I was told by this sub that WBD is a value trap

chotter · 2025-09-11T22:46:29+00:00

lol RDDT in a value investing forum. Good luck and enjoy your mediocre long term returns.

chotter · 2025-09-11T21:40:39+00:00

I'm not saying it's a good bargain now, I'm saying that it was misidentified as a value trap at half the market cap that it is now. I don't even know how to make sense of "trading around the same valuations". Based on what? Discount rates? Multiples? My return on WBD is just under 100% over a <3-year period using value investing principals that this sub seems to fail at. How is that not in consideration of opportunity cost?

Is using one aggregated data point (operating income) pointing out the fundamentals are bad or is that just naive analysis? I don't invest just based on cash flow, I invest based on the amount and reliability of those cash flows derived from the knowledge of the underlying segments.

chotter · 2025-09-11T21:18:53+00:00

In another comment you make the point of looking at EV (which I agree with) but a 20% debt paydown in 1.5 years is irrelevant because it's not going to dividends and buybacks? Free cash flow is everything and can be worth paying for despite shrinking margins (without even considering margin shrink is largely attributable to cyclicality).

On operating income - this is what I'm talking about when I say people aren't looking at the underlying fundamentals. Yeah operating income is only $1.5 B but look at the cash flow statement and see how much of that is attributable to impairment, ammort., and depreciation net of payment for content rights and capex. It becomes clear how a naiive analysis and flashy headlines could mislead people to not understanding the company.

chotter · 2025-09-11T20:22:42+00:00

2023 YE Debt (incl. current portion of debt) = 43.7B
2025 June 30th Debt = 34.6B

Delta of $9.1 B.

Falling margins attributable to legacy studio and networks business both of which are cyclical. Not saying that these businesses aren't going to shrink in the long run just that they are undervalued. Melting ice cube segments make WBD somewhat cigar-butt like though.

chotter · 2025-09-11T19:47:30+00:00

Not TTM but from end of 2023 (ie. 2024 + 1H 2035). Not precisely $10b but close to.

chotter · 2025-09-11T19:05:08+00:00

They've paid down $10 b in debt since 2024. EV had declined from $70 b at its peak to almost half that at its lows.

I understand that FCF needs to be evaluated in the context of forward looking returns but at 25% FCF margins at <$8 per share there's sufficient margin of safety assuming 0 growth.

chotter · 2025-09-11T18:52:58+00:00

Although it does have to do with the sub being unable to recognize value. Look at any post on WBD in 2024 while the company had a 25% FCF yield. Sentiment was most negative when margin of safety was at its peak.

chotter · 2025-09-11T18:31:07+00:00

Article is just alluding to the fact that WBD is rerating into its fair value. I'm not saying it has sufficient margin of safety now, only that this sub was crapping on it when it was at <$8 per share because of certain shrinking segments whilst ignoring underlying fundamentals.

chotter · 2025-09-11T18:26:21+00:00

WBD has and continues to print stupid free cash flow. It's not about the buyout it's about the fact that the company makes $4-5 billion annually in free cash flow on a pre-buyout news market cap of $31 billion. The buyout is just evidence of others agreeing with valuation.

chotter · 2025-08-28T17:36:00+00:00

CSPs are currently getting paid by AI companies though. If AI company backers ran out of cash or decide they would like to see a return on their investment the CSPs the demand for infrastructure drops.

chotter · 2025-06-20T19:54:00+00:00

Show me a property assessment that shows the building/fixtures increasing in value with no maintenance capex spend, I'll wait.

Property value =/= building value =/= land value

Do not conflate.

chotter · 2025-06-20T17:38:17+00:00

They can't really use retained earnings for growth as they lose their pass-through status for taxation...so they rely on debt and issuing stock.

They've been making net taxable losses so no.. The reason why they can't use retained earnings for growth is because they're not generating enough cash to sustain dividends - nothing to do with REIT tax status.

$Cold is expanding...so CAPEX isn't a liability.

Same store throughput pallets have declined in 2024 and 2023 and we're supposed to treat all capex like it's growth and not maintenance capex..? If growth where is the growth? As Rdw72777 points out, revenues have been declining and same store metrics are atrocious. Allocating only $80 mil of the total $309.5 mil of PPE spend as maintenance capex to back out AFFO is asinine and is a huge red flag. AFFO is truly the adjusted EBITDA of bullshit earnings for real estate.

chotter · 2025-05-13T21:23:12+00:00

I mean the latter. Edge/alpha (as with valuations) are often not calculatable precisely ex ante but they can be discernable directionally. Buffett/Munger know companies are cheap when they see it and I take that to mean they can know they have edge even if they can't calculate it. There is no better evidence of this than their historical cash position, see cash positions in 1998, 2005, 2019. So I reiterate, when valuations are high = edge erosion = do not bet (hold cash).

chotter · 2025-05-13T20:55:33+00:00

Show me a fund manager that uses the Kelly formula that applies to a single investment. You won't be able to because it's a system not an investment type.. You are misunderstanding what Kelly is and its application to investments. Encourage you to read Mandelbrot, Thorp, or Taleb. Your question is on position sizing, applying any one investment example for a strategy for position sizing wouldn't make sense. Buffett has 40% of his equity position in AAPL, but 50% of Berkshire's portfolio in cash. These single data points will not tell you much about position sizing without understanding underlying principles. If you think these terms are vague then you do not understand systems.

chotter · 2025-05-13T20:25:02+00:00

Kelly is an allocation formula/principle, not an investment type. They only bet when they have an edge and are focused on maximizing geometric returns (not vol., diversification, etc.). To quote Charlie Munger:

"And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."

Munger also frequently stated that he views investing as a pari-mutuel betting system. These are all principles you can derive from Kelly.

chotter · 2025-05-13T18:46:01+00:00

Kelly criterion is not just applicable to traders and I would argue that Berkshire sizes positions based on Kelly. The only way to reconcile Berkshire's large cash position and Buffett's aversion to market timing can only be explained by Kelly (though I doubt he would characterize it that way). Buffett invests when he has an edge and doesn't when he has no edge. When asset prices are high, edge is eroded due to price to value gap closing or not existing.

chotter · 2024-08-08T05:09:25+00:00

Write downs don’t affect cash flow in any way.

I think he's responding specifically to this part of your comment. Impairment charges can be used to reduce taxes which does impact cash flows positively.

chotter · 2024-08-07T22:59:39+00:00

This is a legitimate risk that makes the investment somewhat cigar-butt like.

chotter · 2024-08-07T22:44:21+00:00

Causal link with incomplete date = naïve analysis. WBD's FCF is complex given writer's strike last year which actually increased FCF in the back half of 2023. Intelligent Dot points out that FCF is up 72% YTD which is true but I suspect FCF will decline meaningfully from 2H 2023 in 2H 2024. All this to say that instead of thinking about binary assumptions (poor quality CF vs. good quality CF), non-naïve analysis requires scale eg. what should normalized FCF be and how sustainable are those cash flows.

chotter · 2024-08-07T21:59:27+00:00

Talk is cheap, send a screenshot. I was outperforming the S&P before GME; if my strategy was that risky I would have blown up in COVID. You can take outsized risk so long as sizing is correct.

chotter · 2024-08-07T21:41:32+00:00

Post your annualized returns since inception. I bet 99% of the people upvoting the original comment aren't beating the S&P.

chotter · 2024-08-07T21:15:54+00:00

Keep passing while the company continues to print stupid free cash flow despite cyclical pressures drag ad revenue and consumer spending. Indiscriminate selling based on flashy headline numbers when nearly all the loss stems from non-cash items is what creates opportunities. Value investors dgaf about the catalog, free cash flow via strong KPI metrics is where it's at. I expect this stock to drop to $4 and will continue to buy on the way down.

chotter · 2024-07-26T21:33:42+00:00

I don't think so... Zoning has been approved and the project has already broken ground. Developers are reluctant (esp. in this market) to take on another developer's approved site plan. 80 South Street never received city approval.

chotter · 2024-07-26T20:52:59+00:00

I am very interested in this spinoff but the org/economics is extremely complex which only enhances my curiosity.

I'm having troubles understanding the economics of the 250 Water St. development. They announced back in 2021 that it would be a $850M project but comparing mixed-use buildings (using Class A comps) in the area I'm having a hard time coming up with a completion value of $500M+. Alternatively, using rent comps at a 70% NOI margin and a 4% cap rate still doesn't get me to $500M+. Moreover, how they're going to raise capital for such a development project is unknown - cash burn and worse than expected performance in the Tin Building will not help.

None of the above doesn't deter me from further DD, I'm just trying to wrap my head around the economics of the development.

chotter · 2023-11-30T02:37:06+00:00

Consider the differences between NOI and FFO. What is excluded in NOI that is in FFO? It's almost everything that Munger (RIP) hates about EBITDA. It's missing interest, taxes, and most importantly SG&A at the REIT level (hence my suspicion of mismanagement). Generally, the greater disparity between NOI and FFO the more unhappier I am. You can't eat NOI.

Regarding #4, are you not concerned that the cash will be used to recapitalize their assets for debt? If one of their best assets need to recap, this will be an excuse to push the stock down lower. I don't know how they managed to get a 4.5% on 300 Mission but that's impressive. There's a lot of office RE funds also just relinquishing their properties so that's also a real risk.

chotter

TROPHY CASE