Quitting Job With Nothing Lined Up

Some of the older pitches on VIC are good examples. Simple but focus on key items around their thesis. 

A good case is one that simply focuses on what matters and extrapolates/drills down on any information related to it to build a thesis that is “differentiated” and lets the thesis drive the trade recommendation, not the other way around. You should be able to pitch a case in less than 2-5 pages.

I’m just making up simple examples here but the differentiation can come through:
 

1. misunderstanding of the business fundamentals… eg. maybe the market underappreciates a cable co and overestimates fixed wireless driven sub share gain for legacy wireless cos. Through your channel checks you realize the physics and capital allocation limitation of fixed wireless comps will result in an inflection of subscribers (back to cable) by a certain quarter or year for said cable co when wireless cos reach network capacity resulting in your estimate of EBITDA at X which is A% higher than street estimates at Y. That’s a margin expansion story which is much easier than selling a multiple expansion story. Here what I choose to focus on is simply the potential of incremental EBITDA margin expansion from regaining some of the “lost” subs.
    
2. misunderstanding of business valuation… say most people value said cable co at 5x multiple of ebitda simply because they look at cable and simply go.. oh secular decliner. What if that happens to underestimate the actual value of the assets the company has eg. maybe 70% of said cable co’s assets are fiber which should be at a premium (due to fundamental reasons) on ebitda, $/homes passed (maybe this is a better metric than ebitda), etc. to any legacy copper/dsl multiple typically at 2-4x. Maybe people are valuing copper/dsl lines significantly below cost to connect, etc. so effectively stepping back and looking at the biz on a SOTP basis and maybe a combination of penetration and $/homes passed derives a very attractive valuation for a business most analysts dismiss due to slapping on an ebitda multiple. Here what I choose to focus on is simply the value per homes passed depending on sub penetration rates based on my favourable fundamental outlook for the assets.
    
3. A structural nuance not picked up by the market… on the credit side it’s typically through variant views on legal docs. Maybe said cable co has a bond with strong cov that significantly restricts mgmt’s ability to screw over holders by moving assets to an unsub. 
    
4. A catalyst not picked up by the market… maybe said cable co could switch on dividends much quicker than expected / increase share buybacks due to strong organic FCF generation. Maybe the street is too complacent on following mgmt’s word vs thinking of the practical implications of cash hoarding vs shareholder returns. Here all I’m focused on is capital allocation decisions by mgmt.

These are all obviously very simple examples, but you would be surprised at how many cases fail to offer even a simple thoughtful differentiator. 

Some of the worst ones I’ve seen are 1) often based off some weak thesis that revolves around price targets derived off tweaking mgmt’s guide on certain line items by few 100bps here and there or 2) very vaguely say product X will be widely accepted due to a TAM of X without any solid evidence backing it (in my example, the physics and cap allocation was my evidence backing my thesis). 

This happens because people pick to go long or short before even doing a bit of work and instead focus all their time on building the most complex model possible. People write 40-50 page memos outlining the business, telling the entire story from day 1, building 1000 line complex models when you really need to focus on 5 line items that drive your thesis.