August 10, 2023

Foundational Frameworks For Investment

Below, I detailed the four principal frameworks L.A. Stevens Equity Research employs to select the businesses we own and for which we provide coverage.

Note that L.A. Stevens provides premium equity research for three principal genres:

  1. Software
  2. Financial Technology
  3. Consumer Discretionary

I provided examples for each aforementioned framework.

  1. Vertically integrated product capturing market share in stagnant mature industry: We target businesses that have created a fully vertically integrated product, within a fragmented, low NPS, and mature industry, whereby that vertically integrated product offers 10x better value; thereby, it captures significant market share rapidly. [As an example,'s platform has become more and more vertically integrated, as it's added MondayCRM, MondayDev (for developers), and its app marketplace products in addition to its core work management product, all of which sit atop Monday's proprietary, open, and configurable architecture. It's a true, vertically integrated work operating system, which, with the creation of MondayDB is more scalable than ever, the evidence of which can be seen in the company's enterprise customer growth]
  2. Businesses that will execute a leveraged recapitalization in the coming years or are extremely disciplined with capital allocation via routine, robust share repurchase programs: These are often fairly simple businesses that have fielded one or two products, which possess defensible moats that defend their stable cash flows as they gradually expand over a multi-decade period. The stable cash flows are not employed in the purchase of value accretive acquisitions; instead, they are channeled into capital return programs for shareholders, such as free cash flow per share accelerating share repurchase programs. Notably, the capital return programs act as disciplinary forces that ensure management operates as efficiently as possible and does not engage in empire building [Examples here include Chipotle, Meta, and, in the past, Google or Apple.]
  3. Quality cultures that breed innovation within the larger conglomerate: In some sense, this framework is the foundational framework of all America's and earth's most notable franchises, e.g., Tesla, Apple, Amazon, and Microsoft. This framework details a company's ability to launch, or propagate, new successful line of business after new successful line of business, creating a nucleus of explosive, compounding sales and free cash flow growth. This is the idea that a business creates a culture in which its employees create new products, provide these products to the marketplace, and these products ultimately find product-market-fit. Upon finding product-market-fit, the product begins its climb on its S-Curve, which will vary in size and value for each product. With multiple products growing rapidly simultaneously, the business overall grows more rapidly and, importantly, more durably. Some of my favorite examples that fit within this framework are Axon (AXON), Monday (MNDY), Adyen (OTCPK:ADYEY), Sea (SE), Tesla (TSLA), Amazon (AMZN), and MercadoLibre (MELI). Indeed, many of our businesses possess this incredible cultural structure, and that is why we've chosen to provide coverage of these companies.
  4. Growth through quality, moat-building acquisitions: Lastly, we will briefly explore the capital allocator framework by way of an exploration of Meta's (META) business. In this investment framework, a very large business materializes through prudent and judicious uses of shareholder capital via acquiring quality businesses and growing them over time within the larger conglomerate. Meta has acquired Instagram and WhatsApp, both of which have solidified its global monopoly. Microsoft has also made employed this framework masterfully, and, of course, the CPG companies, such as Unilever or Proctor & Gamble, have been quintessential examples of this framework, creating pricing power in low barrier to entry industries through industry consolidation.

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