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While I love investing, every once in a while it’s important to step away from the noise, and find time to think.
I like to do that outside, so this week I took my dog grouse hunting.
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If you’re not familiar with them, grouse are birds that live mostly on the ground in very thick cover - picture the sections of the woods that are so thick with trees and thorns that you can’t imagine trying to walk thorough them.
Hunting them means walking miles through that nasty, thick cover and trying to flush one.
There can be long stretches where nothing happens, then things get exciting very quickly.
If you’ve never seen, or heard a grouse flush, it’s like an explosion, loud and over very quickly.
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Grouse hunters measure success in flushes per hour. Notice it’s not birds bagged - they have a unique ability to make hunters look like terrible shots, and often very silly. One of the best ways to get one to flush is to do something like tie your shoe.
We flushed 1.25 birds per hour, but of course, that’s not the whole story.
80% of our flushes happened in less than an hour.
Investing can be like grouse hunting - long stretches where nothing happens, then everything seems to happen at once.
Dillard’s
Dillard’s is an upscale department store chain - it’s returned 28% per year over the past 9 years, but of course that’s not the whole story.
Dillards was the same price in January 2021 as it was in January 2016 - 5 years of no return.
Since then it’s a 10-bagger.
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What’s Dillard’s have to do with PayPal?
It’s a cannibal stock.
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It traded flat for a long time, and management bought back shares at low valuations.
By 2021, the share count was nearly cut in half.
Combine that with a shift in sentiment around the company and you get a long period where nothing happened, then everything happened at once.
PayPal Update
Back in March, we bought PayPal as a Cannibal Stock.
The price has declined, but has the business gotten worse?
Let’s take a good look at PayPal and see if our thesis was wrong, or if Mr. Market is just too distracted by AI to notice what PayPal is doing.
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Original Investment Thesis:
Paid partners got a full 32 page investment case.
Here’s a summary:
PayPal operates a massive two-sided network (including both merchants and consumers) this gives it a major data advantage which means PayPal has conversion rates and services that other competitors cannot match
PayPal operates in the attractive digital payments market expected to grow by over 11% annually.
The company didn’t pay dividends (it does now!) instead, using all