ShadowStock @ExpectedValues

Background: I am co-teaching (with Kent Daniel) a grad course at Columbia titled "Quantitative Investing". I can share my slides, starting with the ones on market structure (ch.1 in my 2nd book). Below are a few representative slides. I will share the lecture on linear return models this weekend. At some point also one lecture on very high-dimensional linear models, which are interesting. For now link to first deck is in reply. Enjoy.

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Last share of the day: I do have ~10k books & papers on my hard drive. Most are copyrighted, so I can't freely share them. However, I deployed a few agents to summarize them into useful .md files. These are useful for me, and are useful to put in my AI contexts. I am not entirely happy am still working on revising and improving them. They are grouped in the folders below. They are still < 700 items but will grow. I thought I'd make them available, at least for a while. Link to shared folder in reply. Enjoy.

@RagweedCapital x.com/clarksquarecap…

Clark Square Capital @ClarkSquareCap

4 days ago

when you check to see how much money you have left after investing in shitcos

1 2 36 11K 4

when you check to see how much money you have left after investing in shitcos

A Stanford mathematician who spent 10 years as a professional magician just described the market in one sentence: "I've spent my life on two tricks: making a rigged deck look random, and making a random one look rigged. The market is the first trick, and almost nobody catches it." That's Persi Diaconis. He has a free lecture that asks one question: does anything actually happen at random? The answer is: far less than you think. The market is his first trick in the wild. It looks like pure chance. Buried inside is a faint rig, a 50.75% tilt no eye can see. Your gut reads a losing week as a broken system and a hot streak as skill. Wrong both times. The tilt is invisible to human intuition, which is exactly why funds hand the decision to the math. None of it is hidden. Diaconis has taught it for decades. The probability goes back to 1713. The lecture is free. Here's the trap: you feel every win and every loss, but you cannot feel the average. And the average is the only thing that pays. It takes thousands of trades for a 51% edge to separate from luck, and almost everyone quits long before then. The math is free. The patience to trust it past your own eyes is the edge.

delost @thedelost

4 months ago

x.com/i/article/2065…

26 127 893 2.5M 3K

@systvest

The only reason I investigated at this time was Q2 2026. It looks like all those years and millions of property improvements are starting to pay off. The company's golf/resort operations are quietly improving. A 28% increase in golf contribution despite only 3% revenue growth and a margin of 18% to 23%. Waste is improving. But we can't guarantee it's a permanent top line and operational improvement. Q2 revenue was +4%, and direct contribution is +9%. FOR ME, THE KEY WAS THAT AWX GENERATES BETTER ECONOMICS FROM THE SAME UNDERLYING GOLF/RESORT ASSETS. This will help reduce debt and indirectly increase value. The risk is that it will remain a value trap as a closely held nanocap.

$AWX (Avalon Holdings) is a speculative, illiquid nanocap trading at $2.59. Market Cap = 10.1M, Enterprise Value = 39.81M. P/B = .27 EV/Revenue = .45, EV/EBITDA = 5.89 My distressed NAV is $3.53/share, but $8.40 is closer to intrinsic value. The thesis is simple. AWX owns a profitable waste management business plus substantial golf, resort & recreational real estate, which I believe the market materially undervalues. Operations are improving. Q2 net income rose to $0.23/share vs. $0.07 last year. shadowstock.blogspot.com/2026/09/awx-av… SPECULATIVE: $2.59 price? $3.53 (distressed NAV): intrinsic value = ~$8.40

😂🤣Yes, for years AWX broke the hearts of classic value investors like us. The only reason I looked into this this time was the recent quarter. It looks like all those years, and millions of property improvements, are starting to pay off. The company's golf/resort operations are quietly improving. A 28% increase in golf contribution despite only 3% revenue growth and a margin of 18% to 23%. Waste is improving. But we can't guarantee it's a permanent top line and operational change. Q2 revenue was +4%, and direct contribution is +9%. FOR ME, THE KEY WAS THAT AWX GENERATES BETTER ECONOMICS FROM THE SAME UNDERLYING GOLF/RESORT ASSETS.

This is an incredible treasure trove: a compilation of old Outstanding Investor Digest (OID) volumes. h/t Kevin Gee / @mjmauboussin

It's possible. But that misses the biggest reason to buy AWX. The real hidden value is in golf, resort, and recreational properties acquired and improved over decades. Avalon has spent millions upgrading these assets. Bunhl Park alone received about $12M of improvements, New Castle more than $6M, and Squaw Creek more than $6.9M in leasehold improvements. These amounts are material given the current market value of 10M. AWX is far more than a small waste company. It’s a collection of valuable real estate and operating assets sitting inside a tiny, closely held public company. The waste business is profitable. But the properties make the asset story interesting. Their recreational properties are becoming profitable with higher margins in the latest quarter

@PierreCappucci1 10/13/2025 AWX rose from ~$2.75 to $5.43 on ~14M shares. It quickly fell back into the 2s. I can’t find any news to justify the move. AWX is Illiquid and speculative. The float is only 1.92M shares versus 3.29 total shares outstanding. 41.72% are held by insiders.

From 1973 to 1986, Walmart reported negative free cash flow for 14 consecutive years. Its stock returned 33% annually over that period, three times the return of the S&P 500. @mjmauboussin’s framework for understanding free cash flow. 10 lessons for investors: 1. A company’s value is the present value of its future free cash flow. Free cash flow is profit after taxes minus investments in growth, primarily capital expenditures. An investor’s job is to find the company that will ultimately generate the most FCF. But that FCF will not always be positive along the way. 2. Negative FCF is not always bad. If a company invests at a return above its cost of capital, it creates value. People love posting charts showing negative FCF at the hyperscalers. What matters is the return those investments will generate over the following years. 3. The Walmart lesson. From 1973 to 1986, Walmart had negative FCF for 14 consecutive years because it invested aggressively in expansion. Its return on invested capital averaged about 18%, well above its cost of capital. The stock returned 33% annually, three times the return of the S&P 500. Negative FCF was a sign of growth, not weakness. 4. Focus on investment returns, not the minus sign. The key question is whether revenue and profit are keeping pace with capital expenditures. If profit grows faster than investment, value is being created. If it falls behind, cash is being destroyed. 5. Watch return on incremental invested capital (ROIIC). It measures the return generated by each new dollar invested. If ROIIC is above the company’s current average return on capital, its overall return should rise. If it is lower, the average should fall. Hyperscalers’ combined ROIIC is currently near its peak at more than 35%, compared with a cost of capital of about 8%. 6. Subtract stock-based compensation. Paying employees with shares is effectively a combination of issuing stock and paying wages. If SBC is properly deducted from operating cash flow, the reported cash flow of large technology companies falls by 10% to 20%. Many investors ignore this and overstate the true figure. 7. A mature company can return to growth. A sharp increase in capital expenditures can move a business back to an earlier stage of its life cycle. Alphabet, Meta, and Oracle moved from “maturity” to “growth” after accelerating data center construction. This is not deterioration. It is a new investment phase. 8. The current decline in hyperscaler cash flow is expected to be temporary. Combined FCF for Amazon, Alphabet, Microsoft, Meta, and Oracle falls from $170 billion in early 2024 to negative $265 billion in 2027. Consensus then expects it to recover to ~$505 billion by 2030. Returns on capital remain above the cost of capital throughout this period. Microsoft is the only hyperscaler expected to maintain positive FCF across the entire forecast horizon. 9. Returns arrive with a delay, so patience matters. Amazon CEO Andy Jassy explained it directly. During periods of rapid growth, capital expenditures rise faster than revenue. This weakens near-term cash flow. The returns appear a few years later, after the new capacity is operating and generating revenue. Investors who focus only on current cash flow see the worst part of the cycle. 10. Consensus forecasts are not facts. The further out the forecast, the less reliable it becomes. Watch how estimates change. Are revenue and profit expectations rising as quickly as capital expenditure forecasts? The differences can be enormous. The 2027 EBIT forecast for Micron was raised by $192 billion, while Nvidia’s was raised by $231 billion. Their capital expenditure forecasts increased much less. That is a sign that investors expect those investments to generate strong returns. $MSFT $META $AMZN $ORCL $SPCX $NVDA $MU

You make the most money by having a 1–3-year variant view on a business and buying the stock before the business turns up, inflects, or accelerates. Your advantage is often your ability/willingness to look wrong for a few quarters before being right. Delayed gratification.

We recently published a new report called "To Free or Not to Free (Cash Flow)." Free cash flow (FCF) is a topic of interest for the hyperscalers. The main premise is that negative free cash flow is fine as long as the returns on investment are sufficient. In the report, we cover 5 areas: 1. We offer a working definition of FCF and examine where some leading technology companies (5 hyperscalers + 3 others) stand today using results and consensus forecasts; 2. We examine whether the acceleration of investment spending changes each company’s position within the life cycle; 3. We calculate return on incremental invested capital (ROIIC) for each of the companies; 4. We look at the relationship between free cash flow and ROIC; 5. We look at how consensus estimates have changed for sales, earnings before interest and taxes (EBIT), and capital expenditures. These drivers provide a sense of what determines ROIIC. We use only results and consensus forecasts (which are subject to a lot of change as point 5 shows). morganstanley.com/content/dam/im…

Do you know what you know (and know what you don't know)? Please take the calibration quiz confidence.success-equation.com that @pjmauboussin just refined. It only takes a few moments to complete. Encourage your friends, family, and colleagues to take as well and compare and discuss results!

jim chanos shorted enron before it collapsed and ran one of the biggest short fund on earth. he spent 15 years teaching a course on 300 years of financial fraud. his core finding is that the market cycle schedules the fraud: "as bull markets mature, people's sense of disbelief is eroded. they begin to believe things that are too good to be true. it's going up, I don't really care. there's all these red flags showing up." "most of these frauds get revealed after the cycle turns. people stop believing things that are too good to be true, capital markets shut down to questionable companies, and everything that was a positive reinforcement cycle becomes a vicious circle." his one-line summary: "in bull markets, promises trade at a premium. in bear markets, reality trades at a discount."

Joel Greenblatt's Special Situation Class Notes summarized for you. Six key takeaways 👇🏻 1/2

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I'm loving this account!

trailcam @Trail_Cams

3 weeks ago

140 3K 64K 5.1M 3K

Michael Mauboussin’s 2026 paper “Competitive Advantage Period - The Neglected Value Driver” is a must-read for intelligent investors. Key Takeaways 👇🏻 1/2

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