Investment PhilosophySaber Capital Management

Saber Capital Discussion with Googlers

In late January, I had the great experience of visiting Google in Mountain View, California, where I had the chance to do meet with some Google employees to discuss investing (here are the slides from the talk).

The timing was fortunate, as it was my good friend Saurabh Madaan’s last week as a Googler. In addition to his post as a senior data scientist at Google, the value investing community knows him for his side gig: hosting the Investing Talks at Google series. Saurabh did brilliant work organizing that series, preparing quality questions and engaging in thoughtful discussions with his guests, and his selfless efforts and contributions will be missed (although we hope that a certain insurance company headquartered in Richmond will begin their own series of investing talks under his direction). Saurabh is a major asset for any company that has the good fortune of employing his services, and Tom Gayner added a meaningful amount of intangible value to Markel when he made the decision to offer Saurabh a position at his firm.

During my visit to Google, I had the chance to talk with a number of employees at Google as well as some of the other leading firms in Silicon Valley. It was a great experience, and my overall takeaway is that the culture (and more specifically, the incredible talent) of these firms is somewhat under appreciated, despite being cited often. Google has an unusually large number of employees who are not just super smart, but also very humble. There is an introspective focus on continuous improvement and long-term thinking that is very palpable there. I think it is also very unique.

Culture, employee talent, and workplace satisfaction are three things that don’t show up in the numbers, and thus they are difficult to quantify and difficult to value, but they are extremely important to the long-term earning power of the company (especially in the fast-moving world of technology).

I believe these intangible qualities, when combined with powerful network effects, can create a durable position that makes some of these firms very difficult to beat in their respective areas of dominance.

In my presentation, I described a couple key points that are helpful to keep in mind as an investor, and I also briefly summarized the investment case for one of the stocks in our portfolio.

Here are the slides to my presentation: Investing Discussion with Googlers

Also, congratulations to Eagles fans. 15 of the last 17 Super Bowls have seen the AFC represented by either a Brady, a Manning, or a Roethlisberger led team. It’s nice to see an upset by a team that has never won it all, led by a backup quarterback who stepped up and went toe to toe with the greatest of all-time. It’s noteworthy that all eight Super Bowls that Brady/Belichick have been in have been close, one-possession games. There were some incredible games in that stretch with some epic Super Bowl moments, but yesterday’s game was one of the greatest (at least if you like offense).

Have a great week!

John Huber is the portfolio manager of Saber Capital Management, LLC, an investment firm that manages separate accounts for clients. Saber employs a value investing strategy with a primary goal of patiently compounding capital for the long-term.

To read more of John’s writings or to get on Saber Capital’s email distribution list, please visit the Letters and Commentary page on Saber’s website. John can be reached at 

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12 thoughts on “Saber Capital Discussion with Googlers

  1. Dear John,
    great to hear, that you were at Google Talks. Do you know, if there’s a plan of showing your speech at Youtube? (One of my favorite Google-talks is the “evolution of a value investor by Tom Gayner.”

    By the way: I really appreciated your writings about Markel a real lot and there hasn’t been a post for a long time regarding it. All the while Markel Ventures has grown a lot, insurance too, the tax reform pushes book – and new people appear in the management and on the board. And outside Markel markets are “crashing” a bit, because interest rates are rising – something insurers maybe should be happy with. At present I personally prefer Fairfax Financial a bit for valuation reasons (1.2X times book) and for the progress and change of the last year (india, africa, international insurance).


  2. Another great post John. Thank you very much. What do you think about JD’s plans to launch its ecommerce platform and delivery services in France, UK and Germany (starting in 2019)?

  3. Thanks for sharing.

    IMO company “culture” is too subjective and amorphous for it to really inform investment analysis.

    Google’s competitive advantage comes from its monopoly on internet search and the underlying economics of that monopoly. The recent article linked below suggests that, if anything, Google’s culture and internal politics are distracting it from focusing on long-term value creation.

  4. Hi John,
    Thanks a lot for sharing your experience.
    I wanted to mention couple of things on JD.
    First, Monish in one of his videos mentioned high multiple tech stocks in analogy to nifty fifty’s of 70’s, do you think JD might be somewhere different in that sense from Amazon, having its multiple, of course, not that high as Amazon’s but still pretty high
    Second, having said that JD was able to survive do you think that there could be a possibility that its management plays around with numbers in its financial reports to make it look better for the investing community?
    And again thanks a lot for sharing your thoughts and experiences with us!

    1. Hi Murat,
      Thanks for the comment. I talk a little bit about the concept of valuation in my recent investor letter, but in short, I would disagree with Mohnish’s assessment of these tech firms (regarding his comparison to Nifty Fifty). I think many of these stocks he’s referring to in today’s market remain significantly undervalued relative to their future earning power. And the value of a business is not what it earned last year (as indicated by the P/E ratio), but what it will earn from this point forward. In other words, the value is the present value of all of the future cash flow. There are many differences between companies like Facebook, Amazon and Google and companies from the Nifty Fifty, most notably, the latter required lots of capital to grow, and thus their earning power was much more tethered to the amount of capital they could deploy, whereas a company like Facebook can grow without capital, and each incremental ad is nearly pure profit. In the case of the online retailers like Amazon, I think Amazon is actually very profitable. It has around 28% gross margins in the retail business (Even excluding AWS). It spent around $22 billion on R&D/Technology and $10 billion on marketing last year. I think this is largely growth capex (not all, but most), and this type of growth investment would have been capitalized at many of the Nifty Fifty stocks of yesteryear. But due to the type of investment it is, it runs through the income statement at Amazon. So I think Amazon has to be analyzed differently, but the valuation method is the same: what is the future cash flow? (not last year’s P/E). I think JD is in the same general boat.

      As for your Q on financials, I have no doubt that JD is legitimate. I think Richard Liu is a high integrity guy, and studying his past and observing what he’s done at JD so far (logistics for example) have almost always been done with the user experience in mind. He took the painful (in terms of cost and lower profits) process of building out the logistics arm so that he could control the inventory from supplier to the customer’s door. It was all done with the goal of improving the customer experience (people previously would complain of lost/stolen/damaged merchandise, as third party couriers were much less reliable in China). He’s playing the long game, and he’s got a lot at stake personally. If anything, companies like JD are doing just the opposite (making their financials look worse in the short term to invest in things that will increase their earning power many years from now).

      Thanks for reading!

  5. Thanks John. The only pushback I would have against this is that systems populated by individually smart and well-intentioned people can still be highly disfunctional and irrational if incentives are bad & the system mismanaged. The healthcare industry is a great example of that. A lot of the individuals in the industry are smart and sincere, but the system overall is contemptibly corrupt and inefficient. The same can be said of financial markets – most individuals are also smart and of good character, but bad incentives and other systemic inefficiencies can create bad & inefficient outcomes.

    In Google’s case, a cultural rot seems to have set set in stemming from misguided diversity policies and institutionalised ideological thinking, and this manifested in the completely unjustified and irrational dismissal of James Damore. I would not underestimate what sort of corrosive impact these sorts of management systems could have on the company over time – it would well drive out a lot of the best people. The below discusses some of the issues in more detail.

    Google is a powerful business and the perpetuation of their historically strong and innovative culture is their’s to lose, but I would not underestimate the capacity for them to do so.

    In addition, there are a lot of examples historically of giant companies that had all kinds of advantages, including the human capital advantages you discuss, that became fat and lazy, and slowly degrade over time. They then lose their innovative edge, as the best people leave to join new start-ups and less bureaucratic work cultures. Microsoft – which during the late 1990s was THE employer of choice and seemed completely invulnerable, stumbled during the 2000s partly for this reason. A downward spiral can occur if the best people leave; innovation slows down; and then the market shifts, and then this hastens more good people leaving in a rapid downward spiral. I’m not saying that is what will happen at Google, but it can happen & it is worth being careful before assuming that a company currently in its golden age will perpetually remain invincible. It is worth remembering that the Roman Empire fell.


  6. Hi John,
    First, congrats about your resaults and thank a lot for sharing your ideas and thoughts!
    Second, regarding your investment in chinese companies, and spesificaly JD (and Tencent as a big shareholder of JD), can you please share your thoughts about the risk related to the VIE structure of the company?
    I found the VIE as a major risk, and I actualy avoided from both JD and Tencent due to it’s existance. As could be seen in the alibaba-alipay split, the risk is real, and I wondered how you see it?
    Thank a lot!

  7. Hi John,

    I’m a big fan of your blog and enjoy reading your posts. I was hoping to get some of your thoughts on how capital intensive will be and where you see JD finding the financing to build out its logistics network. Also, many Chinese industry leaders fight to lower prices until there is one last man standing. Sometimes, ie. solar panel manufacturing, the players in the industry bankrupt themselves by oversupplying the market. How do you weigh the possibility of consolidation in the retail space to compete with JD and Alibaba and destroy returns for all retail investors?


  8. John,

    Do you understand what’s going on here? From JD’s Q12018 press release: “Net cash used in operating activities from continuing operations was RMB3.8 billion during the quarter, largely due to an RMB5.3 billion decrease in advance from customers for their marketplace purchases and payable to merchants related to a complex settlement process change that the company has been conducting since the second half of last year to settle the marketplace transactions directly through third party payment companies, as required by the regulators. The operating cash flow was also impacted by the timing of supplier payments as accounts payable decreased as of March 31, 2018 from the prior year-end. Such timing difference may vary from time to time.”

    This is the first mention of the “complex settlement process”, and it’s not a minor cash flow change. Although JD may have a stable and profitable business in the long-run, this working capital perhaps shifted somewhat the nature of JD’s ability to run on float. Is there a way you’re viewing this or quantifying it?

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