TIP776: Stig Brodersen’s Mental Models & Portfolio Update

Key Takeaways

Stig Brodersen's portfolio boasts a 29.6% CAGR since 2014, now prioritizing wealth preservation.
He exited Evolution AB at a 21.8% loss in October 2024, citing reduced conviction and opportunity costs.
Brodersen's new bullish position is Uber, valued for its network effects and platform monetization.
Operational leverage is a key mental model applied to digital businesses like Uber and Spotify.
Alphabet's substantial AI investments are positioning it as a core AI backbone, creating competitive moats.
The concept of 'unfair advantages' and the benefits of investor communities are highlighted.

Stig Brodersen discusses 'unfair advantages' in investing, which must be measurable and difficult for others to replicate.
He gives examples like a veteran's no-down-payment home loan or living within one's means to avoid forced stock sales.
The TIP Mastermind Community is highlighted as contributing to personal and investor development, offering believability-weighted feedback.
Community discussions have challenged his investing beliefs and expanded his watchlist, fostering diverse perspectives.

Stig Brodersen has publicly disclosed his investments since 2014, achieving a 29% compound annual growth rate (CAGR).
He is shifting his focus towards wealth preservation over growth, anticipating lower future returns.
Brodersen's core holding remains Berkshire Hathaway, expected to marginally outperform the S&P 500.
He reviews portfolio returns annually in January to avoid impulsive trading, despite monitoring quotes regularly.

Stig Brodersen sold his Evolution AB position in October 2024 at a 21.8% loss.
The primary reason for the sale was finding a better investment opportunity in Uber and a decrease in conviction for Evolution AB.
He questioned achieving an 8% shareholder yield combined with double-digit organic growth, particularly due to opportunity costs.
The investment thesis for Evolution AB did not anticipate its COVID-era growth, which was an outlier.

Stig Brodersen added Uber as his only new position this year, accumulating a 7% portfolio weighting at an average price of $95.45.
He views Tesla as posing less of a threat to Uber, noting Uber's growing delivery segment, which is half of gross bookings and expanding faster than mobility.
Uber generated nearly $50 billion in revenue and $16 billion in net income in the trailing twelve months with low capital expenditures ($300 million).
Its market dominance stems from network effects and a winner-take-all dynamic, maintaining significant U.S. market share.

Uber's subscription service, Uber One, is a key strategy to retain customers, with an estimated 15-20% of 189 million monthly active users as members.
Uber One members spend approximately 3.5 times more than non-members, driving significant engagement and growth.
The Uber One membership has over a billion dollars in runway and grew 60% year-on-year, akin to Costco's model.
Uber's advertising business generates over $1 billion in revenue, leveraging its vast data for targeted ads with high margin potential.

Autonomous vehicles (AVs) represent a potential risk to Uber's business model, particularly from companies like Tesla.
Stig Brodersen's investment thesis for Uber would break if another company could offer ride-hailing at a significantly lower cost using AVs.
Delivery services are considered harder to automate than ride-hailing due to complexities involving human interaction.
Uber's strategic equity stakes in various AV providers position it to benefit regardless of which company dominates the AV market.

Stig Brodersen suggests that companies below the 'Magnificent 7,' such as Uber, Spotify, and Netflix, can become mega-winners by leveraging valuable data and AI resources.
He advises re-evaluating investment strategies beyond solely focusing on multiples, considering long-term growth and reinvestment.
The discussion emphasizes differentiating investment conviction based on genuine insight versus 'resulting' from market trends.
Stig notes a personal shift towards investing in larger, more familiar companies like Alphabet and Uber over traditional small-cap plays.

Stig Brodersen has evolved his investment approach, moving away from a strict focus on company size (large-cap vs. small-cap).
His current strategy prioritizes understanding the business and its investment thesis, incorporating personal interest in the product.
He cites Alphabet and Uber as examples of companies he now invests in due to personal interest and engaging narratives.
Investing in areas of natural curiosity leads to deeper understanding of industries and competitors, contrasting with forced learning.

Alphabet experienced a 54% year-to-date gain, with Berkshire Hathaway investing $4 billion in the company.
Alphabet, alongside Microsoft and Amazon, is positioned as a backbone for the AI revolution.
Significant projected capital expenditures in its technology stack, including TPUs and data centers, indicate a high-reward, high-risk scenario.
High CapEx creates a competitive moat by limiting rivals to those with sustainable, large-scale businesses, as half-competing in AI leads to irrelevance.