As we move on from the second quarter of 2023, we are starting to see investor letters released from funds around the world. Over the next few weeks in Thought Starters, we’ll be featuring a few of our favourite. But we had to start with this one, not least because we get a mention.
“I also recorded a podcast with friends from Australia.”
The letter is from Jeremy Kokemor of Right Tail Capital, and you can listen to our podcast interview here (Apple / Spotify). In this quarter’s email Jeremy writes about the importance of patience as investors and then turns his attention to one company in his portfolio: NVR Corp.
NVR Corp is one of America’s largest homebuilders, and Jeremy believes it is under appreciated by the investment community. While most homebuilders will buy land, build houses and then sell it, NVR operates differently. They try to avoid buying the land and by doing so, earn a much higher return on any profits they reinvest into the business. This model also allows NVR to be the low cost producer in most markets.
Whether or not you’re interested in the US homebuilder market, we thought this was a good case study on an under-appreciated form of disruption: business model disruption. There’s been plenty written on technological disruption but just as powerful can be business-model disruption, where companies build a sustainable competitive advantage by changing how they operate. A classic historical example is Coca-Cola outsourcing bottling operating to third-parties and earning higher returns on invested capital as a result. Jeremy see NVR Corp’s different operating model as a potential source of long-term competitive advantage for the company.
This is an excerpt from our Thought Starters email. Once a week we send you 5 interesting articles that have caught our attention, to get you thinking. No spam, we guarantee.