Dan Ramsden

@GestaltU Assuming all else equal (including the trend line). But all else is never equal from one moment to the next. Consider all the things that can change along the way. In short, who knows?

"...when the terminal value question is genuinely open, levering up against an uncertain denominator is a wild risk to take..." Especially when terminal value represents the majority (often by far) in the present value calculation.

@MrMojoRisinX 100%. Perhaps the bottom line (to simplify the analysis at least for the time being), is this: Does the "software" company benefit from strong network effects? If yes, that at least provides some stability as the world changes. If not, the risk is as it always was but stronger.

The Phone in the Limo is Busted The "buy the dip" mentality floating around software right now feels a lot like pattern matching to the wrong cycle. This is not meant to be or sound like a generic bear porn take. I am attempting to share my observation about the quality of information available to make that bet, and the reliability of the signals people are using to make it. I've written about the private markets mechanics and the credit backdrop separately (use the twit search function for more background). In this post I am going to attempt to bring it together a bit more... Let's start with the mosaic. The BTD ("buy the fcking you dip, you fcking moron - youtube.com/watch?v=0akBdQ…) crowd isn't necessarily wrong about any single piece of this. Slowing growth alone, 'seems' manageable. Multiple compression alone if history is any guide (I don't believe it is...), potentially an opportunity. AI disruption narrative alone, maybe overblown for specific names (feels that way, but I can't prove it...can you?). Rising debt alone, depends on the asset. PE overhang alone, slow moving but they are actively playing defense in lights. But when I take a step back, you have all of them simultaneously, and you're weighting them selectively to support a position you already want to have. Essentially, I see cherry picking one name that checks two or three boxes is not the whole picture. The signals people are leaning on to support that rationalization are broken. Let's start with the obvious one...management guidance. The visibility that made SaaS guidance reliable is genuinely impaired right now. AI impact on renewal rates, expansion revenue, customer behavior, nobody has clean line of sight on this. Management isn't lying. They just don't know either. The confidence required to extrapolate forward from the last four years hasn't been earned by the situation. Next let's address buybacks. FinTwit loves pushing buybacks as this panacea. Borrowing money to retire shares is not a vote of confidence in the business from my perch. We are witnessing 'earnings per share management', SBC dilution control, and in some cases financial engineering to hold a stock up that is doing real operational work as a retention and recruiting tool. Next, when the terminal value question is genuinely open, levering up against an uncertain denominator is a wild risk to take. The buyback benefits the people making the decision more directly than it benefits you the investor (good for the traders). One of the most oversold narratives in investing is insider buying. I mean, don't get me wrong, I like when insiders of the companies I am involved with buy stock. I privately encourage insiders, who have a great feel for their forward looking prospects to get ahead of it as a signal to market participants, and for their own wealth generation to buy stock before the path is obvious to others... But keep in mind, that many of these executives are already wealthy (I could give you some great stories about encouraging insiders at Nexstar to just do this before several material earnings inflections). Let's address something and just say it directly...seat risk and livelihood risk are not the same conversation. A $1M open market purchase when you have $40M in stock and options is an extremely cheap signal to send, and the market treats it like something big/game changing that costs something real. The asymmetry between what it signals and what it actually costs them personally is too wide right now to carry the weight people are putting on it. Get your mind right. I am not here to shit on the sell side. The research space is a tool, that's it! But let's discuss sell side estimates. The models were built for a world of predictable recurring revenue and stable competitive moats. The adjustments being made to those models are just educated guesses about something with no real historical precedent. I am genuinely not making a criticism of the analysts making the estimates and revisions call or changing the price targets after the stock or sector gets walloped, but its their job and they have the incentive structure to match that seat. There are also a lot of narrative violations occurring with large PE sponsor(s) commentary in the press. When Thoma and Vista are making the media rounds reassuring everyone about portfolio health, that is the only lever they have left, and I don't really see this as a datapoint with a lot of merit. So as of now, they aren't walking away from their companies, and why should they? They are not handing keys to lenders (yet/now), and why should they? But let's take a 2021 or 2022 vintage deal, bought at 10 to 14 times sales, financed at 7 times leverage when debt cost 9 percent (wrap deal structure), in a business that has slowed from 25 percent growth to 7 percent, with comps that have re-rated from 10 times to 3 or 4 times sales, with debt that now costs 13 percent. The math certainly works less efficiently now, and there is a case to be made that on paper the equity is impaired, and the IRRs presented 6-9 months ago are pretty much unlikely to be realized. The marks don't reflect it because nobody in the ecosystem has the standing or the incentive to force the issue. And let's be honest about why the media tour is happening at all. The exit market is essentially closed (other than the full pamp private deals where they are "reserving space" for retail...yikes). IPO into this? For what audience and at what price? The strategic buyer universe, your Oracles, your Salesforces, Constellations, SAP, has pulled back. The competitive bidding situations between Thoma, Vista, KKR, Blackstone and the long list of other capable strategics that made 2020 to 2022 feel like a permanent bull market for these assets, those are gone, at least for now. It's opportunistic now and sparse, and the optics of what deals you do matter as much as the economics and snap shot accretion. The special dividend recap at 2022 terms with 25 lenders fighting for allocations? Not happening. So what's left? Merging portfolio companies that you wouldn't normally put together to cut OpEx. Rolling assets into continuation vehicles to buy time and avoid a new mark. Selectively selling the winners to show LPs some DPI and prove the fund is working, while the weeds sit on the books marked at something that has no real buyer to test it against. Someone will respond to this with a one off deal example as if it really matters. Ask yourself whether that sponsor is doing it because the setup is genuinely compelling or because they need liquidity and think they better move before it gets worse. We will also almost certainly see a sponsor pay a multiple materially higher than where public comps are trading, and a lot of people will call that a re-rate signal for the sector. It ain't. Get your mind right. You bought $80 to $100 billion of deals at 8 to 14 times sales two to four years ago and now you're telling your investment committee you're hunting in a world where deals are 2 to 6 times sales. Someone is going to respond to this post and immediately jump right to but but but, software multiples are cheap versus history. This is the most seductive and probably the most dangerous signal of all. Insert its a trap gif. Multiples are only cheap relative to the growth, moat, and terminal value assumptions that justified them historically. If those assumptions have structurally changed, the historical comparison is a false anchor. The prior cycles where buying software on a drawdown worked, 2016, 2018, 2022, those were multiple compression events. Those business models were intact. Terminal value wasn't seriously in question (I am sure a few were...so come get me in the comments). The lending environment recovered. You could trust the c-suite disclosed guidance (and was likely sandbagged), trust the board increasing the buybacks, and in many, if not most cases, could trust the moat. This is a different set of conditions and the old toolkit doesn't cleanly apply. So what does real underwriting look like here and now? The framework and variety of checklists that involve unit economics that genuinely benefit from AI or true insulation from it, improving earnings revisions (rate of change), no material pricing degradation, clean balance sheet, straight forward formulaic and opportunistic honest capital allocation that is all spelled out and aligned with governance and incentive compensation structures. Almost nothing in software passes all of that simultaneously right now is the way I see it. But the more difficult issue to contend with, is that even if you find something that does, the work is just beginning and you have to keep verifying. This environment requires dynamic re-underwriting as conditions shift, which adds real stress to longer duration investing in a way that sitting back and letting it work and play out is a tough way to approach this, is my view. I look at this approach as the lazy approach with excuses like I have a mandate that allows me to be patient and I have earned the trust of my LPs. PSA: I would be very careful with this assumption... And for a lot of people it's genuine conviction that it resolves the way it always has. Maybe it does...and perhaps it will. This is what I keep coming back to...The AI disruption risk is probably somewhat overhyped. I think that (I don't necessarily have a convicted belief in the statement). I just can't really quantify it, I certainly can't qualify it with any real precision, and I have no honest way to weight that assumption in a model (do you??). I would be careful of anyone telling you they can issue spot this with conviction and are sizing up the opportunity as a long duration investment (this is not a TRADING DISCUSSION POST - yes if semi's sell off, software will prob bounce!). The phone in the limo is busted. The signals that used to tell you where you were and where you were going aren't working the same way anymore. More comin'...this much I promise you. Best, Mojo

Excellent. Another thing I wonder about in the onion analogy is the implied notion that an enterprise may grow or shrivel away but always still remain an onion. I don't think we are able to make that case anymore, if we ever were. (This mainly speaks to the DCF model, at the heart of "value".)

New Post (Part II in series) Value, Money, & Macro Graham's Code Won't Run on Modern Money OS $VALU.Q see bio and next post

@Apolloknius @pmarca Well, you know how it is, economic theories support so many things.

@d_ramsden @pmarca Bollocks. There is no economic theory that supports this idea.

Almost everything you think you know about the history of technology and capitalism was warped by communist/luddite propaganda of the era. That's happening this time too.

@mikeharrisNY This is true, and not only for this platform’s market analysis but universally, and not only for markets. We always and forever seek out the popular clique.

As this platform proves, the ability to exploit network effects and also use marketing is not necessarily correlated with the ability to analyze markets correctly, and in many cases it is anti-correlated.

@pascal_bornet @DrPippaM Music is not visible, ever, that’s what makes it music and why it’s enjoyed.

I didn’t expect a piano to make music visible but this does. That caught my attention. Someone spent three years trying to turn sound into something you can see. No AI. No screens. Just experimentation. They tried lasers, smoke, different materials. Nothing worked. Until they found something unexpected. Bioluminescent algae. A living system that glows when disturbed, turning each note into light. The first time you see it, it feels unreal. What stands out to me is not just the result, but the process. Innovation didn’t come from better tools. It came from combining ideas across disciplines. Technology. Biology. Art. So here’s something to think about: Where do the most meaningful breakthroughs come from today… deeper expertise, or unexpected combinations? #Innovation #Creativity #Technology #FutureOfTech

@UrbanKaoboy Great post and analysis. I think the bottom line for the software segment: those with strong network effects will use AI tools and not only survive but thrive, while those without will have a difficult time. Maybe this was always the case, but now more pronounced and accelerated.

UrbanKaoberg.com - There And Back Again I built UrbanKaoberg in less than a month with AI. This piece is about my journey down one of the most frenetic, creative rabbit holes I have experienced and my learnings from it. urbankaoboy.com/p/re-investing…

@financialjuice Thanks for the journalism.

Trump is getting a little bored with Iran. Not that he regrets it or something — he’s just bored and wants to move on - MSNow citing US Official. ms.now/news/trump-ira…

@dampedspring Great discussion, thanks for sharing. I’m not yet at the end but wanted to ask, since we’re rapidly approaching your washout-dipbuying levels even into today’s close, do you still feel the same a week later?

Hey folks. We at Damped Spring have been doing monthly roundtables. This one was recorded last Sunday afternoon. Given we expected a very big deal week this week we held it for clients. But it's still pretty fresh! Enjoy. drive.google.com/file/d/1njEUS4…

@zerohedge 1 and 15 are the same?

A ceasefire for a period of one month will be announced according to a mechanism that Witkoff and Kushner are working on, according to AI Arabiya citing Israeli Channel 12 The US aims at a month-long ceasefire The agreement with Iran is very similar to the understandings in Gaza and Lebanon A 15-point agreement will be negotiated during the month of a possible ceasefire. The 15 Clauses of the Agreement with Iran (Via AI Hadath) 1. Automatically cancel the threat of reimposition of sanctions. 2. Dismantling Iran's Existing Nuclear Capabilities 3. Agreement with Iran... Iran vows to "never seek" nuclear weapons 4. Preventing the enrichment of any nuclear material on Iranian territory 5. Delivery of enriched uranium to IAEA 6. Decommissioning and destroying the sites of Natanz, Isfahan and Fordow 7. Grant the IAEA full access to all information 8. Iran abandons 'proxies' approach 9. Stopping funding and arming militias in the region 10. Keeping the Strait of Hormuz open without any closure 11. Postponement of decision on ballistic missile program 12. Ballistic missiles are only used for defense 13. Lifting all sanctions on Iran 14. Support for the development of a civilian nuclear program in Bushehr 15. Automatically cancel the threat of reimposition of sanctions via AI Arabiva citing Israel's Channel 12 and also via AI Hadath citing Israel's Channel 12

@pmarca Is that from Marcus Aurelius?

Introspection = neuroticism x narcissism x thumbsucking.

@mikeharrisNY Perhaps. The thing I notice more and more, I think, is that reactions these days are all intertwined with actions and sometimes even precede… which makes the reaction the action, I guess? Seems like a side effect of velocity.

@d_ramsden If there is no shift back to a proper balance of guns +AI and butter, AOC and the group will be in power sooner than some people think.

This is the ultimate ad-hominen reply I have seen in 16 years on social media, i.e., someone totally misrepresenting your thesis.

@mikeharrisNY Respectfully, it’s not possible because of (human) nature… another aspect of which is survival, so that factors into politics as well.

@d_ramsden It is not possible because people who benefit from it make the rules or influence those who do. Btw, I did not argue about redistribution, only for a "potential" for lower inequality because affordability will become the main problem of the next 10 years and will shape politics.

@mikeharrisNY Thanks, and again fwiw, I didn’t consider it a misrepresentation because it wasn’t any representation to begin with, was just a comment. But enough said. I agree with you about the task of a proper system, I only doubt that it’s possible, which I guess was the point of my reply.

@d_ramsden BTW, I didn't argue you are wrong but only that what you wrote misrepresented my post. I wrote about a potential for lowering the indisputable accelerating affordability crisis. The task of a proper system is to prevent what you wrote by efficient allocation of resources.

@mikeharrisNY Sure, Michael, happy to admit my misunderstanding. You’ve been very kind to understand my occasional blurbs, so least I can do.

@d_ramsden I'd hope you admit you misunderstood what I wrote, because I didn't write about equality. I wrote about the fundamental objective of economic science, which is a better distribution of resources. Currently, most resources are allocated to AI and defense: guns and AI, no butter.

@mikeharrisNY I guess I have a more cynical view, and, like I said, didn’t think I was attacking anything. No matter. Take care.

@d_ramsden "potential for lowering inequality" is equality Dan?

@mikeharrisNY I like many things, Michael, one used to be the occasional conversation with you. Oh well.

@d_ramsden I wrote about better allocation of recourses to improve inequality and you equated this to communism. Probably you like being ad hominen.

@mikeharrisNY It’s all the same phenomenon. We get to the same place.

@d_ramsden How did you infer that from what I wrote? It is unrelated to what I wrote. I did not write about communism. I wrote about preventing capitalism turning into feudalism but I realize you don't get it.

When some economists talk, I feel like I'm in a parallel universe. Even crypto terminology is easier. Overcomplication has an agenda to distract. The objective of gov should be to direct resources where there is potential for lowering inequality. There are doing the opposite.