What We’re Reading (Week Ending 09 November 2025) - 09 Nov 2025
Reading helps us learn about the world and it is a really important aspect of investing. The late Charlie Munger even went so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 09 November 2025):
1. Return on Invested Capital (ROIC): Why High Returns Require More Than High ROIC – Eugene Ng
Investors have been fascinated with return on invested capital (ROIC) and, in particular, seek to invest in businesses that can generate high ROICs. And for good reason, the higher the ROIC, the better the business. Yet, businesses with high ROICs alone are insufficient to generate strong long-term investment returns…
…We seek to explain why a company with a high ROIC would not necessarily deliver a similar high long-term total shareholder return.
In addition, businesses must be able to continue reinvesting capital at an attractive ROIC that allows them to grow revenue, earnings, and free cash flows strongly and compound for a long time.
It is not one or the other; it has to be both (unless the business’s valuation/price is really low). Unfortunately, there are very few companies that can do both, especially over a long period…
…Currently, all tangible and intangible assets, whether purchased or acquired via M&A, are capitalized on the balance sheet and expensed in the income statement over their useful lives.
However, internally generated intangibles are not capitalized and are immediately expensed on the income statement rather than recorded on the balance sheet and amortized over time. This is because accountants are uncertain about the sales that these investments may generate. So, to be conservative, they do not apply the matching principle of sales and expenses, and expense the outlays immediately. This causes near-term expenses to rise, profits to fall.
This significantly depresses near-term profitability, making companies that are spending a lot on intangibles seem less profitable than they really are and more expensive by conventional valuation metrics (e.g., price-to-book (PB) or price-earnings (PE) ratios), particularly when they are heavily reinvesting early on…
… The best companies in specific sectors (i.e., 80th percentile) tend to generate much higher ROICs. For example, looking at adjusted ROIC, the sectors are software, computer & peripherals, semiconductor equipment & products, IT consulting & services, communications & equipment, internet software & services, internet & catalog retail, biotechnology, and tobacco…
…Companies only create value when they (1) keep growing durably for an extended period of time, and (2) earn a return on capital that exceeds their cost of capital consistently.
For a company to keep growing fast, there must be a significant opportunity and a large total addressable market (TAM) to reinvest new capital at high returns relative to costs and to penetrate and gain market share. The faster they can grow, the greater the cash flows and value creation.
Conversely, competitive advantage is what sustains growth and high ROIC. Companies with attractive profitability will tend to attract new entrants seeking to compete profits away from the incumbents, causing ROICs to mean-revert.
A business with a wide moat and numerous competitive advantages in a highly monopolistic/duopolistic/oligopolistic market structure with strong unit economics tends to sustain higher ROIC durably over extended periods…
…Only a small percentage of the entire universe (55,321 companies) has very high ROICs: ~5.5% have >20% ROIC, ~3.6% have >25% ROIC, ~2.4% have >30% ROIC, and ~1.5% have >40% ROIC…
…ROIC is a static snapshot in time. How ROIC changes over time matters as well. One should focus not just on the absolute ROIC, but also on return on incremental invested capital (ROIIC). Think of ROIC as stock, and ROIIC as flow. If incremental capital is reinvested at ROIICs that are even higher than high ROICs, it will drive ROICs higher over time, and vice versa…
…Revenue growth translating into earnings growth is the single most significant contributor to rising stock prices. If companies can keep growing earnings for years and decades, and if the stock market is not too exorbitantly expensive, one will likely still end up with a fine-looking result. Earnings are the weighing machine for stock prices over the long term…
…The reinvestment rate measures the percentage of earnings that a company plows back into the business every year (i.e., reinvestment / net income).
ROIC measures the return the company makes on these reinvested earnings…
…Suppose a 19.5% ROIC company is unable to reinvest any capital and does not grow earnings. Assume it trades at a 15x PE (assuming no change in valuation multiples), if the company chooses to return 100% of that capital via share buybacks or dividends, it would be an implied 6.7% (1/15) earnings yield that the shareholder will effectively indirectly receive via buybacks/dividends/higher enterprise value, and adding the 0% earnings growth, would render a significantly lower combined total shareholder return of 6.7% as compared to the company’s much higher ROIC of 19.5%.
Whereas if this 19.5% ROIC company reinvests more of its earnings to achieve higher earnings growth, its total shareholder returns tend to converge to the higher combination of its earnings growth and its earnings yield (assuming no change in PE valuation multiples). The math is counterintuitive. The implications are profound.
Notably, the price (i.e., PE ratio) matters much more when earnings are growing much more slowly, and matters less when earnings are growing much faster.
2. The Great Decoupling of Labor and Capital – Abdullah Al-Rezwan
Almost two decades ago, Hewlett-Packard (HP) was the first tech company to exceed $100 Billion annual revenue threshold in 2007. At that time, HP had 172k employees. The very next year, IBM joined the club, but IBM had almost 400k employees…
…Alphabet required 76k employees to get to their first $100 Billion. Their most recent incremental $100 Billion? Just 11,000! (assuming they add another 3k employees in 4Q’25)…
…Historically, Microsoft used to be much more human capital intensive company as they required 124k and 97k incremental employees to get to $100 Billion and $200 Billion revenue milestones respectively.
But their most recent $100 Billion? Only SEVEN thousand!…
…Meta is the youngest of these companies. They will likely reach $200 Billion revenue milestone next quarter. Their first $100 Billion took 63k employees while the recent one will likely take one-third of that number!…
…Amazon really didn’t exhibit much of a pattern for their journey to $500 Billion revenue milestone. In fact, their hiring pattern is perhaps the poster child of post-pandemic over hiring as the company really was in the thick of pandemic induced massive upward demand shock and misread the post-pandemic hangover. While historically they took 200k to 400k employees for their incremental $100 Billion revenues, they added their last $200 Billion revenue with only 36k incremental employees!…
…I wouldn’t be surprised if Amazon reaches $1 Trillion revenue in 3-4 years by adding only ~100-200k incremental headcount. If that happens, it would mean while Amazon required 1.5 million employees to get to $500 Billion revenue, the next $500 Billion revenue would come with only ~10-15% of incremental headcount!
Of course, I haven’t even mentioned the largest company in the world: Nvidia! When they reached $100 Billion LTM revenue in 2024, they only had 30k employees and they will likely reach their next $100 Billion with only ~6-8k incremental headcount!
The trend isn’t necessarily just confined to tech companies either. Walmart’s full-time employees number remained relatively constant for the last 10 years while their revenue grew by $200 Billion during this period. In fact, Walmart recently mentioned that the headcount will remain static for the next three years as well. So, it is likely that Walmart will add $300 Billion incremental revenue since 2015 with basically no incremental headcount!
3. Missing a bidding war: a mea culpa on Metsera ($MTSR) – Andrew Walker
Pfizer announced a deal to acquire Metsera4 (MTSR) for $47.50/share plus a CVR in late September (per the proxy, the all in value of that offer is ~$54.66/share; see p. 45). If you read the MTSR proxy, you could see that there was actually a higher bid for MTSR; page 44 of the proxy notes that “party 1” had made an offer that was valued at $59.46, but the board determined to go with the Pfizer offer for a variety of reasons, but most notably “potential regulatory risks.”
That proxy background got really interesting earlier this week, when party 1 (Novo Nordisk) lobbed in an unsolicited proposal to buy Metsera that was deemed a superior bid (over Pfizer’s strong objections, including a lawsuit filed Friday night!). The superior bid and prospect of a bidding war sent Metsera stock up ~20%. Not bad for a merger arb!…
…Why do I think you could have predicted a possible topping bidder?
Because the presence of a higher bid was right there in the MTSR proxy.
MTSR’s proxy came out October 17th. It discloses that party 1 (who we now know to be Novo) offered a package valued at $59.46/share (see p. 44) for MTSR. As mentioned above, MTSR ultimately turned down Novo in favor of the certainty of the Pfizer deal.
You’ll recall I mentioned earlier that boards often turn down higher bidders with some type of regulatory or financing uncertainty in favor of a lower offer with more deal certainty.
But bidders and boards often differ quite a bit in their assessment of risk. The funny thing about public companies is that they are required to file a proxy with the background of a deal, and bidders who were passed over can then read the proxy and say, “huh, the board was concerned about that? We think they were completely wrong” or “o, we didn’t realize this one item was a gating factor for the board; let’s fix that issue and go back with a better bid.” And, even if the board still thinks the offer is inferior, the higher bidder can always take the question directly to the company’s shareholders, and shareholders will very often let the board know they’d prefer the higher price and antitrust risk to the certainty of the lower price.
So MTSR fits into a unique and perhaps my favorite of all of the no lose set ups: a merger arb that is scheduled to go through where there is a publicly confirmed strategic that has offered a higher price and was turned down for some reason. The reason this set up is so interesting is the spurned bidder can wait, read the proxy, see all of the companies projections, see what the company was worried about when it came to antitrust, see what other bidders were bidding….. and then chose to swoop in at the last second with nearly unprecedented amounts of information!
Again, this set up is rare…. but time and time again I see that the market underprices the odds of a topping bid from a bidder who was offering more and got passed over for some reason (generally anti-trust9). Let me give a few examples:
- My favorite example is Disney / Fox. They announced a merger in late 2017 that valued Fox at about $28/share (plus a spinoff)…. but then a few months later Comcast swooped in with a $35/share offer, and Disney eventually bumped their bid to $38/share. So, If you had bought Fox stock the day the initial deal was announced, you’d have made ~35% in ~6 months through the course of the bidding war…. and, if Comcast had never shown up, you’d have still made a normal arbitrage spread!
- How could you have known that Comcast might come in over the top. Well, there were plenty of press reports that Comcast had been trying to buy Fox with a higher offer before Fox sealed the deal with Disney…. but you also could have read Fox’s initial proxy in late May 2018 and seen / confirmed that Comcast had made a much higher offer for Fox! Again, that proxy came out late May 2018…. Comcast made their (public) topping offer a few weeks later.
- Chevron announced a deal to buy Anadarko for $65/share in mid-April 2019; right when the bid was announced David Faber reported “Occidental was prepared to pay $70 a share for Anadarko and is currently exploring its options.” Anadarko traded slightly below the Chevron price when the deal was announced…. Sure enough, Occidental came with a topping bid less than two weeks after the Chevron bid was announced and eventually won that deal (I believe Andarko’s stock closed at $73.39/share when the definitive OXY deal was signed ~a month later, so that’s a very nice bump insider of a month…. btw, OXY’s CEO does not come off well in the Anadarko proxy).
- Marriott and Starwood announced a deal that valued Starwood at ~$71/share in November 201510. Starwood was a very hot commodity and there were plenty of rumors that other strategics were looking at buying it; those rumors were confirmed when the proxy came out in February 201611. It disclosed nearly unlimited strategic interest in Starwood’s portfolio, but in particular I’d note that Company G and Company F both sent offers to buy Starwood for $86/share that were dismissed for one reason or another. Sure enough, in March Anbang offered $76 and then $78/share, their bid was deemed superior, and Marriott eventually had to bump their bid to $79.53/share (or $85.36 if you included the value of the spin).
- One thing that was/is so unique about the marriott / starwood set up? Marriott’s CEO was acknowledging the potential for a bidding war when the deal was announced; this FT article from right after the initial deal was announced has an incredible quote from him, “Will other bidders crash the deal? We hope they won’t.” The article goes on to speculate that Hilton, Hyatt, IHG, or several Chinese companies could serve as interlopers.
4. The Risky Movement to Make America Nuclear Again – Michael Riley
When Oklo Inc., a nuclear power startup, applied in 2020 to operate its first reactor, the company rested largely on outsize ambition. Its MIT-educated co-founders, a married couple named Jacob and Caroline DeWitte, lived in a mobile home park in Mountain View, California, in space 38. Oklo, which had only 20 full-time employees, wanted to build small reactors across the country, transforming the way towns and industries are powered. To realize that dream, it needed the US Nuclear Regulatory Commission to say the company’s design was safe.
Two years later, Oklo had failed to pass even the first step of the approval process. In 2022, after months of frustrating back and forth, the NRC concluded that the company didn’t provide verifiable answers to the most basic safety questions. The regulator denied the application. A former senior agency official, who spoke on the condition of anonymity, says Oklo “is probably the worst applicant the NRC has ever had.”…
…In 2025, Oklo’s reactor design is still unlicensed. But, in a sign of how radically the safety landscape has changed for nuclear power, the company’s business promise seems bright. Oklo went public last year and now has a market value hovering around $20 billion. In May, Jake was in the White House when President Donald Trump signed four executive orders designed to herald a nuclear renaissance. “It’s a brilliant industry,” Trump said, DeWitte at his side.
The startup’s backers long had a Plan B: If Oklo couldn’t win approval from the agency charged with protecting the public from nuclear accidents, they would, essentially, go after the regulator, in much the way Uber Technologies Inc. and other Silicon Valley startups have obliterated regulatory roadblocks. One of the architects of Oklo’s attack-the-regulator strategy is a law professor-turned-venture capitalist with ties to the Koch empire. He says the public shouldn’t be worried…
…Not far from the massive silver dome is a patch of government land where the DeWittes have staked their future. Little more than a sign and a couple of porta potties stashed amid the juniper bushes, this is where the two are planning to build Oklo’s reactor, Aurora, which they’ve described as a more modern version of the EBR-II. They have vowed that their reactor will share the same inherent safety characteristics.
Edwin Lyman, a physicist and director of nuclear power safety with the Union of Concerned Scientists, says the assumption that reactors like EBR-II are “passively safe” is misguided. “It’s gaslighting,” he says. Sodium fast reactors are notoriously difficult to operate, which accounts for the technology’s long history of accidents and meltdowns. Sodium leaks can create fires that spray a toxic sodium-oxide aerosol into the air. If the coolant comes into contact with water, hydrogen explosions can result in both the reactor itself and the power generation plant. And compared with light-water reactors, fast reactors leak neutrons that need extensive shielding to make them safe. “If something goes wrong, the potential for a Chernobyl-like escalating event is actually much higher than it is with light-water reactors,” Lyman says.
When Oklo submitted its first application to the NRC in 2020, the agency was under pressure from Congress and the industry to show it could license new reactors more efficiently. The agency’s licensing team was eager to begin what it called a Phase 1 review—essentially checking that the application is complete enough to move to a more rigorous scientific and safety evaluation. With an experienced company, Phase 1 usually takes about two months. “We thought we could get Oklo to that point in about six months,” says a former agency official familiar with the company’s application, who asked for anonymity to talk openly about the company’s application.
Major sticking points soon emerged. The company declared that, based on its extensive calculations, Aurora was one of the safest nuclear reactors in the world and there was no plausible accident that would result in a release of radiation into the environment. Yet the NRC staff identified important scenarios that Oklo didn’t appear to consider: What if undulating pipes from a sudden leak wrecked key systems? What if the seals of the reactor capsule failed, creating a pathway for radiation to reach the outside? The regulators also asked about the risk of flooding inside the reactor capsule, which the NRC said “may represent a potential criticality issue.” Nuclear experts say that’s a technical way of saying that the agency was worried about the possibility of an uncontrolled fission event, which could result in a dangerous steam explosion inside the reactor vessel.
As the licensing team dug in, Oklo couldn’t provide the supporting analysis for many of its basic safety assumptions, according to four officials who spoke to Businessweek about the application, as well as public NRC documents. In some cases, supporting files the company claimed to have were not available when the NRC tried to examine them, one official says.
“We needed the evidence that this reactor could be built and operated safely, and it just wasn’t forthcoming,” says one of the four officials.
Finally, in January 2022, the NRC denied Oklo’s application. By that point, the company had raised more than $25 million, and its dream of mass producing small nuclear reactors had seemed in reach. But at the NRC, the company never made it beyond Phase 1.
In a flashy video posted on YouTube last year, the DeWittes, clad in jeans, stroll across the high prairie near the Idaho National Laboratory. They’re introduced by a narrator whose tone mixes soothing and serious. “Meet the husband-and-wife engineering duo that discovered a game-changing technology buried in a government lab in Idaho,” the narrator says.
The six-and-a-half-minute video was published on the YouTube channel of a Utah-based organization called the Abundance Institute, identified on its website as “a mission-driven nonprofit focused on creating a space for emerging technologies.” In contrast to other pro-nuclear outfits including Third Way and the Breakthrough Institute, the Abundance Institute has been ferocious in its criticism of the NRC. In January its CEO penned an op-ed in the Wall Street Journal that labeled the regulator “lawless,” then followed up with social media posts declaring that it was time to abolish the agency.
5. AI Could Be the Railroad of the 21st Century. Brace Yourself – Derek Thompson and Richard White
Even in these early answers, you can see both a difference and similarity between the transcontinentals and AI.
A difference: The transcontinental project was government-financed from the jump. It was launched as a wartime strategy to keep California in the Union and backed with government loans and land grants. The AI buildout, by contrast, is overwhelmingly financed by the richest companies in the private sector.
A similarity: The transcontinentals were “central” to the U.S. economy in the second half of the 19th century—so central, in fact, that whenever the railroads caught a cold, the entire economy sneezed. In 2025, AI is similarly eating the entire economy—from the stock market (AI-related stocks have accounted for 75% of S&P 500 returns since ChatGPT launched in November 2022) to the construction industry. According to JPMorgan, data centers “are eclipsing office construction spending” and pushing up electricity prices across the country…
…The railroads were built with debt. Debt, debt, debt. The whole thing was a tottering Jenga tower of leverage, and it came crashing down every 15 years or so. By contrast, the AI buildout has not relied significantly on borrowing. Most data center construction to date has been financed by free cash flow from the major US tech companies with capital from private-capital firms like Apollo and Blackstone.
But this might be changing—and fast. Last week, Bank of America Global Research reported that “borrowing to fund AI datacenter spending exploded in September and so far in October…
…In the 1800s, the railroad supply chain was partly owned by, or directly financed by, the government, which led to years of corruption that exacerbated the severity of the economic panics that followed. I am reminded of the news that the Trump administration has been taking minority stakes in US chip companies (Intel) and demanding a share of their export revenue (Nvidia, AMD). Maybe not the single most auspicious sign.
Second, go back to that Fahnestock paraphrase: “We have borrowed immense amounts of money, built relatively little, and the lines we’ve built go nowhere. We have nothing to carry. This is simply going to collapse.” I think it is fair to say that, to date, the AI hyperscalers have not borrowed immense amounts of money (yet); they’ve built a lot, and what they’re building is being broadly used by tens of millions of people. The folks at Exponential View estimate that total generative AI revenues this year will exceed $60 billion. Say what you want about AI, but it is not an empty railroad cart leading to the desolate Nevada desert! This is a train that people are riding…
…Thompson: What are some timeless lessons that the railroads offer for other transformative technologies, such as AI?
White: Transformative technologies are built by people who never under-promise. They always overestimate the beneficial consequences of what they’re doing in the short-term and underestimate the costs of what they’re doing.
Second, the people who hype these technologies, the people who control the companies that are seeking to master these technologies, very often do not understand the technologies themselves. They can over-promise because literally they know what they want to promise to get financing and to get money and to get profits. But they often have very little idea of what these technologies will do. And so these technologies turn out to be something of a black box. You open them up and all kinds of things pop out. Some of them are things you’re anticipated. Many things are going to be things that you don’t anticipate.
Third, these technologies virtually always become bubbles. Because they take on this belief that if you’re going to change the world, if this is the secret to the changing world, everybody should get in on this. The railroads were the American stock market and American financial market in the late 19th century. I mean, that’s where the money went. It dwarfed everything else. In that way, they invent American financial markets and they invent the way that the bond market and the stock market will later work. But it means a relatively few corporations can make the whole thing boom and make the whole thing bust.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have a vested interest in Alphabet, Amazon, Mastercard, Meta Platforms, Microsoft, and Visa. Holdings are subject to change at any time.
