TIP776: Stig Brodersen’s Mental Models & Portfolio Update
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode of We Study Billionaires, Clay Finck sits down with co-host Stig Brodersen to discuss his portfolio changes and investment philosophy evolution. (05:08) Stig shares his remarkable track record since 2014, compounding at 29.6% annually while maintaining a disciplined approach to portfolio management. The conversation covers his decision to sell Evolution AB and add Uber as his only new position this year, while exploring the mental models he's developed around operational leverage in the digital economy. (15:50) They dive deep into Uber's business model, the threat of autonomous vehicles, and how companies in the "layer below" big tech can leverage AI infrastructure without building it themselves.
- Main Theme: Strategic portfolio management and identifying opportunities in the evolving tech landscape, particularly focusing on platform businesses with operational leverage and network effects.
Speakers
Clay Finck
Clay Finck is a host at The Investor's Podcast Network and co-host of We Study Billionaires. He joined TIP taking more than a 50% pay cut, demonstrating his commitment to the mission of investment education. Clay has been attending the Berkshire Hathaway annual meetings for seven consecutive years and actively manages the TIP Mastermind community.
Stig Brodersen
Stig Brodersen co-founded The Investor's Podcast Network in 2014 alongside Preston Pysh. Since inception, he has maintained a public track record with a 29.6% compound annual growth rate through 2024, significantly outperforming the S&P 500's 13.4% return over the same period. Based in Denmark, Stig brings a unique European perspective to investing and has built a reputation for transparent, long-term focused portfolio management.
Key Takeaways
Operational Leverage is Key in the Digital Economy
Stig emphasizes how digital platforms like Uber benefit from tremendous operational leverage once their infrastructure is established. (06:51) Unlike traditional businesses requiring ongoing material and labor costs, digital platforms can generate incremental revenue that flows directly to the bottom line with minimal additional costs. This framework helped him understand why companies like Uber appear expensive on traditional metrics but offer compelling value when operational leverage is factored in. The key is recognizing businesses where massive upfront investment in digital infrastructure creates sustainable competitive advantages.
Focus on Companies Within Your Circle of Competence
Stig has evolved from investing in obscure companies he didn't understand to focusing on businesses that genuinely interest him. (61:22) He learned from painful experiences with offshore oil companies and pharmaceutical investments that forced learning doesn't work well for him. Instead, investing in companies whose products and industries he naturally finds fascinating leads to better research and understanding of competitive dynamics. This curiosity-driven approach helps maintain the deep knowledge needed for successful long-term investing.
Identify and Leverage Your Unfair Advantages
Stig introduces the mental model of unfair advantages - unique circumstances or capabilities that give you an edge over other investors or entrepreneurs. (70:04) These advantages must be measurable and actionable, whether it's living below your means for investment flexibility, having specialized knowledge, or accessing unique opportunities. The framework extends beyond investing to all aspects of building wealth, as capitalism rewards those who can identify and systematically exploit their unique competitive advantages.
Platform Businesses Create Multiple Revenue Streams
Uber demonstrates how platform businesses can evolve beyond their core service to create diverse revenue streams. (40:24) Beyond ride-hailing and delivery, Uber generates over $1 billion in advertising revenue and has developed Uber One, a subscription service with 60% year-over-year growth. This optionality allows platform businesses to monetize their user base in multiple ways, similar to how Amazon leverages its retail platform for advertising and Prime memberships. The key is owning the rails through which commerce flows.
Size Positions According to Conviction Levels
Stig emphasizes the critical importance of position sizing based on conviction rather than treating all investments equally. (27:19) He notes that even successful investors often have batting averages around 60%, making it essential to bet bigger on high-conviction ideas. His approach involves starting with 1% positions to learn about businesses as an owner, then scaling to up to 10% for full positions. This methodology acknowledges that the biggest wins in a portfolio typically come from a small number of well-sized, high-conviction bets.
Statistics & Facts
- Stig Brodersen has achieved a 29.6% compound annual growth rate since 2014, compared to the S&P 500's 13.4% return over the same period. (00:26) This track record is publicly disclosed and updated annually.
- Uber generated nearly $50 billion in revenue with $16 billion in net income in the trailing twelve months, while spending only $300 million on CapEx. (28:41) This demonstrates the operational leverage inherent in platform businesses.
- Uber One members spend approximately 3.5 times more than non-members, with an estimated 15-20% of Uber's 189 million monthly active users being subscribers. (34:57) The program generates over $1 billion in run rate revenue with 60% year-over-year growth.
