Tuesday Night Links

• Suncor shares are valued at 3.6-times 2024 EV/Debt-adjusted cash flow, assuming $80 per barrel WTI, versus its pre-2020 average of more than 6.0-times. Before 2020, the company was considered a “best-in-class” operator and as such, its shares traded at a significant premium multiple relative to peers. Today, Suncor's halo is gone, but its Q3 results increase our confidence that it can return to its former top-tier performance. If it can, good things lie in store for its stock price. For context, today’s top operator, Canadian Natural Resources (CNQ), trades at 5.4-times 2024 EV/DACF. At that valuation, Suncor shares would trade at $64 per share. Suncor's shares will gain added benefit from the company's relatively clean balance sheet and its commitment to delivering capital to shareholders, both of which have improved dramatically relative to the pre-2020 timeframe. [HFI Research]
  
• It all had to do with the people living between the two walls. They were... hill people who had perfected the art of not being governed. They managed to be so thoroughly intractable, so impossible to control or corral, so very unpleasant to be around, that the Romans eventually threw up their hands in disgust and left them alone. It’s important to understand that this means they must have been true outliers, because the Roman Empire had “unit economics” like an enterprise SaaS business, where “customer acquisition costs” are financed on the assumption that they’ll be paid back in the distant future. Every Roman bureaucrat understood that newly conquered territories would be a drain on fiscal and military resources for a while, until a generations-long process of pacification and Romanization slowly made them net contributors in both departments. But in the case of the lands between the two walls, the payback timeline was so long, and the implied interest rates so high, that even a people as meticulous and relentless as the Romans decided there were better opportunities elsewhere. I count this as a serious victory for the theory of defensive barbarism. [Mr. and Mrs. Psmith’s Bookshelf]
• As part of our search for "royalty-like" businesses that are good at converting revenue to free cash flow that can be distributed to shareholders (like Lamar Advertising), we recently did a screen of the companies in the S&P 500 index. Now while our royalty partnerships and trusts convert 90-100% of revenue to free cash flow, we are interested in finding other businesses that are royalty-like (accepting lower margins than true royalties) for two reasons. First, to diversify away from commodity price exposure and volatility. (Nobody said it is easy being an oil man.) Second, because mineral properties are depleting while some types of royalty-like or "tollboth" businesses can exist almost in perpetuity. As long as there is human activity and commerce, there is the possibility that Visa will be getting a cut of it, whether the energy for it is coming from fossil fuels or from the sun. [CBS]
• I rely on a study from--I believe his name's Hendrick Bessembinder from Arizona State University-- and what he did is he looked at every single public company from 1926 to 2016. So he covered a 90 year period. There were a total of 26,000 companies. And of the 26,000 companies, 25 of the 26,000 companies produced returns that are T-bill returns or less. So in other words, there was only 1000 companies that could create excess returns above risk-free T-bills returns. Now you look at public companies, and you realize that companies can come public and because there's a lot of incentives in the market, from whoever the constituent is, that their shareholders, their private equity holders, the investment bankers, whatever, you bring the companies public, but how many of them are exceptional companies? How many of them--and the reality is, most of them end up falling into that bucket that Professor Kay said, That's the gray bucket. That's the bucket of which, essentially, it's the efficient market bucket. And so, there's only a tiny number of exceptional companies. And you understand that there's some very specific things that permit exceptional companies to be sustainable decade after decade after decade. And many, many of them have to do with getting to the point where your customers are fanatically reliant, whether it's a consumer product or whether it's a business product, but your customers are fanatically reliant on what you deliver to them. If it's a consumer product, it's somebody is hooked on Coke, and they're gonna drink coke come hell or high water. If it's a business product, it gets locked into the workflow of the business, it's something that your customers are ecstatic about. And that just essentially codified to us that what we needed to do, if we were going to have concentrated positions, we basically had to have super, super high confidence. And you had to find exceptional companies. [Reece Duca]
• The likely N. American successor culture will be a truly new thing. The origin story will be a "Triple Founding." With Jamestown, Cortes, and the Native cultures receiving approximately equal foundational status. Most people will have at least some ancestry from all three founding cultures, but N. Euro will probably remain predominant. So the result won't just be like current Latin America by any means. Language will remain mostly English, which is of course rapidly becoming the global language. Religion will be one of the biggest changes from 20th century America. The Mainline protestant churches of the founders (and their associated culture) will be nearly extinct, with most people being Secular, Catholic or increasingly exotic forms of Evangelical/Pentecostal. Details of culture are hard to predict. But multiple trends, including fertility rates, indicate a notably more extroverted, less inhibited culture. Perhaps we could say that more and more of the country will start to feel something like today's Texas. This new culture will obviously diverge farther and farther from it's European roots, perhaps most notably by remaining much younger and more dynamic than the hyper-aging nations of Europe. [Empty America]
• Isaacson is a popular biographer who tries to cash in on topics that are timely and will sell books at the moment. The moment though is probably not the time to write a serious biography of Musk since the jury is still out on whether he will be successful or not. He and many of his businesses are very heavily leveraged and could easily go bankrupt in which case he would be some sort of footnote in US business history. Twitter at the moment seems like an investment disaster though perhaps Peter Thiele will be proved right that it is not a good idea to bet against Elon. Apart from the engineering stuff, Elon’s ideas that he is quite eager to share with all and sundry typically lack historical perspective and seem puerile — at about the level of Lex Fridman, A lot more time will needed to tell whether he was someone worth paying attention to or just an oddity. [link]
• A friend’s son is a high school senior. If he were “of color”, his test scores, grades, and athletics would guarantee him admission to any of America’s most elite universities. As a white kid, however, he is likely to be rejected by the usual elite suspects. I told him that he is likely to get a better education from professors whose actual job is teaching undergraduates. In other words, instead of a research university he should look at the four-year liberal arts colleges. Amherst, Swarthmore, and Williams, for example. He doesn’t want to get tangled up in rainbow flags, BLM, and pro-Palestinian demonstrations, though. He has some unacceptable political points of view, e.g., that civilians should be able to own guns as an aspect of self-reliance. His career interest is software engineering (so actually the most sensible plan would be to get a job as a software developer and do an online bachelor’s in the evenings) and, therefore, his most likely major is computer science (which he will be dismayed to learn has very little to do with software engineering!). On the plus side, nearly every college or university in the U.S. now has a substantial CS department. [Phil G]
• Back in the day when science was progressing, and scientists didn’t have time to make podcasts, smoking the tobacco pipe seemed to work a lot better. I’d love a real performance enhancing drug for my noggin, but so far nicotine seems to be the closest legal thing there is which doesn’t make you insane or ill with long term use. Note I said nicotine here; smoking cigarettes definitely has big downsides. Vaping: almost certainly does also. Safest ways to take nicotine in descending order: gum or pills, snuff (unfermented, in your nose), snus (unfermented). Below that in safety maybe smoke the occasional pipe or cigar. Putting smoke (or “vape juice”) in your lungs is guaranteed to be bad for you. It’s not the nicotine though which is bad for you. Nicotine causes a slight increase in blood pressure, generally more than made up for by giant prophylaxis against Parkinsons disease and the increase in mental performance. [Scott Locklin]
  
• There are lots of progressive Protestant churches, which seem to confirm this thesis. There are also plenty of counter-examples, though, especially among conservative evangelicalism. These differences aren’t limited to Protestantism – if you read a few Ross Douthat columns, it seems there are plenty of conservative and non-conservative factions with Catholicism. Relatedly, Protestantism largely embraces modernity, and many right-leaning intellectuals are decidedly against it. In Protestantism, family sizes are often smaller, ministers can get married, democracy is ok, individuals can interpret the Bible themselves rather than needing the church to do it, transubstantiation doesn’t happen, and more. Catholicism, by contrast, often involves significant changes in opposition to modern culture on all of those fronts (though not on every single front; they have often encouraged innovations like workers’ rights). [Fergus McCullough]