Incremental Insights #13

5 Timeless Lessons From Terry Smith

1. Buy great businesses and let them do the compounding.
2. Choose the quality of the business over the cheapness of stock.
3. Return on invested capital is a better value creation metric than earning per share.
4. A high reinvestment rate at a high ROIC is better than buyback and dividends.
5. Pay up for quality; it’s worth it. (hardest lesson)

OnlyFans P&L from 2019-2023

Mastercard's Overlooked Metrics

Mastercard's incredible journey from 23.8B transactions in 2007 to a whopping 170.8B in 2023! • Credit/debit cards now dominate 60% of US payments • Revenue soared from $4B to $25B in 16 years • Expense per transaction halved to 6.2 cents

Labor Market Conditions

The labor market is cooling but still robust but the timing is right for the Fed to focus more on maximum employment

Recent trends:

• Unemployment rising, but still historically low at 4.3%
• Hiring rates slowing, yet layoffs remain minimal
• Fed shifting focus to support employment while managing inflation
• Increased labor supply (immigration) complicates unemployment data
• Businesses cautious: slowing hiring rather than increasing layoffs

US Stocks Too Richly Valued For Their Risk | John Pease, GMO (Podcast)

There are pockets of the U.S. market where we think we’re getting compensated for holding risk. One of those is a structural portion of the equity market, which are quality companies, high quality companies in the U.S. When I say high quality, I mean companies that have high and stable profitability, and that have very solid balance sheets that don’t carry a lot of leverage.