publication that captured many sit-down interviews with investing legends and is a fantastic resource for young investors. Sadly, though, it stopped publishing in the mid-2000’s. I personally remember reading the Walter Schloss interview and loving it; finding his interview with his son, Edwin, an insightful read. However, it didn’t occur to me to take a deeper look and go through all of them (oops...).

It has been out of print for quite a while and is not super easy to find a bunch of copies. However, Kevin Gee put in a fantastic labour of love and compiled everything he and Adam Mead, along with his friend Helen, could find. Here is the link to the original post: Compilation #1: Outstanding Investor Digest

As amazing as this was, I really wanted to have it on my Kindle and truly digitalized so my highlights can be linked. I also wanted to create a mind map after reading for future re-reads. The large file size (300MB+) was less than ideal for running on my Kindle or for quick loading or changes.

So, I decided to code up a few scripts to make an ePub Kindle-ready version as well as a searchable, readable PDF (not just the images). There might be errors, and I will definitely try to improve the process later, but for now, I feel it’s mostly ready for reading. It's now a fraction of the size (4 & 9 MB respectively) and ultra-fast to search or to drop into an LLM to chat about.

EPUB:

Oid Archive Ocr

3.98MB ∙ EPUB file

Download

Download

PDF:

Oid Archive Ocr

8.76MB ∙ PDF file

Download

Download

I hope this resource will be helpful to you. Again, I don’t own the content; I’m just here facilitating a digital version for research and educational purposes.

Hope you enjoy!

Cheers- Daniel

I was recently posed quite an interesting question: “If you could own only one business for the next 100 years, at any valuation, what would it be, and why?” and you know it made me thing if in a hypothetical situation I could buy something today but no matter what for 100 years not be able touch it at all what would I actually want to hold. This question was perhaps a very interesting thought experiment, and I spent a lot of time thinking about what truly needs to be prioritized. I went through various frameworks, from owning land or utilities, as no matter what, they will be worth something or yield something over the tenure of the asset. I went through important infrastructure or perhaps world-dependent tech, but my conclusion is that I should focus on preserving capital (Buffet's two rules, right?). I started thinking about what realistically would need to be alive in the next 100 years. (For context, the Dow doesn’t have a single company it had 100 years ago; the oldest would be Procter & Gamble, added in 1932.)

My first intuition walked me toward the payment rails of Visa and Mastercard. Even though the technological stack is constantly in flux, in North America, it has infiltrated consumer habits, payments, credit card rewards, cardholder penetration, etc. However, this business could be changed at the whim of politics. The unit economics ensure that all interest rate risk is on the distributing banks, but if the Fed or other central banks introduce CBDCs (central bank digital currencies), there is enough risk of disruption that I think 100 years is simply too long to be certain they won’t be disrupted. I considered the railroads in North America. They have major players and natural moats, but not amazing returns due to the necessary capex to keep infrastructure running and the risk of labour unions. Again, they could merge, consolidate, or operate unprofitably enough to cause the company serious issues over such a long timeframe. The fab companies (Samsung and TSMC) were also an idea, but again, it’s a game of capex. The business model requires constant pressure to spend, and one misjudgment of a technology cycle can run the business down. The relentless need to stay at the cutting edge makes 100 years feel impossibly long.

My next intuition was to think of “sin” companies such as tobacco, lotteries, and defence companies that are very likely to stay. But to save you from all that monologue, the conclusion again was that the government's mood can destroy these businesses. Infrastructure and technology companies are always up for disruption as they will have to spend constantly to stay relevant, and I don’t know what evolution of the business is worthwhile to hold.

So after much deliberation, my answer will be boring: the Swiss National Bank.

I’m aware that the Swiss National Bank is available as a stock on the Swiss exchange (SWX: SNBN). Your returns are limited, a simple bond-like return, but you have one of the most stable cultural institutions with constant payments and, in my eyes, near-zero risk of default. The important thing is that in 100 years, you will still likely own something. (Yes, I'm largely overlooking inflationary pressure, Swiss position in the final world in 100 years, etc., but it seems in a thought experiment, the most stable variables). My thinking will likely evolve; it probably makes more sense to own a 'toll bridge' business or a long-term road concession. However, at this moment, I find it difficult to pick a specific business that can survive 100 years. Perhaps a family-controlled 'empire' (like a dominant chocolate dynasty) is the better answer, but I will continue to ponder it.

In 100 years, I’d rather own something boring that survives than chase the excitement of businesses that might not. Thinking this experiment in a different time frame does yield a different answer, but that is a conversion for a different time. Il try to write a mini article answering this question in 5 years to see how my thinking evolved.

Hopefully you enjoyed this mini memo,

Until next time,

Cheers,

Daniel Andreev

I was recently posed quite an interesting question: “If you could own only one business for the next 100 years, at any valuation, what would it be, and why?”  So, I decided to note my thinking and see how it changes every 5 years.

Enjoy!

Full article:

Now that the dust has settled with , we can take a closer look at what transpired and delve a bit more into their businesses to try to figure out where to go from here.

For those who missed part 1, here it is:

As before, quick disclaimer: this is for educational and entertainment purposes only, not for any final advice. I currently hold a position and may sell it at any time.

RESULTS OF TENDER

The tender offer of Feb 2nd 2026 ended as expected, oversubscribed with 1,590,601 shares bought by at $9.43 each. The final proration factor was 28.23% (meaning 28.23% of your shares were bought by the company for cash, and the remaining 72ish % were returned to you as shares). Today, the stock has had a massive 25%+ drawdown from its price prior to the tender date. Overall, clean execution by management, and it shrinks the float nicely, which could be a tailwind if sentiment flips (although long term would have much preferred the business buy them at current levels… (but I get both sides, low liquidity, use event to gain attention, etc.)). If you bought in for the short term, you're most likely down. Hope you came out ahead; if not, maybe a lesson in the risks of oversubscription, but in my opinion, the business is still very interesting.

INDUSTRY MODELS

I think to understand the advantages of the business model, it's a good idea to take a high-level view of alternative business models in a similar business niche and understand their advantages and disadvantages. Big shoutout to Red Deer Investments for great articles on the topic (such as "Kings Don’t Buy Flow & Trading Complexity for Capital Intensity in Life Insurance") and others for further educating me on the topic.

This side of the industry really blew up or gained attention post-2008 financial crisis (with Dodd-Frank 2010 being a catalyst). During restructuring and company wind-downs, many insurance liabilities and complex annuities were sold at steep discounts as credit cycles contracted. A few opportunistic players (notably Apollo) scooped up these liabilities and assets and invested the proceeds in higher-yielding, higher-quality instruments. This would look like incumbent companies underwriting new premiums at profitable levels and, instead of investing in traditional public bonds, finding alternative investments such as private credit or higher-yielding bonds (compressed due to financial crises or the euro crisis, etc.) and growing their asset bases. Some companies would buy other companies to grow assets, while others would position themselves as the new management of these assets and guide them into profitability. To simplify all the gibberish, the goal or the “golden goose” is to chase the “float/flow,” aka the endless permanent capital that you could reinvest at higher rates than you owe for borrowing it. There are only two “real ways” to grow this into a business.

Method 1, (I like to call it the passthrough method or caretaker model), where you buy bulk flow from banks and institutions and repackage those liabilities as loans or collateralized obligations and lend/sell them. You earn a fee for these services, with some incentives for your execution (similar to the brain model we talked about last time). The drawback is that the industry is super cyclical, and no guarantee of constant business flow. Method 2 (I call this the control method or a snowball method), you slowly grow organically by yourself, writing the liabilities or annuities and matching them with other opportunities you lend. As you can imagine, this requires a substantial resource, a necessary scale, and trusted personnel. Blackstone would be closer to method 1, while Apollo KKR would be closer to model 2 (the department that fiddles/deals with this type of business anyway).

Now, why this rush for size and growth? Well, unlike other business models, the small scale is a huge disadvantage. The smaller you are, the more resources the personnel need to execute each deal (affecting your costs). Moreover, if you are small, each deal that goes wrong (a bad loan, higher liabilities than previously modelled) can significantly drag performance and lead to losses that are not absorbed by other deals. But ok, ignoring that, why still care about scale? Could you not just have a tight ship and watch your egg basket so all your eggs don't crack?… Well, the revenue quality is a lot worse in this industry. In method 1, you need a constant stream of deals and a good credit environment to stay in business. You have no assurances that the deals will keep coming, so your management fees can dry up at any time. Moreover, unlike a management company that might earn, say, a 2% fee (like in private equity), here you earn a small 0.4%, so that means you need massive AUM in order to make substantial profits. Companies do try to differentiate themselves and carve their own niches, and here it's done through complexity. Some players, in order to generate higher spreads, take upon themselves more risky types of activities (you will see an example below).

As you might have guessed, MLCI 2.50%↑ is sort of trying to hybridize these two methods. They don’t have the scale to do Method 2 properly, where they would originate their own full deals and underwrite their own risks, but they are growing a permanent capital base with their own management team, where they are super dependent on leveraging BC Partners with the personnel requirements as if they are a big scaled player. Meaning they only borrow or rent those resources when required and compound capital the rest of the time. The risk is that without sufficient size ($MLCI is tiny), small mistakes in legacy liabilities (that I'll give more context in a minute) can overwhelm the benefits of permanent capital (not to mention dependence on BC partners).

A BIT MORE ON THE “HIDDEN RISK”

In part 1, I really focused on just giving a high-level view of the business model and elements to understand and assemble a simple model of the business. I think that to understand the long-term risk of the business, we need to open up the “muscle” business (SRE) and understand what makes it twitch. I was hinting at it before, but is a transition from exiting the more complex annuities and transitioning to simpler annuities (don’t worry, I will explain), but the legacy annuities are quite the anchor for future prospects.

In May 2021, Mount Logan acquired ability insurance for 20 million (15 million notes and 5 million in stock) to transform MLCI into a “platform” for permanent capital. This transformation came with an inherent “zombie” risk that was hidden inside the liabilities of ability insurance. We can even go as far as to call it a cancer or tumour that you hope won't spread in order to enter the highly regulated industry and build out their insurance vehicle with the size ability given. I'm sure I'm not making much sense, but stick with me for a moment. I'm using a lot of scary imagery of zombies, cancer tumours, but what is this risk? Remember in pt1 we talked about the annuities business and how the “muscle” (the SRE business) earned its profits from the difference between its obligation for the annuities and the money it earned from investing the principal from the annuities. Well, not all annuities are created the same, and some are a terrible idea. When bought Ability insurance, they inherited complex Long-Term Care (LTC) Policies. These policies are designed to cover the costs of services that aren't usually covered by regular health insurance or state/federal care. Specifically, the policy helps cover if you can’t perform two out of: bathing, dressing, eating, toileting, continence, transferring (getting in/out of bed), triggered by receiving a doctor's certificate or by being diagnosed with severe cognitive impairments (alzheimers, dementia, etc.). Payment begins after a person has completed a 30-90 day “self coverage” period (depending on the policy), and the rest is covered by the insurance provider. These are exactly some of the more complex underlying some players do, however, the liabilities inherited were policies underwrote in the 90’s early 00’s that severely underestimated the expanding life expectancy, rising medical costs and the assumption that client would lapse on the required payments (surprise surprise majority client kept paying with such good policies), every day a policy holder remains under care ability insurance gets charged. Of course, management realized this was a huge risk and counterintuitive for their business model. They have stopped issuing LTC policies and have arguably reinsured their LTC liabilities; however, even though they've reinsured the bulk of the LTC risk, they still retain a small portion of the claims. In Q3, those retained claims were higher than expected, leading to that $1.8M 'leak' in the boat (“hit from unfavourable updates in the LTC “Guardian block”). If we really break it down even more, at the very same time as they underestimated this legacy block, Mount Logan was “squeezed” with falling SOFR rates. The pressure is that the falling SOFR rates are used to write loans (usually variable at SOFR + a Spread), so as the rate fell, the income from investment also fell, creating two drags on earnings.

Now, before we move on, Mount Logan understood these risks when they acquired the ability and is restructuring the liabilities they underwrite. They no longer write new LTC policies (eagerly awaiting them to mature their books); they now write MYGA Policies. As you can see in PT1 of the article, this model is predictable, mathematical, and profitable for MLCI. Ability insurance would take in a lump sum, for example, 100k, and guarantee a fixed interest rate (for example, 5.5%) over a set number of years (3-7). The growth is tax-deferred, and at maturity, investors can take their lump sum + interest or roll it over. If the policyholder wants their money before the lock-up period ends, they need to pay surrender charges of 7-9%, and most MYGAs allow policyholders to take 10% of their money penalty-free per year for emergencies. For a deeper explanation, just look at the pt1 diagram. The “play” here is simple is rotating their LTC policies into a new MYGA business and trying to grow it so it overshadows the legacy issues and the drag on SRE (muscles profits) will slowly return to a more healthy 0.7-1% range.

A LOOK AT THE NUMBERS

Those returning to the article, there were really rough numbers in the previous addition, but let's take a bit of a closer look while still staying at a highish level. Again, a lot of this is based on the data given in September 2025, so take it all with a big grain of salt.

Total money under management is now over 2.1 billion. Fee-related earnings (TTM) were about 9.3 million (annualized estimate based on Q3 run rate), and SRE was about 1.1 million (Jan-Sept 2025). I think it's important to highlight that the brain manages the muscle capital, and even though they get paid (1.6 million according to the last quarterly report), it stays within the business they manage: $680 million of $1.1 billion under ability insurance. Portfolio yield was 7.4 %, and as you know, they recently both got new debt, secured and unsecured, 40 million at 8%, and also bought back 12% of their company at 9.43/share. Current debt is about 91 million.

If we follow our back-of-the-envelope calculation spirit. Let’s examine what they actually possess. The current market cap is about $70 million, while cash on hand is $151 million. It’s important to note that this cash is mostly restricted for regulatory reasons to support insurance liabilities. Even when considering tangible book value, it ranges from approximately $61 to $66 million. So, what’s the catch? The high cost of debt, an uncertain LTC commitment, and a more complex corporate structure all justify a discount from the market. However, today, you are essentially acquiring a fee-related earnings business at a bargain, with a “lottery ticket” attached for them to fix the SRE business. If management successfully executes their strategy, shifting to better annuities and avoiding dilutive M&A, you could see a $20 million+ net yearly business valued at only about a $70 million market cap. Again, there are many “ifs” and questions about management, but the underlying value here is clear.

Additionally, there is now a recurring revenue stream from a profit-sharing agreement with Sierra Crest that management expects to scale and could add to the bottom line without further investment (pure margin for the free/ brain business). Mount Logan has been recognizing approximately $300,000 to $400,000 in attributable revenue from Sierra Crest each quarter, and this revenue is growing.

FINAL THOUGHTS

Hopefully this brings more details and more context, given that the stock now trades at sub-6$. I didn't go in depth about management or their compensation and left some of that for the next update, if it comes. Hopefully you enjoyed it, let me know if you have any criticism/ things to add il be happy to hear from you.

Hope you are all doing great,

Daniel.

Following up on the end of the tender offer and the recent 25% drop in the stock price. Now that the dust has settled, I wanted to take a closer look at the "hidden risks" inside MLCI that make this such a twitchy play right now.

Full article:

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author holds a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.

Today I decided to look at a bit of a different company. Please keep in mind the usual disclaimers, as this content is only for fun and educational purposes, this is not financial advice, and I may or may not hold the security.

It’s not presumptuous to say that the Canadian oil market is filled with its own queue of drama, from consolidated big players to junior wildcatters trying to make a fortune, all often under the influence of some whims of the United States. However, as the world’s fourth-largest holder of proven oil reserves, totalling approximately 163 to 171 billion barrels, with over 95% located in Alberta’s oil sands (source: Natural Resources Canada; the only countries with larger reserves are Venezuela, Saudi Arabia, and Iran), it’s not far-fetched to take a look at a few players for opportunities.

I decided it would be fun to learn more about the industry and look at companies not through the lens of: “hey if crude goes to $100 we are golden” but in the lens of resilience; the companies that right now are making a healthy profit with a high margin of safety even if oil prices collapse and at the same time would participate in the upside if oil prices spike; or the price of WTI and WCS converge. This search led me to a very interesting company, Hemisphere Energy, traded on the Toronto Venture Exchange under the ticker $HME (also traded over the counter in the States, OTCQX: $HMENF). Headquartered in Vancouver, with the majority of operations in Alberta and Saskatchewan.

COMPANY AT A SNAPSHOT

Originally founded in 1977 under the name Northern Hemisphere Development Corp (renamed to the current name in 2009), $HME was a junior legacy player with minimal operation (at one point producing just 10 boe/d of natural gas). In 2008, due to a fortunate golf game, the company underwent a transformation with the arrival of Don Simmons, a professional geologist who took over as President and CEO. Don came with technical expertise and with experience in EnCana/Ovintiv and Sebring Energy (from my understanding, also helping sell the gas company at the peak in 2007?). With him, what was effectively a blank-slate corporation was transformed (along with talents he brought on) with a new philosophy: find oil that was discovered decades ago but economically stranded, and use modern engineering to get it out. $HME stopped chasing exploration “lottery tickets” and focused on acquiring under-exploited assets in southeast Alberta, specifically the Atlee Buffalo property and generating predictable profit streams, within a corporate structure that is explicitly shareholder-friendly in its capital return policies.

The business model is quite simple. $HME has some of the best assets really close to the pipeline with the output flowing to a refinery in Montana (with currency hedges and oil hedges for short term volatility). What makes the company truly unique is that they utilize polymer flood-enhancing oil recovery (EOR) techniques. To oversimplify the process, it’s essentially a process that involves pumping specialized liquid to “make its way” through cracks in a rock formation to push more oil out. It’s better than traditional water-based methods as the solution is thicker (acts like dish soap) and pushes oil uniformly. This method flattens their production decline rates to approximately 5% to 10% (a very impressive junior industry average is around 20-30%), meaning avoiding expensive or constant drilling to keep production flat. The strategy with the generated cash is to pay down debt (they have none at the moment) , pay dividends, buy back shares and use some (not majority) to explore other high-potential areas (they keep those values very conservative for future business once the current well goes dry).

THE NUMBERS

The company produced an average of 3,571 boe/d in Q3 2025 (with a projected average of 3800 boe/d for 2026). The company produced roughly 99% of heavy oil (1% natural gas) with a 5-10% decline rate. Reserves as of the end of 2024 are proven developed producing 9.3 million BOE, total proved 1P 11.4 boe and proven +probable(2P) of 14.5 boe. The company’s market cap today is around 200 million CAD. You can view the cost structure below, which has been scaled down due to royalties fees being variable and a breakeven price somewhere in the 20s CAD! Back-of-the-envelope calculations show possible undervaluations. If we assume similar conditions to today, at 3800 boe/d is roughly 1.39 million BOE at 60$ WTI and a similar oil price differential, you're looking at $35-45 million CAD in annual adjusted fund flow rate, which is about 18-22% in cash flow yield with a 4-5 year payback. Now, if we include the 11 million of working capital and no debt, you see a lot of wiggle room to be wrong. If we take reserves, we have NAV of anywhere from 0.64 1P (3.33/share) to 0.52 p NAV (4.07/share), you can see signs of undervaluation.

THESIS SUMMARY

Rethinking and reanalyzing the thesis made me reminisce about an idea that is attributed to Charlie Munger regarding the counterintuitive economics of restricted industries. Munger famously observed that the tobacco industry (ethical considerations aside) was inadvertently gifted a massive advantage when TV advertising was banned. The ban forced companies to stop incinerating capital on expensive ad wars to fight for market share (as new incumbents couldn’t gain mind share with more ad spend), allowing the current players to instead funnel that unspent cash directly back to shareholders. He applied a similar logic to his “only investment from Barons.” Barons inspired Munger to look into a California oil driller, Belridge Oil, as an invention where the invention was only one rig. Munger admired this investment simply because it was an asset that could be “milked” for cash without the desperate need for constant, expensive expansion. This logic flow is also speculated to have led Berkshire to invest in oil in the last couple of years, with a thesis of redirecting capital back to shareholders, not new drilling projects. So the thesis is very simple. If management keeps its promise and continues its pattern, we can expect high yield in generated cash coupled with a cannibal stock and a smart CEO who will use expansion only if seen as a necessity.

CONCLUSIVE THOUGHTS

Hopefully you enjoyed this tiny write-up. I tried deviating from writing a longer background and just giving a high-level rough pitch. Keep an eye out for the update later this week, and I hope you enjoy your weekend. If anyone has more insight, let me know. I am interested in the space.

Cheers,

Daniel - 18 Degree Journal.

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author holds a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.

Today, I wanted to share a look at a Canadian oil producer that is actually resilient on the downside. I was not looking for "lottery tickets"; instead, I went searching for companies that don’t need a massive oil spike just to keep the lights on.

With costs coming in at just over $15 CAD per barrel, a very interesting company emerged: Hemisphere Energy ($HME)!

Between their technical edge in Polymer Flooding (the "dish soap" method) and a management team that actually prioritizes returning capital to shareholders, this feels more like a Charlie Munger "Belridge Oil" play than a typical junior explorer.

Read Full Article here:

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author holds a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.

Hey everyone,

Continuing the rollout of the fund managers’ articles today (are you tired of them yet?). Today, we have someone who is (for now) a little less known in the community (at least from my experience), an up-and-coming passionate fund manager. Regular readers will remember I briefly went over some toll road concession companies in Poland, which led me down a rabbit hole into the parent company, then a few Italian concession companies, and, consequently, to discover Palm Harbour Capital. Palm Harbour, hidden in London, is run by a Texas value investor “mentored” by Europe’s Buffet, managing one of the most interesting funds I have studied so far. Please “welcome” Peter Smith of Palm Harbour Capital.

HISTORY

Before diving into his story, I'm starting with a bit of a side note, but I'm just amazed at how different yet very similar all the characters we have studied so far are. They all find passion in investing relatively early and take different paths to achieve their goal of being responsible stewards of capital. Each is influenced by the same greats, yet takes very different styles and investment focal points. Anyway, back to the main character of this piece.

A bit about Peter Smith. Peter showed interest in investing quite “early”. He was pushed towards this career (in his own words) with the help of two influential classes in high school (at Bishop Lynch High School in Dallas, Texas): Economics and European History. One allowed his eyes to open to the effects of compound interest, while the other encouraged him to venture into the world around him and remain curious about everyday life. These passions propelled Peter to find creative ways to walk his path and learn more about the two subjects that so inspired him. Logically, to learn more about European history, it might be easier to be in Europe; the only problem is finding the funds to go on such a journey. Well, Peter’s entrepreneurial spirit leads him to grind out online games and sell virtual castles for money on eBay! These proceedings led him to a backpacking trip across Europe, and ultimately led Peter to land in Germany. Thereafter, with lots of effort, he ended up working at a German bank, but not loving the bureaucratic nature of working at banks and becoming disillusioned with the "short-termism" of the sell-side, he went to find something closer to his dream and studied at the London Business School, specifically for the reason of attending a value investing course (attending Eddie Ramsden’s class, a Greenblatt Protégé and former assistant). After business school, he felt his next step was to start his fund. So he started cold-emailing a bunch of family offices and funds to try to raise capital and pitch himself. Fortunately, after not having much luck, his friend gave him a hand in landing a coffee with Francisco García Paramés (those who don't know he is a European investing legend often refer to as the European or Spanish Buffett). Without going too much into the weeds, this relationship allowed Peter to launch his own fund in April of 2019 (after working at a hedge fund and for Francisco himself). Since then he has build an inspirational fund achieving double digit returns since inception. You can see his performance in the image below.

FUND PHILOSOPHY

I’m starting to sound like a parrot, but like that other fund managers we have studied, the principles of Palm Harbour stem from the same ideas birthed by Benjamin Graham, Warren Buffett, Seth Klarman, etc. I think what makes Peter stand out is that he sells much more easily than the other managers we studied. Now, don't get me wrong, Peter aims to buy high-quality compounders with wide moats and hold them for a long time; however, reading his letters, I can see him battle-testing his ideas and unbiasedly rotating in and out of ideas. It could be that other managers are not as transparent about their sales, and Peter writes about more of his position, but that is the perception I walked away with. The other thing to know about his fund, aside from his beliefs (which you can find in the image at the end of this section), is that he looks at opportunities globally and is a generalist. I have found that he has spent and invested a lot more time in businesses around concessions (lotteries, ports, for example), “gambling” companies, fertilizers, and retail chains…

Peter’s edge stems from what he calls "Variant Perception." This is where he goes into areas where other investors (and speculators) are running away, and he sells the value through the business's complexity and anti-catalysts. Peter is also notable, much like Buffett in his partnership days, and has different baskets of investments. He has his high-quality compounds; his special situation (spin-offs, restructurings, distortions…); his to cheap to ignore. As for his process, he goes in-depth to map out the business model and has a smell test where, if it passes, he spends extensive time researching; otherwise, he passes.

KEY TAKEAWAYS

Again, as always, lots of takeaways from the letter. Of course, they reinforce a lot of what I read in other managers' letters, but there are 3-ish lessons to really take away.

Perhaps biased by Peter’s previous occupation in a bank or by his analysis of the sector, he makes a great point that banks are a dangerous holding for a “contrarian”investor. He says, usually as a “value” investor, we love it when a stock drops more for no reason, or there is a confidence crisis. However, in banking, that is a double-edged sword. Unlike other businesses (at least normally), when a stock drops down, the business is not necessarily in danger. However, for banks, this could spark a confidence crisis, and the stock price alone can trigger a run on the bank, killing it. Personally, I never thought of it like that before, so I appreciate Peter bringing it up. Another idea I haven't thought much about is the PE (private equity) funds' windows process, creating opportunities. The example was Peter was looking to invest in a company that was spun off by a PE business. Usually the “value investing” community avoids business touched by PE or avoid IPOs, however, Peter makes the excellent point that PE funds like rich cash-generating businesses (much like investors) and usually leverage the businesses before spinning them off; however, sometimes because PE funds have a limited lifetime, they can spin off businesses, (especially at the end of the fund’s life) at very attractive prices. Admittedly, again this is not something I have yet encountered or considered and will add it to my list of special situations to look out for. And lastly, Peter's activism and letter-writing to management. I had fun looking over his letter to management, and I just love how much sense it makes. I won't go into this point too much, as I’m currently doing a deeper dive into an activist investor and want to save some points for that article.

WHAT I’M POLITELY STEALING AWAY

As always, this section is my most selfish part of the piece, as I'm indirectly letting the subject (fund manager) know the bits and pieces that I believe work really well with their platform and then shamelessly take their learning for myself. Hopefully, nobody minds too much, and perhaps thank you to the culture that is maintained in the “value investing” community.

Anyhow, reading the letter reminded me a bit of reading Nick Sleep’s letter. There was candour, humour, and filled with sarcasm. As a reader, this is quite entertaining and allows me to be more open to the information presented, perhaps because of my bias, but I don't feel like Peter is trying to force information down my throat; he is trying to express his thinking and trying to paint the evolving picture in his head. I also really like his writing style as it has a great flow and makes it difficult to get lost in the train of thought. The other aspect I really admire is his ability to write a company thesis with all the relevant facts condensed into a page-ish document (with updates). I also for the first time got a better understanding in how to present the quantitative part of my stock thesis in an elegant way. I'm hoping to replicate Peter’s skill and incorporate it in my future write-up, so thank you, Peter, for showing me the way. I also really appreciated that Peter would end his “update section” (before updating on his holdings) with his calculated NAV upside and the metrics that he cares about, such as free cash flow yield. It's very helpful, as reading letter by letter, I can see multiple instances of contraction and expansion and gain more insight into his influences. I think I will also one day replicate that stats line (the facts at the end of the section).

CONCLUSIVE THOUGHTS

I say this every time I finish a spotlight article, but I'm very impressed by the fund manager. I walked away very inspired by his journey, his strong conviction in his portfolio, and his clear, concise communication with his partners. I wish Peter luck (though it looks like he doesn't need it) and am excited to follow his journey and the evolution of his fund. His website.

Hope you all enjoyed this spotlight article. Per readers' advice, I’m trying to make them a bit more concise, so let me know your thoughts.

Hope you enjoy your day,

Daniel Andreev - 18 Degree Journal

Continuing the rollout of the fund managers’ articles today (are you tired of them yet?). Today, we have someone who is (for now) a little less known in the community (at least from my experience), an up-and-coming passionate fund manager. 

Please “welcome” Peter Smith of Palm Harbour Capital.

Full Article :

Peter's Website: https://www.palmharbourcapital.com/en/

Disclaimer & Disclosure: 18 Degree Journal is a personal research log published by the author as a private investor for informational and educational purposes only. It does not constitute professional investment, legal, or tax advice, nor is it a solicitation to buy or sell any security. The author is not a registered investment advisor or broker-dealer. At the time of publication, the author may hold a beneficial position in the securities mentioned and may trade these securities at any time without further notice. All information is provided “as is” without warranty of accuracy or completeness. Investing involves significant risk; readers are solely responsible for their own due diligence and should consult a licensed financial professional before making any investment decisions.