FNF #10
By Handzalah / Black Swan Research 10 October 2026, 11:53pm MYT
Topics discussed in tonight’s FNF:
- Fiserv is a global payment processing company
- Prior to the $22 billion acquisition of First Data, Fiserv mainly served the banks with their bank-tech products
- After the acquisition, they added merchant related revenues to their stream of revenues
- 2 main lessons learnt from the fall of Fiserv:
1) Make sure you are invested with honest management that’ll give you a clear picture of how things really are
2) Do not use temporary and unsustainable growth as an estimate for future growth. This will lead to great exuberance in the numbers. Be more conservative. - Fiserv’s growth were non-durables and therefore unsustainable
- 3 unsustainable growth levers management promoted as growth for the long-term
1) Argentina inflation
2) One time migration
3) Prices it could not hold due to substantial churn - Be cognizant of management’s forecasted figures
- Sometimes, management may be more incompetent than you when it comes to predicting future earnings
- Fiserv’s downfall had red flags before the capitulation
——-> In just over a year, 3 CEOs took seat - Being highly leveraged also did not help them
- Home builder industry follow closely to the population growth of the geography
- The inverse relationship between vacancy rate and house rate (rental and mortgage rate) reflects the cushioning of impact of home build demand lag
- Median age of housing in USA has grown over the recent decades
- Ever since the 2008 crisis vacancy rate has been decreasing and home stock are in deficit in the US
- The buying and rental affordability index shows that things are getting more pricey
- Number of work-in-progress (WIP) homes in USA reached record levels (since 1960s)
- However, after the completion of these WIP homes, there may be a flood of supply causing oversupply
- The oversupply will likely cause increase in vacancy rates thereby causing house rates to decrease
- Over the recent years, the top 20 home builders gained market share despite being in a very fragmented market
- The barriers to entry is low, allowing for competition to come. However, for these home builders to successfully scale their operations, it is a lot more difficult.
- Home builders spent billions of dollars for M&A in order to consolidate
- Incumbents likely already secured the best plots of land. This makes it that much harder for newer players to compete with them.
- Most public home builders don’t actually build the homes. Rather they sub-contract it out. Their actual activities include:
-securing lots
-designing homes
-finding buyers of finished homes
-coordinating construction
-providing NWC - Therefore, the nature of their business is to have low CAPEX with most of the capital tied to providing NWC
- Majority of the COGS in home builders are of the variable cost type. This means that they can gain great operating leverage.
- In recession, home builders can face negative operating leverage as volume and average selling price plummet
- Norbert Lou’s Punch Card Capital had $115 million in AUM
- Punch Card Capital saw a CAGR of 14.5% from 2004 to 2011. This is especially impressive when we compare to the S&P 500’s CAGR of 2.2% over the same period.
- Norb had average cash balance of 25% of assets
- Norb seldom exceeds 6 positions in his fund reflecting the punch card name
- He did not go to a prestigious school
- He read Peter Lynch’s book, One Up on Wall Street
- Norb’s mother let him handle her retirement money amounting to $60,000
- One of his first winners is Intel which grew 3x in just 2 years
- He sets a high bar for what he is willing to invest
- Home builders were land speculators in the eyes of Norb as they would tie capital in land prior to the construction of the home
- If land value appreciated during the period of construction, the home builders will earn extra profits
- This meant that many home builders face bankruptcy in the bust cycles of the housing market
- NVR, a prominent home builder, was punished by the stock market due to their chapter 11. Therefore, the stock traded for single digit earning multiples. However, they restructured their business and Norbert Lou noticed this.
- NVR chose to buy options for purchase of land. This will come at a cost which was around 5% – 7% of the land value. However, the option allowed NVR to purchase land at a fixed rate. If the rate was not favorable they can choose to expire the option. This model freed up capital.
- Norb made NVR the largest position for his mother’s portfolio at around 35%
- After 3 years of managing his mother’s portfolio, he analyzed his results. What he noticed is that the largest position, NVR, made way more than the other positions.
- NVR grew 6x compared to Norb’s initial purchase back in 1997. This occured without multiple expansion as the earnings multiples stuck to single digits.
- He earned Value Investors Club’s (VIC’s) Idea of the Week with his NVR write-up
- Norb believed that most of the time the cigar butt approach to investing is not worth your time and attention
- Quite a few of his investments involved looking at companies near or at bankruptcy and checking their documents to see if the lower valuation is fair or not. (examples: NVR & NII Holdings)
- After 9 years of managing his mother’s portfolio which started at a value of $60,000, Norbert Lou managed to grow it to around $1.1 million.
- On June 1, 2004, Norb launched Punch Card Capital at $10 million AUM
- Munger caught Norbert Lou’s interest because Munger would solely focus on the qualitative factors in his write-ups
- Norb was willing to invest in a very unpopular country for investment. This country was Argentina.
- Norb was careful on how cost inflation can effect businesses
- The operating leverage of a business was usually overlooked by investors
- The beer company in Argentina that Norb was interested in showed pricing power. How? With increased prices the volumes went up.
- Norb’s error of omission was Morningstar. He was unwilling to pay a high price for a great business of which he understood that the business has untapped pricing potential.
- Morningstar price at IPO was equivalent to 66x earnings. This seems pricey but the value of future operating margin expansion needs to be considered too.
- Morningstar’s CEO at the time was a follower of Buffet. Which in Norbert’s book was a really good sign.
- A great investment that is missed has disproportionate impact on the fund
- Caution when pursuing young companies that wish to disrupt the current way of doing business. It is very tricky to fully understand and may not be possible to fully understand the risks. Norb struggled with it with ZipReality.
- Stock’s liquidity matters because it allows funds the size of Punch Card Capital to swap its positions in order to capture better opportunities
- Diversifying LP base is important so that redemptions do not affect your fund’s business as much
- Norb loved reading
- He invested in Moodys despite the litigation issues faced by Moodys post 2008’s mortgage crisis