General investment idea categories

General types of investment thesis fit into the below categories. In addition, a single investment can contain a combination of multiple ideas.  

Disclaimer:

This blog post is a work in progress as I learn more about different thesis and deepen my knowledge.

Compounders

These companies can continuously reinvest profits to grow the business even if they are slightly expensive. It might be worth paying up as the company expands into the valuation.

Examples include companies such as Starbucks. For example, Starbucks can pay back the initial funding cost of setting up a store quickly and reinvest the profits to set up the following stores without external capital.

Other case studies: Walmart, Macdonalds

Spawners

These companies can spawn new businesses mainly unrelated to their original business. Due to their company DNA and culture, they can set up different business lines. Examples include companies such as Amazon. Amazon has moved into cloud infrastructure (AWS), retail (Wholefoods), and logistics (competing against the likes of FedEx). Unlike the rest of big tech - Meta, Apple, Microsoft, and Google, Amazon is constantly spawning new product lines and comparatively has little cash on hand.

Cannibals

These companies constantly buy back their shares

http://www.chaiwithpabrai.com/blog/the-2022-uber-cannibals

Turn Arounds

These companies are left for dead by the market and usually trade for much lower valuations. AMD  is one such example. Between 2010 and 2017, AMD was almost bankrupt multiple times due to increasing capital investments to keep up with the manufacturing against intel.

Corporate Invents

Corporate events such as spinoffs, mergers and acquisitions usually provide excellent opportunities for investors. Spinoffs better allow management to align interests with shareholders, and typically, the old shareholders do not particularly want to hold the stock as it doesn’t align with their original thesis. Spin-off examples include companies such as Warner Brother Discovery, a spin-off from AT&T and a merger with Discovery Inc. Many investors in AT&T bought the stock for the dividend and have no use for a growth stock. Examples of mergers and acquisitions - ActivisionBlizard, VMware

Ciggerrate butts

Probably the most “Graham-ish” strategy where you find companies trading below their Net asset value (NAV). The main focus is their “Cheapness” instead of the quality of the businesses. Difficult to find these companies as the market has become more competitive. These companies don’t need to be good, although it is a plus. They usually need to be significantly below their value to be worth the investment.

Holding Companies usually trade below their NAV: Examples include Berkshire Hathaway and Pershing Square. Conglomerates are also often valued below the value of their subsidiaries. Examples include:: GE and Toshiba.

Overall investments ideas usually centre around growth & value

Often separated, growth and value are different sides of the same coin. As a result, a high-growth company, even if expensive, grows into their valuations and becomes undervalued.  Growth is more focused on future cashflows than value investors, which value existing assets.

Sources:

Monish Prabal