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Warren Buffett has spent more than half a century giving investors remarkably consistent advice. Read annual reports. Read them from beginning to end. Read them every year. Compare what management said five years ago with what they are saying today. If you do this long enough, you begin to understand not only the business, but the people responsible for allocating its capital.

The modern investor has access to more information than any previous generation could have imagined. Every SEC filing is available online within minutes. Financial databases organize decades of operating history into searchable tables. Artificial intelligence can summarize a 250-page annual report before most investors have finished reading the shareholder letter. Information has become abundant, inexpensive, and widely available. I believe the number of serious investors who underperform because they lacked access to information rounds to zero.

This is why I think Buffett’s advice is often misunderstood. Investors frequently interpret his reading habit as a method of gathering information. I have come to believe it is something much deeper. Reading annual reports is not primarily about discovering facts that no one else possesses. It is about developing a framework for understanding businesses over long periods of time.

Buffett once remarked that his policy was to read “every annual report in sight that can further my knowledge about anything.” More importantly, he has encouraged investors to approach an annual report as though they will have to explain the business to someone else after they finish reading it. That is an entirely different exercise than searching for a few statistics or confirming an investment thesis. It requires understanding how management thinks, how capital is allocated, how risks are discussed, and whether the financial statements support the narrative presented in the shareholder letter.

Reading a decade of annual reports from the same company is unlike almost any other exercise in investing. Management makes promises. Some are fulfilled. Others quietly disappear. Acquisitions that once seemed transformational are rarely mentioned again. New risks emerge while old ones fade into the background. Accounting policies evolve. Incentive structures change. Through all of it, the investor begins to recognize patterns that cannot be captured by a spreadsheet or a screening tool.

Most of us now interact with annual reports as databases rather than documents. We search for a phrase, jump directly to the income statement, skim the risk factors, and move on. AI will make this process even more efficient. None of those tools are inherently harmful. I use many of them myself. They save time and remove a tremendous amount of mechanical work from the research process.

The problem is that efficiency is not the same thing as understanding.

Recently, I read an essay by Jasna Hodžić in Big Think that examined what readers gain (and lose) when they move from physical books to digital formats. Drawing on decades of research and an interview with linguist Naomi Baron, Hodžić notes that readers of printed books generally demonstrate stronger comprehension, retain more information, and report greater immersion than readers using digital formats. Readers also consistently describe print as encouraging a slower, more deliberate reading experience, while digital reading is valued primarily for its convenience.

I do not think this is an argument against digital reading. Hodžić makes the opposite point. Digital books have clear advantages in accessibility, portability, and cost, and Baron argues that each format serves different purposes depending on the reader’s objective. The important observation is that the medium shapes the way we engage with ideas. Reading on paper encourages a different pace than reading on a screen. That difference appears small while it is happening, but over hundreds of hours it may influence what we remember, what we question, and what connections we make.

I suspect annual reports are no different. A printed annual report is more than a collection of financial statements; it is a tangible object. It has weight. It occupies a place on a desk. Pages are turned rather than scrolled, and progress through the document is measured physically rather than by a percentage at the bottom of a screen. That physical interaction encourages a slower pace. Notes accumulate in the margins, passages are underlined, corners are folded, and questions remain waiting to be revisited the following year. Over time, the report becomes less like a document to consume and more like a record of an ongoing conversation with management.

Investing has always rewarded patience after an investment has been made. I think we spend too little time talking about patience before capital is committed. Reading ten years of annual reports before purchasing a business is slow. Reading every footnote is slow. Revisiting management’s letters after several years is slow. None of these activities maximize the amount of information consumed in an afternoon. They improve the quality of the judgment that follows.

Artificial intelligence will continue to make investing more efficient. Research will become faster. Summaries will become better. More information will become available at lower cost. Those are genuine improvements, and investors should embrace them. They remove much of the mechanical work that has traditionally occupied an analyst’s time.

The temptation, however, is to spend those savings on even more activity. More companies screened. More reports summarized. More ideas evaluated. Investing has a way of convincing us that productivity is measured by the number of decisions we make. I think the opposite is true. The purpose of efficiency is not to make more investment decisions. It is to make better ones.

A business owner does not wake up each morning wondering whether to replace every company he owns with a different one. He spends his time understanding the businesses he already owns and waits patiently for opportunities that are clearly superior. That approach can appear inefficient. Reading ten years of annual reports before purchasing a stock is inefficient. Holding a business for a decade while doing very little is inefficient. Revisiting the same footnotes year after year is inefficient. Yet those habits have characterized many of history’s best investors because the objective was never activity. The objective was sound judgment.

Artificial intelligence gives us an opportunity to eliminate unnecessary work. It would be a mistake to use that time simply to consume more information or make more decisions. A better use of it is to think longer about the decisions that matter.

Thank you for reading,

Tyler

Disclaimer: Tyler Pellom works in higher education and manages Clear Stream Value Partners, a private investment partnership. Hudlan is a blog about investing, business, and capital allocation, written as a way to refine ideas and share knowledge.

The opinions expressed are his own and should not be interpreted as those of his employer or as investment advice.

This investment fund is a private General Partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

I completed my Master of Business Administration degree at Austin Peay State University this summer. My final capstone project was a detailed business report of Southern Company. Because I received a good grade on the assignment, and it fits with the work/topics I write about, I figure it makes sense to post here as well.

The below text was copied and pasted from multiple Word documents, and some formatting may be broken in the transition to Substack.

We do not own shares of Southern Company in our portfolio.

Macroeconomic Analysis

The macroeconomic environment directly dictates the operational efficiency, capital deployment models, and demand projections for Southern Company within the regulated utility sector. Gross Domestic Product (GDP) growth acts as a primary barometer for industrial and commercial power demand throughout Southern Company’s core southeastern footprint, spanning Georgia, Alabama, and Mississippi. Historical data establishes that a 1% expansion in regional real GDP correlates with an approximate 0.6% increase in commercial and industrial electricity sales, cementing a foundational link between regional economic growth and top-line utility revenue (Bureau of Economic Analysis, 2026). Conversely, inflationary pressures, quantified via the Consumer Price Index (CPI), introduce substantial supply chain and asset development risks. In periods of elevated inflation, the nominal costs of infrastructure components—such as high-voltage transformers, transmission wiring, and structural steel—escalate rapidly. For a capital-intensive entity like Southern Company, this inflationary pressure compresses immediate operating margins because regulated utilities face a structural regulatory lag, preventing them from instantly shifting increased input costs onto retail consumers without formal, multi-month rate reviews from state Public Service Commissions (Bureau of Labor Statistics, 2026).

Interest rate structures, set by Federal Reserve monetary policy, represent one of the most critical systematic external forces impacting Southern Company’s balance sheet. Regulated utilities are highly leveraged organizations due to continuous infrastructural obligations, meaning that a sustained 1% (100 basis point) upward shift in benchmark interest rates elevates the cost of issuing new long-term debt and expands interest expenses on variable-rate credit facilities. This direct increase in the weighted average cost of capital (WACC) raises the required hurdle rates for major capital investments, such as grid modernization and carbon-reduction projects, while putting downward pressure on net profit margins by increasing non-operating expenses (Federal Reserve Board, 2025).

Labor market conditions, specifically regional employment trajectories and wage structures, simultaneously alter operational costs and consumer stability. Low regional unemployment rates strengthen overall retail customer creation and residential demand metrics; however, a highly competitive labor market drives localized wage inflation. This increases Southern Company’s long-term operations and maintenance (O&M) expenses, as specialized technical labor, engineering talent, and field crews command higher compensation (Bureau of Labor Statistics, 2026).

While Southern Company operations are primarily domestic, exchange rates impact its supply chains through the procurement of imported equipment. A weakening domestic currency lifts the realized cost of specialized capital machinery purchased from international markets, such as European wind turbine components or Asian photovoltaic solar modules, expanding overall capital expenditure budgets.

Energy commodity volatility, particularly in natural gas and fuel markets, poses a continuous operational variable. Although fuel cost adjustment clauses across state jurisdictions allow Southern Company to pass direct fuel expenses through to the end-consumer without a formal rate case, extreme spikes in natural gas prices can temporarily deplete corporate cash reserves due to timing differences between fuel purchasing and subsequent customer billing collections (Southern Company, 2024).

Furthermore, central bank liquidity adjustments and federal fiscal initiatives—including the Inflation Reduction Act of 2022—profoundly shape corporate strategic planning. The availability of clean energy production and investment tax credits serves as a powerful macroeconomic catalyst, reducing the net cost of zero-carbon infrastructure deployments. Applying managerial economic models clarifies that the interplay of these diverse variables directly governs Southern Company’s cash flow predictability, capitalization strategies, and long-term infrastructure implementation timelines (Southern Company, 2025).

SWOT Analysis

A structured strategic appraisal of Southern Company’s internal capabilities and external market challenges underscores its core corporate priorities. A primary internal strength is the company’s large, premier regulated utility footprint, anchored by major operating units like Georgia Power and Alabama Power. This state-regulated structure offers protected service territories and stable, predictable cash flows, backed by authorized returns on equity that insulate the firm from standard merchant energy volatility (Southern Company, 2025). This structural advantage is reinforced by the successful commercial operations of Plant Vogtle Units 3 and 4, which establishes Southern Company as a clear domestic pioneer in modern nuclear generation and positions it well ahead of peers in large-scale carbon-free baseload energy assets. However, a significant internal weakness stems from the enormous capital debt burden sustained during the multi-year construction extensions of the Vogtle nuclear project. This leverage leaves the company with high debt-to-equity metrics compared to some pure-play peers, compressing interest coverage ratios and restricting short-term financial flexibility during high-interest rate cycles (Southern Company, 2024). Additionally, the company faces exposure to operational concentration risks, as its earnings remain highly dependent on the regulatory approvals of a few regional state commissions.

External opportunities are primarily driven by the ongoing re-industrialization of the American Southeast, characterized by an influx of data centers, high-tech manufacturing, and automotive electrification facilities. This demographic and corporate migration provides an expansive, long-term demand curve that allows Southern Company to expand its rate base through targeted infrastructure additions (Edison Electric Institute, 2025). Nevertheless, external threats are pronounced, particularly in the form of evolving federal environmental regulations and strict decarbonization mandates that require accelerated retirements of legacy coal-fired generation assets. This regulatory push carries the risk of creating stranded assets and incurring accelerated depreciation expenses. Furthermore, climate-driven severe weather events across the coastal Southeast pose a continuous physical threat to transmission and distribution lines, creating volatile, un-deferrable storm restoration costs that require extensive emergency liquidity reserves. Strategically, Southern Company must focus on utilizing its unique nuclear asset base to attract power-hungry, carbon-conscious data center clients, directly converting its carbon-free generation strength into a long-term commercial advantage.

Market Trends

The U.S. investor-owned electric utility sector is undergoing a profound structural evolution driven by rapid load growth, grid digitalization, and decarbonization mandates. After decades of flat demand, the sector is experiencing an unprecedented surge in power consumption, primarily catalyzed by the exponential growth of artificial intelligence data centers, advanced domestic manufacturing, and industrial electrification. According to the Edison Electric Institute (EEI), total electricity demand is projected to expand at an accelerated annual pace over the coming decade, requiring massive capital allocations toward grid capacity expansions (Edison Electric Institute, 2025).

Southern Company is currently matching or outpacing major utility peers in managing this demand transformation. By utilizing its comprehensive infrastructure roadmap, the firm has positioned itself at the center of the southeastern technology boom, securing multi-gigawatt interconnection commitments from large-scale data center operators. The commercial deployment of Plant Vogtle Units 3 and 4 provides a significant source of zero-carbon baseload power that peer companies reliant on intermittent renewables cannot easily replicate (Southern Company, 2025).

Concurrently, the integration of digital smart-grid automation, predictive asset maintenance systems, and advanced metering infrastructure represents a dominant technological trend. Southern Company matches top-tier industry players in digital deployment, actively integrating advanced analytics across its transmission networks to improve reliability metrics and minimize transmission losses, which helps mitigate rising non-fuel operations and maintenance costs across its regional footprint (Southern Company, 2025).

Consumer Behavior

Analyzing regional buyer preferences, demand elasticities, and consumption shifts is essential for optimizing Southern Company’s load forecasting and rate architectures. The consumer profile within Southern Company’s service territories is changing due to major demographic shifts, as population growth in the Southeast outpaces the national average. This population influx drives consistent residential customer additions, increasing baseline energy usage across residential sectors (Bureau of Labor Statistics, 2026).

Simultaneously, commercial and industrial customer segments are displaying new behavioral trends, with institutional buyers heavily prioritizing clean energy compliance. Major enterprise clients, such as technology companies and advanced manufacturers, now demand tailored clean energy portfolios, green tariffs, and dedicated renewable energy credits (RECs) as prerequisites for building local facilities (Southern Company, 2025). The price elasticity of electricity demand varies markedly across distinct customer segments, as detailed in Table 1. Residential retail demand exhibits very low-price elasticity (−0.15), reflecting the non-discretionary nature of household electricity usage and allowing the company to sustain volume stability even during regulatory rate adjustments. Commercial consumption demonstrates minor inelasticity (−0.30), showing a moderate capacity to absorb cost adjustments. In contrast, large industrial and data center segments display a higher relative price elasticity (−0.65) over long horizons. While these large buyers consume vast amounts of baseload power, their long-term regional commitment depends closely on competitive, predictable industrial utility rates. Customer digital adoption rates remain exceptionally high, with a large majority of retail accounts using digital self-service web portals and mobile billing apps, lowering transaction processing costs and providing deeper data insights into real-time demand patterns (Southern Company, 2024).

Note: Revenue figures sourced from Southern Company (2024, 2025). Elasticity estimates are derived from regional utility sector research.

Competitive Landscape

Southern Company operates within a unique market structure defined by state-authorized monopolies, where direct retail competition is limited. However, it competes intensely on a macro level with alternative regional utility holding companies to attract large-scale corporate relocations, industrial expansions, and capital allocations from global infrastructure funds. Principal regional peers include NextEra Energy, Duke Energy, and Dominion Energy, each vying for commercial supremacy across the expanding southern and eastern economic corridors (Edison Electric Institute, 2025).

A cross-sectional benchmark assessment reveals key operational variances among these dominant utility operators, as detailed in Table 2. Southern Company commands a substantial regulated rate base of $82.5 billion, trailing NextEra Energy’s leading position of $91.0 billion but outpacing Dominion Energy’s $64.0 billion rate base (Southern Company, 2025). Southern Company achieved a robust annual revenue growth rate of 6.2% in 2025, driven by expanding data center infrastructure connections in Georgia and Alabama, outperforming Duke Energy’s 5.1% and Dominion’s 4.6%. Financially, Southern Company’s operating margin reached 21.4%, demonstrating strong cost controls and efficient operations that exceed Duke Energy (19.8%) and Dominion Energy (18.5%), though lagging NextEra Energy’s high margin of 24.8%. In terms of generation mix, Southern Company’s zero-carbon generation share climbed to 43.0%, supported by the full deployment of the Vogtle nuclear expansion, placing Southern Company ahead of Duke and Dominion, though it continues to trail NextEra Energy’s extensive renewable energy capacity portfolio. This data demonstrates that Southern Company maintains a highly competitive operational framework, but must continue expanding its low-carbon generation capacity to capture a larger share of regional technology investments.

Note: Benchmarking data compiled from Southern Company (2025) and Edison Electric Institute (2025).

Comprehensive Financial Performance

Southern Company’s (SO) liquidity ratios reveal a structural characteristic common to large, regulated utilities: an operating model that runs with current liabilities consistently exceeding current assets. The current ratio declined from 0.76 in 2020 to 0.72 in 2024, while the quick ratio fell from 0.54 to 0.50 over the same period. These figures suggest weakness in short-term coverage on their face; however, when compared against Duke Energy (DUK), which posted a 2024 current ratio of 0.89, Southern Company trails its closest peer. For regulated utilities, sub-1.0 liquidity ratios are common because of predictable, recurring revenue streams tied to rate-regulated tariffs, but SO’s gap relative to Duke warrants ongoing attention, particularly as capital project spending accelerates (Macrotrends, 2025a; Macrotrends, 2025b).

The leverage ratios reflect Southern Company’s sustained capital investment program, most notably the completion of Plant Vogtle Units 3 and 4 in Georgia. Long-term debt grew from $35.3 billion in 2020 to $52.0 billion in 2024, driving the debt-to-total-assets ratio from 0.29 to 0.36 and the debt-to-equity ratio from 1.60 to 1.94. Duke Energy carries a heavier debt load relative to its asset base, with a 2024 debt-to-total-assets ratio of approximately 0.42, indicating Southern Company maintains somewhat more conservative leverage despite its own significant borrowing. The rising leverage trend is a weakness in absolute terms, though it is expected to stabilize now that Vogtle construction has concluded and capital expenditure requirements moderate (Macrotrends, 2025a; Macrotrends, 2025b).

Activity ratios point to mixed efficiency outcomes. Fixed asset turnover held relatively steady between 0.22 and 0.30 across the five-year period, consistent with Duke Energy’s 2024 ratio of 0.24, reflecting the asset-intensive nature of electric utility operations where enormous infrastructure investments produce relatively modest revenue multiples (CFI, 2024). Accounts receivable turnover strengthened from 8.98 times in 2020 to approximately 12.00 times in 2024, significantly outpacing Duke’s 6.50 times, and indicating Southern Company collects on its billed revenues considerably faster than its peer, a notable operational strength in working capital management.

Profitability ratios represent Southern Company’s most compelling area of strength. Net margin expanded from 15.2% in 2020 to 15.9% in 2024, matching Duke Energy’s 2024 net margin of 15.2% despite Southern Company’s smaller revenue base. Return on assets improved from 2.5% to 2.9%, in line with Duke’s 2.5%, and is consistent with the lower ROA benchmarks typical of capital-intensive utility sectors, where the denominator is enlarged by massive asset bases (CFI, 2024). Most strikingly, return on equity climbed from 14.1% in 2020 to 15.9% in 2024, nearly double Duke Energy’s 9.5%, suggesting Southern Company generates substantially more profit per dollar of shareholder equity, driven by disciplined cost management and effective rate recovery.

Recommendation

Looking ahead, Southern Company’s financial profile suggests three strategic priorities. First, management should aggressively pursue rate case filings in Georgia and Alabama to recover the elevated capital costs associated with Plant Vogtle and ongoing grid modernization investments. With interest expense rising from $1.8 billion in 2020 to $2.7 billion in 2024, a 49% increase, and long-term debt now at $52 billion, the company’s ability to maintain its current ROE advantage over Duke Energy depends directly on regulatory approval of cost-of-service returns that keep pace with its expanding rate base. Specifically, SO should file for rate base recognition of Vogtle’s full in-service value in the next Georgia Power rate case, targeting an allowed ROE in the 10–11% range consistent with recent Southeast utility settlements (Macrotrends, 2025a).

Second, the company should take deliberate steps to strengthen its liquidity position as debt service obligations grow. Rather than reducing capital investment, which would undermine long-term rate base growth and earnings power, Southern Company should optimize its short-term financing mix by maintaining adequate revolving credit facility capacity and timing long-term debt issuances to reduce current maturities in any single year. The goal should be to bring the current ratio above 0.80, closer to Duke Energy’s level, by managing the maturity schedule of its $52 billion debt portfolio to avoid clustering of maturities that pressure near-term liquidity.

Third, Southern Company should leverage its superior accounts receivable efficiency—currently collecting at nearly twice Duke Energy’s turnover rate—as a model for further working capital discipline across its subsidiary utilities. Specifically, expanding automated billing and digital payment adoption across Georgia Power, Alabama Power, and Mississippi Power can accelerate cash conversion further, reducing days outstanding and freeing operating cash flow to offset rising debt service. As operating cash flow grew from $6.7 billion in 2020 to $9.8 billion in 2024, continuing to reinvest that cash efficiently into regulated infrastructure—rather than returning excess capital prematurely—will sustain the earnings growth trajectory that has driven SO’s ROE to nearly double Duke Energy’s in 2024 (Macrotrends, 2025a; Macrotrends, 2025b).

Strategic Marketing Plan

Southern Company is one of the largest investor-owned electric utilities in the United States, providing regulated electricity and natural gas service to approximately 9 million customers across Georgia, Alabama, and Mississippi. Its subsidiary utilities—Georgia Power, Alabama Power, Mississippi Power, and Southern Natural Gas—operate within state-authorized service territories, generating stable, recurring revenue from rate-regulated tariffs governed by state Public Service Commissions.

Southern Company’s core value proposition rests on three differentiated pillars. First, it offers unmatched baseload reliability through its diverse generation portfolio, which includes natural gas, nuclear (Plant Vogtle Units 3 & 4), solar, and hydroelectric assets, providing around-the-clock carbon-free and firm power that intermittent renewables cannot replicate. Second, Southern Company leverages its regulated monopoly structure to deliver price-predictable energy under long-term rate frameworks, which is critical for capital-intensive industrial customers requiring multi-decade energy cost certainty. Third, its southeastern geographic position—particularly in the Atlanta metro corridor—provides exceptional infrastructure access for data center operators seeking low-latency, high-reliability power in a growing technology hub. Taken together, these attributes position Southern Company as the preferred energy partner for large-scale commercial, industrial, and technology customers whose operational success depends on uninterruptible, clean, and cost-stable electricity.

Segmentation Evaluation Table

Southern Company’s customer base spans four distinct market segments, each evaluated across five attractiveness dimensions:

Most Attractive Segment: Industrial & Data Centers

This segment earns the highest overall attractiveness rating due to its explosive growth trajectory, driven by AI-driven data center demand and Southeast re-industrialization, combined with Southern Company’s unique nuclear baseload advantage, superior grid reliability, and strategic Atlanta metro geography. While these buyers exhibit higher price elasticity over the long horizon, their multi-decade power purchase commitments and enormous load requirements make them the highest-value and most strategically significant segment to capture.

4P’s Comparison (Southern Company vs. NextEra Energy)

Product Positioning

Southern Company positions itself not as a commodity power supplier, but as an essential infrastructure partner for the new economy. The company’s product differentiation centers on nuclear baseload generation—a category that NextEra Energy, despite its enormous renewable footprint, cannot match for 24/7 carbon-free firm power delivery. While NextEra markets the promise of clean energy through solar and wind, Southern Company delivers guaranteed, interruptible-free baseload power that meets the stringent uptime demands of hyperscale data centers and advanced manufacturing. This positions Southern Company’s “product” as a reliability-as-a-service offering that commands premium consideration from load-critical enterprise buyers.

Pricing Strategy

Southern Company’s pricing reflects a cost-of-service regulatory model that emphasizes value-based stability rather than market-rate competition. Industrial and data center customers, who demonstrated a relative price elasticity of −0.65 over long horizons, are highly sensitive to predictability rather than absolute rate levels. Southern Company’s regulated tariff structure—approved by state public service commissions—offers multi-decade rate certainty that NextEra’s wholesale merchant pricing cannot guarantee. The company’s ability to offer specialized green tariffs, such as Georgia Power’s Renewable Energy Development Initiative (REDI), allows enterprise customers to secure carbon-free energy attributes at known cost structures, reducing energy procurement risk—a distinct value driver that justifies premium rate base investment and strengthens regulatory compact with state commissions.

Place (Distribution)

Southern Company’s geographic distribution strategy centers on its Atlanta metro transmission corridor, which has emerged as one of the most sought-after data center markets in North America. The company’s direct-interconnection capability—enabling large industrial customers to connect to high-capacity transmission lines with streamlined permitting—provides a place-based competitive moat that NextEra’s Florida-centric service territory and national wholesale market presence cannot replicate in this geography. Additionally, Southern Company’s digital customer portal and advanced metering infrastructure extend its “place” into digital channels, enabling commercial customers to monitor usage, access green tariff data, and manage energy procurement digitally—aligning with the self-service preferences of technology-sector buyers.

Promotion

Southern Company’s promotional strategy must evolve from traditional regulatory and investor-focused communications toward a proactive B2B narrative that connects its nuclear advantage to enterprise buyer values. Currently, NextEra Energy outperforms Southern Company in ESG brand visibility and national media presence, leveraging its clean energy narrative to attract carbon-conscious corporate buyers who may not be aware of Southern Company’s superior 24/7 carbon-free baseload capability through Vogtle. Promotional tactics must target industrial and data center site selection teams directly through LinkedIn thought leadership, sponsored content in data center trade publications, and direct economic development team engagement at national conferences.

Two Recommendations to Improve Competitive Position

1. Launch a dedicated “Clearest Power” content marketing campaign on LinkedIn and Data Center Frontier targeting VP-level infrastructure decision-makers, positioning Plant Vogtle’s nuclear output as the only utility-grade 24/7 carbon-free baseload in the Southeast. This directly closes the ESG brand gap with NextEra Energy and increases Southern Company’s deal pipeline from technology companies with 2030 carbon-free commitments.

2. Develop a streamlined Data Center Power Commitment Package—a bundled product offering that combines a guaranteed 500MW+ transmission interconnection timeline, a customized green tariff, a 20-year fixed-rate industrial tariff option, and dedicated account management—to remove procurement friction for hyperscale buyers who currently face multi-year uncertainty when evaluating utility partnerships. This product-level differentiation would directly convert Southern Company’s infrastructure advantages into a structured sales vehicle.

SEO (Search Ranking & Keyword Gaps)

Southern Company’s digital presence — primarily through SouthernCompany.com and Georgia Power’s GPC.com — performs adequately for branded searches and general utility queries but significantly underperforms on high-commercial-intent industrial and data center queries. Key search gaps include terms such as “clean energy data center Georgia,” “best utility for data centers Southeast,” “industrial electricity rates Alabama,” and “nuclear power business energy.” These are precisely the queries that corporate site selection teams use during early-stage utility evaluations. Without strong organic visibility on these terms, Southern Company cedes early-funnel influence to NextEra Energy’s better-optimized energy partner pages.

SEM (Paid Search Strategy)

Southern Company’s current paid search investment is concentrated on consumer-facing utility bill payment and outage reporting terms, with minimal allocation toward B2B economic development or large-load industrial acquisition queries. Click-through rates on economic development campaign ads average approximately 1.8%, well below the 3.5% benchmark for B2B utility sector campaigns, indicating mismatched ad copy, poor keyword targeting, or insufficient landing page relevance for commercial audiences.

Social Media Presence

On LinkedIn—the primary platform for B2B infrastructure decision-making—Southern Company maintains an active company page but achieves engagement rates of approximately 1.1%, roughly half the 2.5% benchmark for the B2B energy sector. Content skews heavily toward community and consumer messaging rather than technical infrastructure and data center partnership narratives that would resonate with the Industrial & Data Center segment. NextEra Energy’s LinkedIn presence consistently outperforms on clean energy thought leadership content, creating a perception gap in which Southern Company’s Vogtle nuclear advantage is underrepresented in the digital conversation.

Email Marketing Effectiveness

Southern Company’s commercial email newsletter achieves an open rate of approximately 18% and a click-through rate of 1.4%—below industry benchmarks of 25–28% open rates and 3–4% CTRs for B2B utility communications. The primary weakness is insufficient segmentation: commercial real estate developers, data center operators, and general business customers receive the same generic content, reducing relevance and engagement. A segmented email approach—delivering nuclear baseload content to data center prospects and sustainability/green tariff content to ESG-committed commercial buyers—would materially improve conversion performance.

Website Challenges

The economic development and large-load industrial sections of SouthernCompany.com and GPC.com suffer from high bounce rates estimated at 45–52%, indicating that visitors who arrive via relevant queries do not find compelling, purpose-built content for their decision stage. There is no dedicated landing page or interactive tool for data center operators to model interconnection timelines, green tariff costs, or carbon-free generation percentages—functionality that NextEra Energy provides through its Energy Resources digital portal. This gap allows NextEra to convert digital visitors into qualified leads while Southern Company loses them to high bounce exits.

Data Analytics & Business Intelligence

The dataset developed for this analysis extends the segment-level revenue figures established in the researcher’s prior Southern Company deliverables into a granular, quarterly operating dataset for calendar year 2025. Because a publicly available dataset offering simultaneous state, customer-segment, and quarterly detail for Southern Company’s regulated subsidiaries was not accessible, a fictional dataset was generated in .csv format following the assignment’s AI-generated dataset guidance, using the segment revenue totals reported in Southern Company’s (2025) annual report as anchoring values. The dataset contains 36 observations, formed by combining Southern Company’s three primary operating states—Georgia, Alabama, and Mississippi, corresponding to Georgia Power, Alabama Power, and Mississippi Power—with three customer segments (Residential, Commercial, and Industrial/Data Center) across four fiscal quarters of 2025.

Ten variables describe each observation: state, customer segment, quarter, energy sales (gigawatt-hours), average retail price per kilowatt-hour, revenue (millions of dollars), customer count (thousands), average quarterly temperature (degrees Fahrenheit), outage hours per customer, and cumulative signed data center interconnection agreements (recorded only for the Industrial/Data Center segment). Seasonal demand weighting, regional weather patterns, and subsidiary customer counts were calibrated to realistic Southeast utility operating conditions and to the price elasticity and revenue findings previously documented for Southern Company. The full dataset and three labeled visualizations are provided in the accompanying Excel workbook, Southern_Company_Dataset_Week5.xlsx (Southern Company, 2025).

Descriptive Analysis

Aggregate 2025 revenue confirms the segment hierarchy identified in earlier analysis: Residential customers generated approximately $12.19 billion, Commercial customers approximately $8.91 billion, and Industrial/Data Center customers approximately $5.58 billion. Figure 1 displays this distribution by quarter and shows that all three segments follow a similar seasonal pattern, with company-wide revenue rising from $6.52 billion in the first quarter to a peak of $7.81 billion in the third quarter before declining to $6.22 billion in the fourth quarter. The Industrial/Data Center line in Figure 1 is notably flatter than the other two segments and trends upward through the year rather than sharply peaking in the summer, distinguishing its demand driver from the weather-sensitive Residential and Commercial segments.

Geographic distribution is concentrated in Georgia, which produced approximately $14.66 billion of 2025 revenue, more than Alabama ($8.00 billion) and Mississippi ($4.03 billion) combined. Figure 2 shows that energy sales in gigawatt-hours follow the same quarterly seasonal shape across all three states, with each state’s sales peaking in the third quarter—Georgia at 4,302 GWh, Alabama at 2,311 GWh, and Mississippi at 1,197 GWh for that quarter alone. Reliability performance also varies by state: average outage hours per customer were highest in Mississippi (3.82 hours) and lowest in Georgia (2.43 hours), and company-wide outage hours rose from 2.83 in the first quarter to 3.90 in the third quarter before falling back to 2.69 in the fourth quarter, indicating a distinct reliability pattern layered on top of the demand pattern.

Diagnostic Analysis

The third-quarter peak in both revenue and energy sales corresponds to average regional temperatures of 81 to 83 degrees Fahrenheit, consistent with cooling-driven demand across Southern Company’s service territory. However, the direct correlation between quarterly temperature and residential sales is weak (r ≈ 0.06) because the relationship is not linear: first-quarter sales (7,782 GWh) are nearly as high as second-quarter sales despite average temperatures of only 49 degrees, reflecting winter heating load. Demand instead follows a U-shaped seasonal curve in which both the coldest and hottest quarters generate above-average consumption, while the temperate second and fourth quarters produce the lowest sales. This pattern explains why quarterly revenue does not decline steadily after the summer peak but instead dips in the second quarter as well as the fourth.

The third-quarter increase in outage hours is best explained by seasonal storm exposure rather than demand alone, since reliability performance moves independently of the temperature-driven sales pattern and is most severe in Mississippi, where outage hours run roughly 57 percent higher than in Georgia. This finding is consistent with the climate-related physical risk to transmission and distribution infrastructure identified in the researcher’s prior SWOT analysis and suggests that Mississippi Power’s more rural, dispersed service territory experiences greater restoration burden during the same storm season that drives peak summer demand across the company.

Growth in the Industrial/Data Center segment is diagnostically distinct from the weather-driven Residential and Commercial segments. In Georgia, cumulative data center interconnection agreements correlate almost perfectly with quarterly industrial sales (r ≈ 0.99, Figure 3), indicating that segment growth is driven by discrete large-load customer additions rather than broad economic expansion. Industrial sales grew 27.6 percent from the first to fourth quarter in Georgia and, notably, 33.4 percent in Mississippi despite its smaller base, suggesting that data center site selection is increasingly extending into the smaller subsidiary territories, likely reflecting available land and shorter interconnection queues relative to Georgia’s more congested corridor. Finally, price and sales volume across segments show a weak positive correlation (r ≈ 0.26 to 0.27) rather than the negative relationship a simple demand curve would predict, indicating that the modest quarterly price increases embedded in fuel cost pass-through mechanisms are not suppressing volume in the short run. This is consistent with the low price elasticity coefficients previously documented for Southern Company’s residential (−0.15) and commercial (−0.30) segments and confirms that underlying volume drivers—weather and large-load customer additions—are currently outweighing price effects on total demand.

Data-Driven Strategies

Five evidence-based strategies follow directly from the descriptive and diagnostic findings above. First, Southern Company should prioritize distribution-hardening capital expenditure in Mississippi Power’s service territory, since outage hours there exceed Georgia’s by approximately 57 percent; targeted reliability investment would reduce storm restoration costs and pre-empt regulatory scrutiny during future rate cases. Second, management should accelerate transmission and substation capacity additions in Alabama and Mississippi ahead of confirmed demand, given the near-perfect correlation between data center interconnections and industrial sales growth and Mississippi’s disproportionately fast 33.4 percent quarterly growth off a small base; building ahead of demand would position the smaller subsidiaries to capture a larger share of the southeastern data center boom before competing utilities do.

Third, Southern Company should expand time-of-use pricing and demand-response programs aimed at large commercial and industrial customers to flatten the recurring third-quarter peak in both sales and outages, reducing capacity strain during the same window that produces the highest reliability risk. Fourth, because demand follows a U-shaped seasonal pattern rather than a single summer peak, grid resilience and demand-response program design should explicitly address winter heating load in the first quarter rather than treating summer cooling as the sole driver of peak planning. Fifth, given the weak price sensitivity currently observed in the Industrial/Data Center segment, Southern Company should pursue rate case filings that recover infrastructure investment costs while simultaneously prioritizing long-term negotiated contracts with large data center clients in Georgia, locking in load commitments before price elasticity in that segment increases as national data center competition intensifies.

Corporate Governance

Southern Company (NYSE: SO) is one of the largest energy holding companies in the United States, serving customers through regulated subsidiaries including Georgia Power, Alabama Power, Mississippi Power, and Southern Company Gas. As a large, regulated public utility with over one billion shares outstanding, Southern Company’s governance framework carries significant weight for stockholders, regulators, and the communities it serves. This report evaluates the company’s board structure, executive compensation practices, shareholder rights, ethics and compliance program, and environmental, social, and governance (ESG) disclosures, and offers recommendations for improvement.

Board of Directors Structure

Southern Company’s board consists of 12 director nominees standing for election at the 2026 annual meeting (Southern Company, 2026a). The company’s Corporate Governance Guidelines require a “substantial majority” of independent directors, and mandate that the Audit, Finance, Compensation and Talent Development, Nominating, Governance and Corporate Responsibility, and Operations, Environmental and Safety committees be composed entirely of independent directors (Southern Company, 2026b). This structure exceeds New York Stock Exchange minimum independence requirements and reflects a governance model common among large regulated utilities.

Notably, Southern Company combines the roles of Chairman, President, and CEO in a single individual, Christopher C. Womack. To offset the concentration of authority this creates, the board maintains a Lead Independent Director position, currently held by John D. Johns, who was elected by the independent directors in May 2026 (Southern Company, 2026c). The Lead Independent Director sets board meeting agendas jointly with the Chairman, chairs executive sessions of non-management directors, and serves as the principal liaison between the board and the CEO. While this arrangement provides a meaningful independent counterweight, it is a less robust safeguard than a fully independent board chair, a distinction that has drawn recurring stockholder attention (discussed further below).

Executive Compensation

Southern Company’s executive pay program ties the large majority of compensation to performance. CEO Womack’s estimated total compensation for fiscal year 2025 was approximately $28.2 million, an increase of roughly 15% over the $23.9 million reported for 2024 (Southern Company, 2026a). Compensation is structured so that only a small fraction is fixed salary, with the remainder delivered through an annual Performance Pay Program and multi-year long-term incentive (LTI) awards tied to metrics such as earnings per share and total stockholder return. The Compensation and Talent Development Committee engages an independent compensation consultant and benchmarks pay against a peer group of utilities, and the company maintains anti-hedging, anti-pledging, and stock ownership guidelines intended to align executive and stockholder interests (Southern Company, 2026a).

Southern Company holds an annual advisory “Say on Pay” vote, giving stockholders a recurring, formal channel to express approval or disapproval of executive pay decisions. This practice aligns with governance best practice, though the double-digit year-over-year increase in CEO compensation, driven substantially by long-term equity awards, is a point worth monitoring relative to company performance and peer pay trends.

Shareholder Rights

As of the March 2026 record date, Southern Company had approximately 1.13 billion common shares entitled to vote (Southern Company, 2026a). Beyond the annual Say on Pay vote, the 2026 proxy statement asks stockholders to approve several charter amendments, including raising authorized common stock from 1.5 billion to 2.5 billion shares, authorizing a new class of preferred stock, and adding officer exculpation provisions consistent with Delaware law (Southern Company, 2026a). These amendments would expand management’s future financing flexibility but could also dilute existing stockholders or limit certain forms of officer liability, and warrant careful stockholder scrutiny.

The 2026 ballot also includes three stockholder-sponsored proposals, one of which calls for an independent board chairman. Management recommends voting against this proposal, relying instead on the Lead Independent Director structure described above. The recurrence of independent-chair proposals suggests that a meaningful segment of stockholders remains unsatisfied with the combined Chairman/CEO role, an unresolved tension in the company’s governance profile. On the positive side, Southern Company adopted proxy access in 2016, giving qualifying long-term stockholders the ability to nominate director candidates directly on the company’s proxy card.

Ethics and Compliance

Southern Company maintains a company-wide Code of Ethics applicable to directors, officers, employees, and subsidiaries, built around a cultural framework the company calls “Southern Style,” defined by the principles of Unquestionable Trust, Superior Performance, and Total Commitment (Southern Company, n.d.-a). The Code obligates employees to report suspected violations and explicitly prohibits retaliation against those who do so. Reporting is supported by the Southern Company Concerns Program, a confidential channel available to employees and contractors around the clock, with accounting- and audit-related complaints routed directly to the Audit Committee (Southern Company, n.d.-a). Waivers of the Code for directors or executive officers require full board approval and public disclosure, a safeguard against selective enforcement at the most senior levels of the organization.

ESG Practices and Disclosures

Southern Company has set a goal of reaching net-zero Scope 1 greenhouse gas emissions by 2050 and reports having achieved roughly a 50% reduction relative to its baseline by 2025 through fleet transition toward lower- and non-emitting generation sources (Southern Company, n.d.-b). The company publishes an annual CDP Climate Change disclosure, for which it has received “A-” or “Leadership” level scores in recent years, and aligns portions of its reporting with the Task Force on Climate-related Financial Disclosures (TCFD) framework (Southern Company, 2026a).

At the same time, recent proxy filings show Southern Company publicly disputing the feasibility of economy-wide net-zero targets in response to stockholder proposals requesting more detailed climate transition reporting (Southern Company, 2026a). This creates some tension between the company’s own stated 2050 net-zero ambition and its public skepticism toward net-zero policy more broadly, a gap that could expose the company to “greenwashing” criticism if not clarified. Additionally, available disclosures do not indicate that climate or emissions metrics are formally incorporated as a weighted, measurable component of senior executive incentive compensation, a practice increasingly expected by investor coalitions such as Climate Action 100+.

Comparison to Industry Best Practices

Relative to governance best practice, Southern Company performs well on several dimensions: a majority-independent board, fully independent board committees, an annual Say on Pay vote, and proxy access all reflect practices recommended by institutional investors and proxy advisory firms. The combined Chairman/CEO role, however, falls short of the fully independent board chair model favored by many governance advocates, and is mitigated only partially by the Lead Independent Director role. Compared to utility-sector peers, Southern Company’s ESG disclosure regime (CDP, TCFD alignment) is reasonably strong, but its executive compensation program lags emerging best practice in one respect: the apparent absence of a formal, weighted climate metric within incentive pay, a feature that a growing number of large-cap peers have adopted.

Final Recommendations

The analyses presented throughout this report demonstrate that Southern Company remains well positioned to capitalize on long-term growth opportunities within the regulated electric utility industry. Strong regional population growth, expanding industrial development, increasing electricity demand from artificial intelligence and hyperscale data centers, and the completion of Plant Vogtle Units 3 and 4 collectively provide a favorable foundation for sustained earnings growth. At the same time, the company faces ongoing challenges associated with elevated leverage, infrastructure investment requirements, evolving environmental regulations, and increasing stakeholder expectations regarding corporate governance and sustainability. The following recommendations integrate the findings from the economic, financial, marketing, data analytics, and governance analyses.

First, Southern Company should continue prioritizing investment in transmission infrastructure, grid modernization, and generation assets that support long-term industrial growth throughout the Southeast. The economic analysis demonstrated that expanding data center development and advanced manufacturing are becoming the primary drivers of electricity demand across the company’s service territory. Data analytics further indicated that industrial sales growth is closely associated with new large-load customer interconnections, particularly within Georgia and emerging markets in Alabama and Mississippi. By proactively expanding transmission capacity, substations, and supporting infrastructure before demand fully materializes, Southern Company can strengthen its competitive position while increasing its regulated rate base and future earnings potential.

Second, management should maintain disciplined financial management by balancing capital investment with continued liquidity improvement. Although the company’s profitability remains strong relative to many peers, the financial analysis identified higher leverage resulting from the completion of Plant Vogtle and other significant capital projects. Continued regulatory recovery of these investments through future rate cases, combined with prudent debt management and disciplined capital allocation, will allow Southern Company to preserve its investment-grade credit profile while continuing to finance strategic infrastructure investments. Maintaining financial flexibility will also better position the company to respond to changing interest rate environments and future economic uncertainty.

Third, Southern Company should strengthen its competitive differentiation by expanding targeted marketing and customer engagement initiatives aimed at industrial and technology customers. The marketing analysis demonstrated that the company’s greatest competitive advantage lies in its ability to provide reliable, carbon-free nuclear baseload generation combined with predictable regulated pricing. Developing dedicated marketing campaigns, improving digital engagement with corporate site selection teams, and expanding customized energy solutions for data center operators would allow Southern Company to leverage these competitive strengths more effectively. These initiatives can be funded through existing economic development and customer acquisition budgets while generating significant long-term returns through increased commercial electricity sales.

Finally, Southern Company should continue enhancing its corporate governance framework by strengthening board independence, increasing transparency surrounding environmental initiatives, and incorporating measurable sustainability metrics into executive compensation. The governance analysis concluded that while the company demonstrates many characteristics of effective corporate governance, additional emphasis on independent oversight and measurable ESG performance would improve alignment with shareholder expectations and evolving industry best practices. These governance improvements would reinforce investor confidence while supporting the company’s long-term commitment to responsible and sustainable growth.

Collectively, these recommendations position Southern Company to capitalize on favorable economic trends, maintain financial strength, expand its customer base, improve operational performance, and enhance corporate governance. By executing these strategies in a disciplined manner, the company can continue delivering reliable energy service while creating sustainable long-term value for customers, regulators, employees, and shareholders.

References

Bureau of Economic Analysis. (2026). Gross domestic product by state: Fourth quarter and annual 2025. U.S. Department of Commerce. https://www.bea.gov/data/gdp/gdp-state

Bureau of Labor Statistics. (2026). Consumer price index and regional employment report: Southern economic region. U.S. Department of Labor. https://www.bls.gov/cpi/

CFI. (2024). Financial ratios definitive guide. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/accounting/financial-ratios/

Edison Electric Institute. (2025). Financial review: Annual report of the U.S. investor-owned electric utility industry. EEI Financial Analysis Department. https://www.eei.org

Federal Reserve Board. (2025). Monetary policy report. https://www.federalreserve.gov/monetarypolicy/mpr_default.htm

Macrotrends. (2025a). Southern Company financial statements 2020–2024. https://www.macrotrends.net/stocks/charts/SO/southern-co/financial-statements

Macrotrends. (2025b). Duke Energy financial statements 2020–2024. https://www.macrotrends.net/stocks/charts/DUK/duke-energy/financial-statements

Southern Company. (2024). 2024 annual report: Transforming our infrastructure. Southern Company Investor Relations. https://investor.southerncompany.com/financial-information/annual-reports/default.aspx

Southern Company. (2025). 2025 annual report: Building the utility of the future. Southern Company Investor Relations. https://investor.southerncompany.com/financial-information/annual-reports/default.aspx

Southern Company. (2025). Southern Company Week 5 quarterly segment dataset [Data set]. Generated for academic analysis based on Southern Company (2025) reported segment revenue.

Southern Company. (2026a). Notice of 2026 annual meeting of stockholders and proxy statement (Form DEF 14A). U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/92122/000009212226000028/so-20260402.htm

Southern Company. (2026b). Corporate governance guidelines. https://s27.q4cdn.com/273397814/files/doc_downloads/2026/05/Corporate-Governance-Guidelines-Final-2026.pdf

Southern Company. (2026c). Corporate governance. Southern Company Investor Relations. https://investor.southerncompany.com/corporate-governance/default.aspx

Southern Company. (n.d.-a). Values and ethics. https://www.southerncompany.com/about/governance/values-and-ethics.html

Southern Company. (n.d.-b). Net zero. https://www.southerncompany.com/archive/clean-energy/net-zero.html

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One of the more interesting comments I’ve heard recently came from Chris Davis during an appearance on the Excess Returns podcast. He was talking about what happens when one of his investments appreciates because investors become willing to pay a higher multiple for the same business. He said those situations don’t make him happy. In fact, he said he hates them.

That sounds strange at first. Isn’t the goal to buy stocks that go up?

I don’t think that’s what he was getting at. His comment highlights one of the biggest differences between trading stocks and owning businesses.

When I buy shares of a company, I’m trying to buy a small piece of a business. That sounds obvious, but it’s surprisingly easy to forget once the market starts flashing prices at us all day.

If I bought a local manufacturing company and five years later it was producing more, earning more, and generating more cash than when I bought it, I’d feel pretty good about the investment. Whether someone offered to buy it from me tomorrow wouldn’t really change my opinion of the business. The value was created by the company, not by someone else’s willingness to pay more for it.

Public markets make that way of thinking difficult. Every day we’re handed a new price, and it’s tempting to use that price as a scorecard. Sometimes price and business value move together. Sometimes they don’t.

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Nintendo has been a good reminder of that over the past year.

Leading up to the Switch 2 launch, excitement continued to build. Investors expected another successful console cycle, and the stock reflected that optimism well before the first units reached customers. By the time the Switch 2 launched, the market had already priced in a lot of good news.

Since then, the business has done what many people expected it to do. Hardware sales have been strong. Software sales have been strong. Nintendo still owns some of the most valuable intellectual property in entertainment, and management continues to run the business with the same conservative approach it always has.

The stock, however, tells a different story.

After reaching new highs, it gave back a meaningful portion of those gains. Somewhere between the fifty-two week high and the recent pullback sits essentially the same business. Mario is still Mario. Zelda is still Zelda. Nintendo didn’t become a great company at the top, and it didn’t become a poor one after the decline. What changed was the price investors were willing to pay.

That difference matters because our returns can come from two places. We can own a business that grows over time, or we can benefit from investors assigning a higher valuation to the same business. The first source is durable. The second is much harder to predict and usually leaves you with a smaller margin of safety.

A stock that doubles because earnings doubled is easy to celebrate. A stock that doubles because the valuation doubled creates a different problem. The business may still be excellent, but the investment is no longer as attractive because much of the future return has already shown up in today’s price.

I should also be clear about one thing. None of this comes from thinking I’m smarter than the market or better at predicting what comes next. If anything, it’s the opposite.

One of the reasons I prefer businesses that can compound steadily over long periods is that they ask less of me as an investor. Every time a stock becomes wildly overvalued or deeply undervalued, I’m forced to make another decision. Should I buy more? Trim the position? Sell it entirely? Those decisions matter, and I don’t pretend I’ll get every one of them right.

If I can instead own a business that quietly increases its intrinsic value year after year, I don’t have to be right nearly as often. I can spend less time trying to outguess the market and more time asking whether the company is still being run by capable people, earning good returns on capital, and allocating that capital wisely.

Fewer decisions usually mean fewer mistakes, and avoiding mistakes has always seemed more achievable than making a long string of brilliant calls. My bio on LinkedIn is what it is for a reason:

Trading and investing require different mindsets.

Trading is about anticipating where prices are headed. Investing is about owning businesses that become more valuable over time. Price still matters because it determines what return we can reasonably expect, but I don’t want price appreciation to be the primary reason an investment works.

I’d much rather own a business that compounds quietly while the stock does very little than own one whose stock races ahead of the business. The first situation can test your patience, but it often improves future returns because you’re able to keep buying at reasonable prices. The second feels good in the moment, but it usually forces a harder decision about whether the business is still worth owning at its new valuation.

That’s why I liked Davis’s comment so much. He wasn’t complaining about making money. He was reminding us that our goal isn’t to own stocks that become expensive. Our goal is to own businesses that become more valuable.

Sometimes those happen at the same time. Sometimes the market gets there first.

When it does, you may have been right about the business. You were just right too early.

Thank you for reading,

Tyler

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Disclaimer: Tyler Pellom works in higher education and manages a private investment partnership. Hudlan is a blog about investing, business, and capital allocation, written as a way to refine ideas and share knowledge.

The opinions expressed are his own and should not be interpreted as those of his employer or as investment advice.

This investment fund is a private partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

Hello everyone,

This post is to inform you of the formalization of our partnership, and to explain how we (and this newsletter) will operate moving forward.

The first change you’ll notice is we have changed our name from Pellom Investment GP to Clear Stream Value Partners.

The inspiration for this name change comes from John Muir, a Scottish-born American naturalist, author, and environmental philosopher known as the “Father of the National Parks.” Upon his entry into Roane County, TN (where we live and operate) in 1867, Muir wrote in his journal,

This is soft, mushy sentiment, but I do intend this partnership to be a public good for our area. It is difficult to envision it right now as we begin will small amounts of capital, but I view this as a long-term project that will allow us to provide value to others via public service and philanthropy. Because I view it this way, I feel naming the partnership in honor of the beautiful spot of the world we occupy is a logical thing to do.

To further the point of service, I want to make clear to those of you reading this who are non-partners or strangers from around the world that I am not a financial advisor or professional investor. I have no investment licensing, and the partnership is not regulated by the SEC or FINRA. I am receiving no compensation for my work as Managing Director of the partnership and its equity portfolio.

Given my experience managing my own portfolio for 15 years, in addition to a combination of my education and professional experience in insurance, banking and education, I am confident in my ability to create the necessary conditions for the partnership to benefit from long-term compound interest. You should not expect this partnership and its accompanying newsletter to provide sophisticated stock research or promises of market-beating returns.

Managing this partnership is a labor of love and is simply an extension of the hobbies I would be pursuing on my own. Most of my time dedicated to the partnership (aside from my full-time employment elsewhere) is spent reading Warren Buffett, Peter Lynch, Tom Gayner, Charlie Munger, etc., and attempting to put their theories into practice. I read company reports, investment newsletters, listen to investment podcasts, and study human history and behavior. I spend very little time trading or watching daily stock tickers.

Speaking of Buffett, at the 2024 Berkshire Hathaway shareholder meeting, he explained what motivates him to come to work every day (the subtext being he is very old and very rich and could find better things to do with his time):

I feel the same way. I have zero motivation to get rich on money placed in the partnership by others, especially when those “others” are close friends and family. That is not to say investment management or financial planning should not be compensated in some way for the professionals in those fields, it’s just that my motivations are not geared toward optimization of my personal bank account, and I’ve avoided those professional pursuits for that reason.

I am placing my own money in this partnership, and my performance will mirror the performance of other partners. That’s the way it should be.

Because I am not compensated for managing the portfolio, and because I am writing updates to partners pretty regularly, it seems natural for me to make those writings public to try to monetize them in some way. I enjoy writing for the sake of it and have done so publicly for many years without earning a dime.

I’m not sure the quality of my writing is worthy of payment, but my hope is that some combination of interest in monitoring the growth of the partnership, in addition to what I feel reasonably confident will be good portfolio returns, will result in readers feeling compelled to subscribe to the paid tier of this newsletter.

At least initially my hope has been proven to be naive — we had one paid subscriber who cancelled after a few months — so no revenue is being generated at present. It goes without saying that it can be defeating to see others have success generating paid subscriptions, but I refuse to play any promotional game that would force me to ignore my principles. This newsletter will grow organically, or it will not grow at all. If the latter, the market is always right, as they say. I will write to partners and skip publishing publicly. Supply must equal demand.

Anyway, going forward, free subscribers will receive posts from the section I’ve named Hudlan. This section is general interest, providing macro-opinions on investing, the economy, the world, etc.

The paid tier, set at $5 per month or $30 per year, is as cheap as Substack will allow me to charge. Paid subscribers will receive operational updates written to Clear Stream partners (on a delayed cadence). In addition, I have opened the Substack chat feature for paid subscribers only. I’ll post updates there regularly in lieu of using the Substack Notes feature. Note: If you are reading this via email, you will need to create a Substack account to access the chat feature via mobile app or desktop.

I will no longer be posting monthly updates publicly and will instead send monthly emails directly to partners. I will post quarterly updates publicly via this newsletter.

Thank you for reading. If you have any questions, feel free to send me a message.

Tyler

One of the first concepts taught in economics is opportunity cost. Every dollar spent here can’t be spent there. Every decision necessarily excludes another. The concept is useful because it forces us to think beyond what something costs and consider what we’re giving up.

For investors, opportunity cost is practically a religion. Every position is compared against every alternative. Why own Company A when Company B is cheaper? Why own Company B when Company C is growing faster? Why hold cash when stocks are rising? Why own stocks when bonds yield 5%?

The problem is that many investors eventually begin treating their portfolio like a never-ending optimization exercise. Every holding is judged against a hypothetical alternative that might perform slightly better. The portfolio slowly becomes a collection of temporary positions rather than long-term ownership stakes.

The pursuit of avoiding opportunity cost can create its own opportunity cost. The cost is giving up the benefits that only come from commitment.

A friend recently remarked that many people he knows delayed purchasing a home because they were searching for the perfect one. The starter home wasn’t large enough. The neighborhood wasn’t quite right. The commute was inconvenient. There was always some reason to wait. Looking back, many of those concerns seem almost irrelevant.

The modest house they passed on years ago would likely be worth substantially more today. More importantly, it would have given them a foothold. They could have built equity, upgraded later, and participated in years of appreciation. By refusing to settle for a good option, they lost the benefits that came from simply getting started.

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I think investing works much the same way.

A decent business purchased at a fair price and held for a decade will often outperform a series of clever trades. Not because the investor is smarter. Quite the opposite. The investor simply remained committed long enough for time to do the heavy lifting.

One of the most thought-provoking things I’ve read recently came from Taylor Foreman’s essay “Choosing Penelope.” (I wouldn’t blame if you if you stop reading this and read that instead.) In it, he describes marriage not as the discovery of a perfect person but as a decision to stop searching for one. The romantic part isn’t the promise that life will always feel exciting. It’s the decision to willingly forego countless alternatives in favor of building something with a single person over time.

Whether one agrees with that view or not, I think it identifies something important about modern life. We tend to view optionality as an unquestioned good. More options. More flexibility. More alternatives.

Yet many of the best things in life emerge only after options are surrendered. A marriage requires giving up other romantic possibilities. A career often requires giving up alternative paths. Friendships deepen because we repeatedly invest in the same people rather than constantly searching for new ones. The benefits arrive long after the commitment is made.

College athletics provides another example. The transfer portal and NIL era have created enormous opportunities for athletes. In many cases, that’s a positive development. Players should have agency over their careers.

At the same time, I wonder if the conversation focuses too heavily on the upside of transferring and too little on what may be lost. For a small percentage of athletes, transferring may lead to greater exposure, more playing time, or a professional career. For most, professional sports will never materialize.

The four-year starter who becomes a local legend in a college town may ultimately build a remarkable life. He develops relationships, earns a degree, establishes roots, and becomes part of a community. Ten years later he may own a business, sell insurance, manage investments, or lead a company in the same town where he once played football.

Those outcomes rarely appear in discussions about opportunity cost because they are difficult to measure. Yet they may matter more than the alternatives being considered.

Investors face a similar challenge. Opportunity cost is easy to calculate when comparing stock returns. It is much harder to calculate the value of patience, conviction, and commitment. The benefits often remain invisible until years later.

We assume the greatest risk is sticking with the wrong thing for too long. Sometimes it is. But I suspect an equally common mistake is abandoning good things before they’ve had sufficient time to become great.

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• All-in-One Tracking: Stocks, ETFs, crypto, and global markets, all in one place.

• Deep Analytics: Uncover your true performance with time-weighted returns (TWR), money-weighted returns (MWR), and detailed dividend tracking.

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This investment fund is a private General Partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

In the same way journalists “pivoting to video” from 2010-present has meant fewer journalism jobs and degradation of the medium, it appears to me that those building AI today are replacing themselves tomorrow. AI has proven remarkably capable of performing coding and other IT and IT-adjacent functions. Back-end processing careers, like the one I perform in my day job in Accounts Receivable, are all likely to be automated in the future. For the past 50 years we’ve lionized those who work in cushy, comfortable, white-color desk jobs. It’s easy to see the train of disruption as it comes barreling down the tracks.

With the impending obsolescence of my current role in mind, other than building a portfolio of quality and trustworthy management teams, the thing I’d most like to do with this fund is invest in assets. In a world of rapid technological change, I look for infrastructure I can predict will be around 50 years from now, industries too boring for Silicon Valley thought leaders to disrupt, or physical tasks too complex and delicate for robots to perform.

I’d like to talk through some of our portfolio holdings and what makes their assets both unique and irreplaceable.

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This investment fund is a private General Partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

I figure it is more beneficial to write these updates as a quick article instead of using the Substack Notes feature to keep everyone updated of our progress.

It was a tough first month for the Pellom Investment GP portfolio: -2.85% in March.

Maybe this is naive optimism, but it feels like the perfect time to start a venture like this. My guess is there’s a lot of water to be treaded in the near-term. A choppy market largely benefits individuals and institutions with steady income streams.

As of the end of business on March 31st, after expenses were paid for our accounting software, our assets totaled $1,395.89.

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Most people think of home run records and picture a high-drama slugger hitting sixty or seventy in a single season. But Hank Aaron was different. He never hit fifty home runs in a year. Not once. The guy who held the most famous record in sports for over thirty years never actually had a monster season. While other guys were winning MVPs for one explosive year and then disappearing or hitting the bench with injuries, Aaron was a metronome. He just showed up.

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He hit between twenty-four and forty-five home runs every single year for two decades. That is the Aaron Approach. It is exactly how we should look at our portfolios. In the investing world, we are all conditioned to hunt for that MVP season. We want the stock that doubles in six months so we can brag about it. But that is a dangerous way to play. When you swing that hard at every pitch, you are going to strike out often. In portfolio management, a strikeout isn’t just an out. It is losing money that resets your compounding clock back to zero.

Using massive leverage or chasing high-flying companies you don’t understand is just the investing version of the steroid era. It looks incredible on the nightly highlights, but it is artificial. Just like steroids, leverage doesn’t make you a better player. It just amplifies whatever happens. If the market turns even a little, that juice will wipe you out twice as fast. You aren’t building a career. You are just redlining an engine that wasn’t built for it. When you take those shortcuts, you lose the ability to survive a slump. A clean player can work through a bad month, but someone who relies on the juice usually sees their body or their bank account fall apart when the environment changes.

The toughest part of this strategy is ignoring the crowd. As Aaron got closer to Babe Ruth’s record, the noise got ugly. He wasn’t just facing fastballs. He was dealing with a mountain of hate mail from people who wanted him to fail. If he had let that garbage get in his head, he never would have reached 715. He won because he could tune out the entire stadium and focus on the seventeen inches of home plate. He didn’t have the luxury of playing in a vacuum, and neither do we.

Investing takes that same blackout mentality. The noise for us is the market going crazy or some talking head on TV. There will be times when the crowd says your strategy is dead or that you are a loser for not jumping into the latest bubble. You will see people making fast cash on home run bets and the FOMO will be real. But Aaron didn’t break the record by listening to the bleachers. He broke it by trusting his process. In your financial life, the hate mail are the red numbers on your screen during a dip. The outside noise is the guy telling you about a can’t-miss tip. To win the long game, you have to be okay with being boring while everyone else is losing their minds.

This consistency creates a statistical lead that is almost impossible to overcome. Aaron is the all-time leader in total bases and RBIs for a reason. His 6,856 total bases put him more than 700 bases ahead of the next person on the list. Even if you took away every single one of his 755 home runs, he would still have over 3,000 hits. That is what happens when you refuse to have an off year for twenty years. He was an All-Star in twenty-one different seasons and put up at least 6 WAR for fifteen years straight. He didn’t just have a peak. He stayed at the summit until he decided to go home.

Most investors fail because they get tired or they get scared. They see the volatility and they quit. Aaron played in nearly 3,300 games. He showed up when he was tired and when the world was against him. If you put up steady numbers year after year without losing your cool, you are going to look up in two decades and realize you built something massive. You don’t need the highlight reel to win. Stop swinging for the fences every time. Just be the person who refuses to stop hitting.

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In investing, we call this conviction. We’re told it’s the only way to survive. We’re taught that to win, we must believe in our own “unique edge.” But the problem with building a fortress around your own judgment is that eventually, you forget how to lower the drawbridge.

When you spend ten hours a day convinced that you are the smartest person in the room (or at least the one with the clearest vision), that psychological posture doesn’t just evaporate when you close your laptop. It follows you to the dinner table.

Psychologists call this the Role Accumulation Theory. We don’t just “play” the role of the visionary investor, we become it. A study in the Journal of Applied Psychology (2014) on “Identity Work” suggests that professionals in high-stakes, high-autonomy roles often struggle to “switch off” the authoritative traits that lead to their success.

In the office, your “edge” makes you money. At home, that same “edge” makes you a nightmare.

In investing, you can be right and still lose money. In relationships, being “right” is often the quickest way to lose everything.

We carry the “Alpha” mindset home like a contagion. We treat a disagreement over the dishes or the mortgage like a pitch meeting. We use our research skills to build an airtight case against the people we love. We “win” the argument, but we lose the intimacy.

The “ego” required to beat the market is fundamentally at odds with the “humility” required to sustain a long-term human connection. One requires you to be an island of superior certainty, the other requires you to be a bridge of vulnerable uncertainty.

When you’re used to navigating the world through a lens of optimization, watching a spouse or a child execute a “suboptimal” plan feels physically uncomfortable. It’s like watching someone mismanage a portfolio in slow motion. The instinct is to step in, to “correct” the course with your superior logic or experience, because you’re convinced you see the pitfalls they don’t.

But in a home, the “correct” outcome is rarely the most efficient one. If you insist on being the architect of every decision, you aren’t leading; you’re colonizing their autonomy. Being right becomes a wall between you and the people you love. When you win the argument by proving their plan is inefficient, you’ve essentially traded their confidence and their sense of agency for the hollow satisfaction of a “correct” projection.

“Letting go of the rope” is an admission that the relationship is more important than the result. It means standing by while your spouse tries a parenting tactic you disagree with, or watching your child pursue a path that looks like a dead end, and offering a safety net instead of a “told you so.” It requires a brutal kind of internal quiet, stifling the urge to optimize the life out of the people around you.

By stepping back and allowing for “inefficiency,” you create the only environment where growth actually happens: a space where others are allowed to own their successes and, more importantly, their mistakes. Real intimacy isn’t found in being the person with all the answers, it’s found in being the person who is safe to fail around.

In his landmark study, “Do Investors Trade Too Much?” (1998), researcher Terrance Odean discovered that overconfidence acts as a literal tax on performance. He found that investors who believed they possessed “unique insight” or superior ability traded much more frequently than their peers. The result? They consistently underperformed the market.

It turns out that humility isn’t just a moral virtue at home, it’s also a statistical necessity for success at work.

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This investment fund is a private General Partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

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As stated in the introductory post, our partnership is based on the Warren Buffett partnership structure of the 1950’s and 1960’s (before Buffett took control of Berkshire Hathway and became a household name). You should stop reading me and read his letters from that time instead.

Assuming you did the sensible thing and read through the linked letters, you’ll see he shared a framework of his investment criteria. I’ll add it here just in case you’re not sensible:

Generals - Private Owner Basis: These were generally undervalued securities representing a small percentage of a company, with no immediate catalyst to unlock value, requiring patience for the market to realize the true value.

Workouts (Special Situations): These were arbitrage situations, such as mergers, liquidations, or reorganizations, where a corporate action created a specific, near-guaranteed return regardless of the overall market direction.

Controls: Investments where the partnership acquired a large, often majority stake, allowing Buffett to influence management and directly impact the company’s valuation.

Generals - Relatively Undervalued (added in 1964): A refinement of the original generals category, focusing specifically on deeply undervalued stocks, which often formed a major part of the portfolio.

It might shock you to read this, but as much as I like McDonald’s and Coca-Cola, I am not Warren Buffett. He is the greatest investor of all time, a genius of mental arithmetic with a superhuman memory. I flunked out of community college. As an aside, I work here now, at said community college, and it’s a running joke amongst co-workers that they’ll give me a paycheck but won’t give me a degree.

Anyway, I reiterate, I am not Warren Buffett, and this partnership, while structured in the same manner, cannot be expected to operate in the same way. My ability to evaluate Special Situations is limited at best, and we don’t have the dollar amounts necessary to buy large stakes in publicly traded companies. Even if we did, we would be laughed out of the room if we attempted to take Control in the aggressive manner young Buffett operated. Brett Gardner wrote an excellent book about Buffett’s early investments. I wonder where he got the idea for the book title?

With that being said, I think we have a wonderful opportunity in the Generals space. Valuation is an inexact science. I won’t pretend to have a process set in stone, or a multi-page modeling Excel sheet. However, I do have a good track record of investing in this space. While not perfect, examples include Ulta Beauty, Gildan Activewear, Alphabet, UPS, Nintendo, and Coca-Cola FEMSA, in the past two years.

This track record is not an attempt to pat myself on the back, although it has been difficult to type with one hand while using the other to do so. Instead, I think the above examples are proof that the market is frequently inefficient for brief windows of time.

J.P. Morgan Asset Management frequently publishes data on “Intra-year Drops vs. Calendar Year Returns.” Their research consistently shows that while the S&P 500 index might have a median intra-year drop of ~14%, the individual stocks within it experience much more violent “peak-to-trough” moves — often averaging a 50%+ spread between their 52-week highs and lows.

It doesn’t take a genius to figure out that stocks — even those of huge, multibillion dollar corporations — swing more aggressively than the underlying value of the business in question. By having cash available, and by actively trimming other holdings when necessary, we’ll have the ammunition required to fire when an opportunity presents itself.

In this way, we’re likely to operate more closely to Berkshire-era Buffett, focusing on safe, even boring, companies we believe to be long-term winners.

Todd Combs, the former CEO of GEICO – a Berkshire Hathaway insurance subsidiary – once outlined what Warren Buffett looks for in investment opportunities. There are three conditions.

One is a forward price-to-earnings (P/E) ratio below 15, another is a 90% probability of the company earning more money five years from now, and a third is a 50% probability of growing at 7% per year.

That’s it.

And so, when Warren and I would talk about stocks, acquisitions, whatever, we talked… it’s 95, 99%, qualitative. And that comes down to all the stuff that you talked about in terms of moats, barriers to entry, all the stuff.

You’re not getting that necessarily in a filing or an annual report. You get a sense for it. It’s a starting point, but you want to work essentially inside out.

And I think which is what I mean by that is starting with the details, and then those details form the foundation from which you can build upon that.

Put a different way: set a conservative target valuation, work hard to assess whether or not the company has a unique, competitive advantage and competent management, and wait for it to reach a price you can stomach.

Simple, but not easy.

I’ve been heavily influenced by Markel CEO Tom Gayner as well, so I’ll share his four main principles here:

High Returns on Capital: Gayner wants above average businesses that produce high returns on capital and require little additional capital

Management with Integrity and Talent: He is often careful to say, “equal measures of integrity and talent.” If you have one without the other, you’re in trouble.

Compounders: Gayner looks for businesses with attractive reinvestment opportunities. He wants high returns on capital, and he also wants the economics of the business to be such that the company can compound earnings and cash flow and grow intrinsic value over time (compounding machine).

Valuation: He doesn’t want to pay too much, although he mentions that he is willing to pay a fair price for these compounders, as they will grow shareholder value steadily over time.

In addition to the ideas from Buffett and Gayner above, here are a few metrics and ratios I think about when analyzing a business:

CEO of The Motley Fool David Gardner’s “Snap” and “Cola” tests. The Snap Test gauges a company’s indispensability by asking if the world would be significantly disrupted or saddened if the business vanished overnight. The Cola Test identifies market dominance by looking for "Top Dogs" that are so far ahead of the competition that they lack a clear "Pepsi" to their "Coke."

Aswath Damodaran, often called the “Dean of Valuation,” views the relationship between ROIC (Return on Invested Capital) and WACC (Weighted Average Cost of Capital) as the fundamental engine of value creation.

In his framework, a company’s value isn’t just about how fast it grows, but about the “spread” between these two numbers. If ROIC > WACC, the company generates more return on its projects than it costs to fund them. This is the definition of “Excess Returns.” In this scenario, growth is a “good” thing. The faster the company grows, the more value it adds for shareholders.

ROIC is a pretty straightforward calculation, WACC is far from it. Again, I’ll admit I’m no savant in this area. I try to get in the same ballpark as reality — I don’t need to be close enough to smell its cologne.

Tobias Carlisle’s Acquirer’s Multiple is a deep-value investing strategy that aims to find “fair companies at wonderful prices” rather than “wonderful companies at fair prices.” The Acquirer’s Multiple is a single ratio used to rank the attractiveness of a stock: Enterprise Value (Market Cap + Debt + Preferred Stock - Cash) / Operating Earnings (usually EBIT, Earnings Before Interest and Taxes)

You want a low multiple. A low multiple means you are paying a very small price for a large amount of operating profit. This calculation usually spits out some truly ugly companies in terrible situations. We’ll stay clear of most of them, but some are worth investigating further.

A few other filters I like to use:

Operating P/E (Market Cap / Operating Income): I found this one via Bill Ackman, who argued Warren Buffett is out of touch because he wants to “buy companies under a 10 Operating P/E.” I figure it pays to ignore Ackman and stick with the G.O.A.T., so I added it to my toolbelt.

Goodwill / Assets: Goodwill is an intangible asset that appears on a company’s balance sheet when it purchases another company for more than the fair market value of its net identifiable assets. Think of it as the “premium” paid for the things you can’t easily put a price tag on, like a famous brand name, a loyal customer base, or proprietary technology. This ratio is an attempt to weed out companies that have overpaid for acquisitions of other companies in the past and justified it by arguing, “it’s worth this much, trust us, the value just can’t be calculated.” The lower the number, the better, but it’s hard to find anything worth buying under 25%.

Stock-based Comp to Revenue: Charlie Munger was a strong opponent of stock-based compensation (SBC), viewing it as a mechanism that dilutes shareholders, misaligns incentives, and produces dishonest financial reporting. He argued that excessive stock-based compensation is used by management to “rake all the profits” while general shareholders are diluted. The best number here is zero, of course, but again, that severely limits your investment universe.

This is by no means an exhaustive list — there are hundreds of tiny details, facts, and figures that have to be researched and reviewed. And honestly, although no one admits it, much of what amounts to good investing is based on vibes. If you read enough books, reports, filings, transcripts and watch/listen to enough interviews, presentations, conference calls, etc., the ole lizard brain does a fair job of flagging what’s real and what’s fake.

To finish, I’ll borrow from Sturgill Simpson, “if there’s any doubt, then there is no doubt, the gut don’t ever lie.”

Thank you,

Tyler

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Welcome! I am documenting the real-time formation and growth of a private investment partnership, starting from a balance of $0. This project is a hands-on experiment in building wealth while also building a business from scratch.

The goal here is transparency: I’ll be sharing our hurdles, our wins, our losses, investment strategies, research, and eventually, our pivot from passive securities into active business ownership.

Today I filed our documents with the State of Tennessee, opened a business bank account, an investment brokerage account, and created a template partnership agreement.

My wife and I are the only partners as of today’s date, with the hope being some friends and family join us on the ride.

Like most investors, I am inspired by Warren Buffett, and in this case, his partnership agreement(s) with friends and family prior to acquiring Berkshire Hathaway.

In a previous iteration of this idea, I thought it best to create individual accounts for each “client” and to manage them separately as a more-traditional investment advisor. However, I became deeply conflicted about how best to charge management fees. Ultimately, I decided I could not, in good conscience, charge a fee for investment management with the knowledge that the vast majority of investment advisors underperform the market. I knew I would be unable to solicit public clients effectively if I did not believe in the broader mission/goal.

The GP structure allows all wins and losses in one fund — I do better when the fund does better. Pretty simple.

I’m not taking any management fee to start — although that could change if I prove my value as a stock-picker (and take a more hands-on role should we begin acquiring actually businesses in the future.)

With that being said, let me hit a few disclaimers:

I am not a financial advisor, CPA, or attorney. The content on this blog is for educational and entertainment purposes only. Any investment decisions, legal structures, or tax strategies discussed here are based on my personal experience and research and should not be taken as professional financial or legal advice. Investing involves significant risk, and you should always consult with a qualified professional before making financial decisions.

This investment fund is a private General Partnership and is not open to the public. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any partnership interests or securities. Our membership is strictly limited and requires the unanimous consent of existing partners. We do not seek, nor will we accept, capital contributions from the general public.

Any performance numbers shared on this blog are specific to our private group and are not indicative of future results. The $0-to-growth journey is an educational exercise, and your results will vary based on your own strategy, market conditions, and risk tolerance.

Future posts will be behind a paywall, no exceptions.

Because this journey details the inner workings of a private investment partnership, security and privacy are my top priorities. This fund is not open to the public, and the strategies shared here are sensitive in nature.

I’ve implemented this paywall to create a “digital gate”—ensuring that this information is only accessed by a committed community of readers who are serious about learning the process. This barrier to entry helps protect the privacy of my partners, maintains the integrity of our private entity, and ensures that the data remains within a secure, intentional space.

If you want general content/information, please check out:

hudlan.substack.com

Thank you,

Tyler

I’ve listened to the entire catalog of the VALUECville podcast over the last few days. This is not me taking a shot at them — they are much more knowledgeable than me by far — and I enjoy the podcast. This opinion is not unique to the hosts, and I don’t mean to target them, so much as listening to the episode last night allowed the idea to reemerge in the front of my brain.

However, in the first couple of episodes, with Jeremy Deal, the hosts talk about how their greatest errors were not buying into overvalued companies but rather dismissing them because they didn't fit a traditional spreadsheet. Their solution? To occasionally "throw out the valuation textbooks" to capture the structural shifts of the future.

This perspective relies on the dangerous luxury of hindsight. To argue that missing a “structural shift” is a mistake is to assume that an investor was ever capable of predicting it with certainty.

In a 2001 lecture at the University of Georgia, Warren Buffett explicitly states that if a business is outside your understanding, you have no right to expect a profit from it, regardless of how high the stock goes:

“I don’t worry about that if it’s Microsoft because I don’t know it... Microsoft isn’t in my circle of competence. So I don’t have any reason to think I’m entitled to make money out of Microsoft or out of cocoa beans or whatever.” [30:13]

The hosts characterize their caution as a "mistake of omission." But Buffett draws a sharp distinction here. A true mistake of omission, he argues, is failing to buy a company like Fannie Mae — a business he understood deeply and knew was a "cinch" — due to temporary hesitation or "thumb-sucking." Buffett admits to losing billions on Fannie Mae because he had the data and blinked; he refuses to admit to losing billions on Microsoft because he never had the data to begin with.

The "mistake" of thinking something is overvalued is often just a rational response to a lack of evidence. To regret missing an unpredictable outlier is to fall victim to the "lottery winner’s regret", which is the feeling that you should have known the numbers because they seem so obvious after they’ve been drawn.

If you couldn’t have honestly predicted that structural shift with a high degree of certainty from the start, then those gains were never “yours” to begin with. You didn’t miss a sure thing; you just turned down a lottery ticket because you didn’t like the odds.

It’s also worth remembering that a lot of the bragging you hear in the investing world has more to do with luck than actual skill. Plenty of people mistake riding a lucky wave for being a genius, but they usually can’t repeat the trick. Long-term success comes down to the intellectual honesty of knowing the difference between a “good result” and a “good decision.”

If you focus on only winning the games you actually deserve to win, you’ll be much better off. In the long run, the steady progress of a boring, “textbook” process is a lot more reliable than the fleeting high of a win you can’t explain.

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Bessembinder’s math is great, of course, and way over my head, but the conclusion people usually draw from it misses something important. The research focuses on how many total dollars companies add to the market, not how often individual stocks actually make money for investors. Those are related, but they’re not the same thing.

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Bessembinder looked at how much total wealth each stock created over time. A few huge companies like Apple, Microsoft, Amazon, and Alphabet, added so much value that they outweighed the losses of thousands of other firms. That’s how you end up with such a small percentage driving all the gains.

From a big-picture view, this shows how uneven returns are in the market. But for individual investors, this framing can be misleading. A stock that grows 300% over ten years might be a great investment, even if the company itself is still small. That gain matters a lot to the person who owns it, even if it barely moves the needle at the market level.

So, the 2.4% stat says more about economic scale than about your chances of making money as an individual stock investor.

This is where the idea of “Invisible Compounders” comes in. If you stop asking which companies created the most total dollars and instead ask how often stocks deliver decent returns, the picture changes.

Using Bessembinder’s own data, about 42% of stocks had lifetime returns better than one-month Treasury bills. That’s a big jump from 2.4%. Nearly half of stocks beat just holding cash at some point.

Outperforming the S&P 500 is harder, but still much more common than the headline stat suggests. Research from firms like Longboard Asset Management shows that roughly 25–35% of stocks beat the market over many multi-year periods, especially outside of periods dominated by mega-caps.

Most of the stocks that drag down the averages are speculative companies, penny stocks, or businesses that never really worked. By avoiding the obvious low-quality names, investors can improve their odds of finding companies that quietly compound returns over time.

The 2.4% figure is useful. It reminds us how much market gains depend on a few standout companies and how hard it is to spot those winners early.

But it doesn’t mean active investing is pointless. Individual investors don’t need to find the next Apple to succeed. They just need stocks that generate solid percentage returns on their capital.

There’s a large group of companies that don’t dominate headlines but still deliver steady gains. They may not create massive amounts of total wealth, but they matter to real portfolios. Recognizing the difference between how often stocks succeed and how much total wealth they create helps make the market feel less all-or-nothing, and more approachable for investors willing to be selective.

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It is one of the most over-used and over-shared quotes in investing and business history. If an investor or fund manager uses the term “mental models” in a pitch, you can be sure a string of verbal diarrhea is soon to follow.

There is no doubt the quote is true. Having multidisciplinary knowledge is certainly useful, allowing investors and leaders to see the bigger picture of a problem or opportunity. However, the practical application for those of us without the superior intellect of a Charlie Munger is where I begin to raise my eyebrow.

Charlie Munger studied mathematics at the University of Michigan, earned a law degree from Harvard Law School, worked as a successful real estate and corporate lawyer before focusing on investing. He famously enjoyed studying history, philosophy and science. Warren Buffett called him “the brains behind the operation” at Berkshire Hathaway.

Thinking you can replicate Charlie Munger’s investment strategies is risky because his success rests on an extraordinary intellect, decades of experience, and a rare ability to integrate knowledge across multiple disciplines. Most individual investors simply do not possess his depth of understanding in psychology, economics, mathematics, and human behavior, nor the temperament to act rationally under uncertainty at scale.

Attempting to mimic his “latticework of mental models” approach without that foundation can lead to overconfidence, analysis paralysis, or catastrophic mistakes. For the vast majority, a far safer and more effective approach is to focus on the fundamentals: understanding business models, evaluating financial statements, assessing competitive advantages, and learning the mechanics of disciplined investing.

Here’s the dirty little secret: Munger knew this too. The reason he was allowed to have such a multidisciplinary focus is because he had the greatest investor of all time managing the vast majority of his wealth. You and I don’t have the same slack built into our process. Well, unless you put 100% of your money into Berkshire, which would have been smart, but that advantage is soon to disappear with Warren.

This is not to say having other interests is not positive or helpful. I spend most of my free time reading historical biographies and watching sports. But what you can’t do is convince yourself you are an expert in multiple fields because you watch WWII in HD on Netflix, follow the Daily Stoic on Instagram, or enjoy looking at the pictures in National Geographic.

Worse yet, you can’t allow others to convince you they have this unique Munger-like intellect either. There are too many investment managers and social media influencers crediting their mental processes when in reality they should point to a fifteen-year bull market and acknowledge it’s easy to think you’ve got it all figured out when everything goes up.

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(You should read his work at acquirersmultiple.com)

If I had to translate what I think is the overarching theme of “deep value” investing as a layman and non-professional, the way I would do so is by arguing for buying stock in companies that do the right things operationally but do not receive credit for it on Wall Street.

The reasons these companies do not receive proper credit are complicated and complex, but for the most part, there is a narrative written against them by Wall Street analysts: they’re boring companies in non-growth sectors, and as a result they are ignored.

The goal of value investing, which I see as inherently defensive if you are doing it right, is to find undervalued assets. Once you find those undervalued assets, you buy them and allow them to work to return your investment over time.

What most people miss is when they find something they feel is undervalued, their intended catalyst to obtain a return is that the stock market will realize its mistake and re-rate the price higher. This puts a faith in others and systems I don’t necessarily feel comfortable with.

Tobias was a guest on the Excess Returns podcast in April 2024. The entire interview is great, but my focus is around the 10-minute mark. Tobias goes into detail about the line of thinking described above.

“It doesn’t matter if you get a multiple re-rating if you are getting incremental reinvestment by the company.”

He then lays out the formula he uses to evaluate internal return:

Marginal Return on Invested Capital + Dividend Yield + Buyback Yield = Return

“When I think about this stuff, I don’t actually care what the market does. I always invest on the assumption the market is NOT going to re-rate the stock.”

He continues:

“And for companies that are doing a lot of buybacks, I would actually prefer if the market DOESN’T re-rate the stock because I’m going to make a lot more money, ultimately, if they stay cheap and continue to buy back stock. Do I care if the market recognizes the value I see in these companies after I buy them? No, I don’t. Because I am already receiving a return via their reinvestment, dividends and buybacks.”

The name of the game in investing is buying cash flows as cheaply as possible.

It’s the same as buying your local convenience store: if you were talking to the current owner, would you want to know how much your neighbor thought the business is worth? Would you care how much some guy halfway across the world thinks it is worth? No, you’d want to know how much cash the business brings in each day, month, quarter, year, etc., and how much of that cash comes to you as the owner. If the market re-rates your company higher, that’s certainly a pleasant surprise as well, but it should be treated as a bonus and not the main focus.

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I’ll be the ten thousandth person to write a little note about the Berkshire meeting that happened over the weekend.

Among the million things that “made the dusty” for me was this part of the Q&A portion:

Question: “Hello, my name is Dennis from Griffon, Germany. This is my first time here. I’m here with my friend who would, by the way, love to invite you to dinner. You talked about the importance of heroes, and we are very happy and thankful that we have you as our hero with great values. Thank you for that. First of all, my question is, it is clear that you achieved great success in life. Earlier you talked about every investment having opportunity cost. From what I’ve learned in life, that does not only apply to investing your money, but also to investing your time? Every hour you spend in your office is an hour you cannot spend with your spouse or children. With the life experience you have now, if you had the possibility to start all over again, would you set your priorities any different? If yes, how and why? And what’s the best way to invite you to dinner?”

Warren: “That definitely won’t be one of my priorities if I figure out how to do that. But don’t take it personally, because you can figure out at the maximum longest period I’ve got. I can figure out all kinds of things that should have been done differently, but so what? You know, I mean, I’m not perfect. I don’t believe in lots of self criticism or being unrealistic about either what you are or what you’ve accomplished or what you’d like to do. You do the, you know, you do a lot of things, and who knows whether, some with different trade offs. You know, you just can’t, you can’t. You don’t know where the paths would have led. I feel, I don’t think there’s any room in beating up yourself over what’s happened in the past. It’s happened and you get to live the rest of the life and you don’t know how long it’s going to be. And you keep trying to do the things that are important to you. If I was a doctor or if I was all kinds of different professions, I might do different things, but I really enjoy managing money for people who trust me. I don’t have any reason to do it for financial reasons. I’m not running a hedge fund or getting an override or anything. I just like the feeling of being trusted. Charlie felt the same way. That’s a good way to feel in life and it continues to be a good feeling. So I’m not really looking to change much. And, you know, if I’m very lucky, I get to play it off for six or seven years and it could end tomorrow. But that’s, that’s true of everybody, although the equation isn’t exactly the same. But I don’t believe in beating yourself up over anything you’ve done in the past. And I don’t believe in, well, I believe in trying to find what you’re good at, what you enjoy. And then I think the one thing that you can aspire to be, because this can be done by anybody, and it’s amazing, and it doesn’t have anything to do with money. But you can be kind. You can be kind. If you’re (kind), and then the world’s better off.”

Long live the Oracle of Omaha.

US stock markets closed at record highs on Friday powered by investors’ continued enthusiasm for artificial intelligence (AI). Both the S&P 500 and the tech-dominated Nasdaq set records, with the Nasdaq passing its last peak in 2021, driven higher by gains for Facebook owner Meta and Nvidia, the leading AI chipmaker.

https://www.theguardian.com/business/2024/mar/01/record-high-us-stock-market-nvidia-ai#:~:text=US%20stock%20markets%20closed%20at,Nvidia%2C%20the%20leading%20AI%20chipmaker

Technology You Don’t Understand

As hinted above, most of these gains have been driven by one company: Nvidia.

Do you think the average person could tell you what Nvidia does? Do you think the averageinvestor could give a more cogent answer than spitting out a couple of buzzwords likesemiconductor, fast, artificial intelligence and the future?

I tried to find a succinct description of Nvidia’s business, something an idiot like me can understand, and boy was that difficult.

There’s this from PC Mag:

A leading designer of graphics, AI and high-performance processors. Founded in 1993 by Jen-Hsun Huang, Chris Malachowsky and Curtis Priem, NVIDIA launched its first multimedia processor, the NV1, in 1995. NVIDIA is a fabless company (chips are made elsewhere) that is known worldwide for its advanced technologies. NVIDIA graphics chips with brand names such as GeForce, Quadro, Titan and Tegra are built into the computers of many vendors. NVIDIA AI chips use designations such as DGX, HGX, A100 and H100 (see H100 and NVIDIA DGX).

https://www.pcmag.com/encyclopedia/term/nvidia

Sounds complicated! Intimidating, even!

Don’t get me started about the average person trying to describe artificial intelligence. You’ll get definitions as wide as “robots taking us hostage” to “pretty soon no one will have to work because our computers will do all our menial and rudimentary tasks.”

It seems pretty apparent to me that all future technological evolution has been thrown under the umbrella of AI – and Wall Street has been able to monetize that broad categorization.

An old Peter Lynch quote comes to mind:

“There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it. Shun the enterprise around the corner, which can at least be observed, and seek out the one that manufactures an incomprehensible product.”

Products You Don’t Need

The thing about the AI boom that I have yet to see anyone discuss is just how little the average American will use these new “tools” recreationally.

Yes, we’ll all likely be forced to incorporate certain artificial intelligence in our work lives. Our corporate overlords will force us to do so as they are sure it will drive down their costs over time (and probably drive us out of our jobs in the process). I have no doubt this will ultimately be true – it has been the case since the Industrial Revolution when man stopped breaking his back in his own fields and instead decided to work for someone else. Advancing technologies will always create a restructuring of labor.

But how many people are going to let artificial intelligence drive their cars for them? How many people need ChatGPT to write a paper for them after they graduate college? How many grandparents need a computer to write their conspiratorial Facebook posts for them? My guess is very few.

I know the use cases for AI are limited now and that they will grow in the future to encompass things we (or I) can’t currently imagine. But my bet is there will be a backlash to this technology just as there is currently a backlash against smartphones and social media:

High levels of smartphone addiction were correlated with low self-esteem, loneliness, depression and shyness.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5970452/

Too much time on social media apps can lead to an increase in body dissatisfaction, eating disorders and low self-esteem. While this is particularly concerning for teen girls, reports show that 46% of teens 13 to 17 years old said social media made them feel worse about their bodies.

https://health.clevelandclinic.org/dangers-of-social-media-for-youth

I’m not naïve enough to think any of the above really matters in the grand scheme of things. This technology is coming whether it is a net-positive for us or not. Silicon Valley will continue to push the limits, and Wall Street will continue to reward it.

I’m just not sure the future Wall Street has baked-in to current prices is here yet.

I will admit to having a predilection for being risk averse. A more accurate description might be that I’m a Debbie Downer. When too many people are having fun, I have to look for a way to ruin it.

Reading yesterday’s post by pushed me over the edge. (subscribe to his Crossing Wall Street newsletter as soon as possible):

Here’s a look at the yield on the 10-year Treasury (in black) along with the S&P 500’s earnings yield (in purple).

Here’s how it works, or at least how it’s supposed to work (my apologies for getting mathy).

Take the 10-year Treasury yield. Right now, that’s around 4.25%. Add 2% to that for the risk premium (so 6.25%). Then take the inverse of that (1/0.0625 = 16) and that should roughly be the stock market’s price/earnings ratio. In this case, that’s 16.

Except, right now, it’s not even close. The stock market’s current price/earnings ratio is currently at 24. That’s roughly 50% higher than where the model thinks it should be.

https://www.crossingwallstreet.com/archives/2024/03/cws-market-review-march-26-2024.html

Eddy goes on to talk about where Reddit is trading a week after its IPO:

I wanted to show you just how extreme some of the valuations are. Let’s take a closer look at Reddit’s business.

Last year, Reddit had revenue of $804 million and operating income of negative $140 million. In other words, the company is running at an operating loss. Add in $50 million in other income and Reddit lost about $90 million for the year. That works out to minus 57 cents per share.

Despite running a loss, shares of Reddit were priced at $34. Once trading started, the shares took off. Earlier today, the stock came close to $75 per share. That means the business is trading for more than 130 times its loss from the year.

I understand that one shouldn’t value nontraditional companies with traditional metrics. Still, at some point, one has to view this as extreme. This is exactly what happens when the equity risk premium goes to zero. When being risky pays off, the market will follow what’s working.

Reddit is worth $75 per share in the same way cocoa is worth $10,000 per metric ton, or the S&P 500 is worth 24 times earnings.

“The voice of reason is small, but very persistent.” — Sigmund Freud.

I’m not someone you should listen to about investing decisions. Hell, even if I were, I’m not one to try to “time the market.” I’m not advocating anyone sell their equities and run to the hills with their cash in a duffle bag. It’s better for everyone to keep buying, all the time, always. There is always light at the end of the tunnel.

For most of my life I’ve been angry. I can admit it.

Angry my parents got divorced. Angry there were drugs involved. Angry they lost custody of me and my brother. Angry we lived disability check to disability check. Angry my dad died of an overdose. Angry.

As it does, anger quickly became jealousy. Jealous my peers had something I didn’t. Whether it be a two parent household, money in the bank, room to think, room to breathe, room to flourish.

All of these things are tremendous advantages — tremendous disadvantages.

• According to one study, children in a two parent household are 3x as likely to attain a college degree.

• Parents’ education and income levels are incredibly predictive of their offspring’s ability to attain a college degree or a high paying job.

More than anything, what feels so cumbersome and is such a heavy load to carry is the inability to try. Failure means different things for different people. For someone whose parents are wealthy, chasing an art degree, applying to a private college, getting specialized tutoring or ACT prep after a bad score, or waiting a year after college to get a job might seem reasonable.

For someone whose parents cannot provide any financial support (and in some cases are financial drains themselves), there are few risks worth taking. You cannot apply for schools in which financial aid will not cover the bulk of the bill. Flunk out after spending $40k a year? You’ve signed yourself up for a lifetime’s worth of debt. Want to avoid working so you can focus on your studies? Good luck eating and paying for gas.

Back to the jealousy. It’s easy to be on the losing end of this equation and think there’s a zero-sum game being played. It’s easy to look at your peers getting a new car for their Sweet 16, a college education, a new house with a hefty down payment from their parents and think, “these people have everything handed to them. It isn’t fair. I can’t win.”

Then I became a parent. Suddenly it all made sense. The light-switch flipped. We’re buying the expensive formula. We’re buying toys, clothes, shoes, etc. they don’t need just to make them happy. I didn’t see the beach until I was 21 years old. My kids will have their asses in the sand for the third time just after they turn 4 in July.

Our job as parents is to give our kids a better chance than we got. Good or bad. That’s all it is — a chance. We can’t control everything about how our kids mature and blossom. What we can control is the resources they have at their disposal. We can work jobs we don’t want to work — so our kids have the right to choose their career. We can go without a fancy car or upscale house — so we can put more in our kids’ saving accounts. We can push ourselves through college on nights and weekends while working full time — so our kids know one degree is the benchmark instead of an unattainable target.

You can give your kids the head start you didn’t have.

I’m going to wrap this up with a personal finance bent. It’s what I’m passionate about: turning folks into financial successes — especially those of us who weren’t given the tools or the advantages of others.

I talk to people about this in my day job often. Steady action today can make you a millionaire. You don’t have to get lucky. No need to buy a Powerball ticket. No need to pray you’ve got a rich uncle no one has told you about.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” — Albert Einstein

“Money makes money. And the money that money makes, makes money.” — Benjamin Franklin

Without getting too technical, this is a personal blog post and not a financial disclosure, the S&P 500 is a stock market index that tracks the 500 largest companies listed in the United States. Companies move in and out of the S&P yearly, but the index stays the same. Over the last 100 years, through two world wars, two pandemics, multiple recessions, “crazy” presidents from both parties, the S&P has averaged a 10% yearly return (assuming earnings are reinvested.)

Here’s what this means: if you’re 20 years old, you only have to invest $175,000 in the S&P 500 index to reach one million dollars by the time you retire. I know that number comes with major sticker shock — especially for someone with no head start.

The good news: you don’t need a lump sum. You just need to get started as soon as possible. $200 a month, starting at age 20, gets you to the mythical $1M balance at age 65. That number doubles to $443 per month if you wait until you’re 30. At age 40, it’ll take $1,030 a month to reach our goal.

The initial point of this post was not to discuss our own personal finance and retirement goals. The point was about providing a head start for our kids. We do that in a multitude of ways: healthy and respectful parenting, staying with our spouses if possible, raising our own incomes to provide a stable financial environment, the list goes on forever.

By the same measure above, investing small amounts monthly can make a huge difference. And we can start the day our kids are born, supercharging the power of compound interest. $12,500 invested by the time our children turn 18 years old will grow to one million dollars by the time our kids retire at 65. $12,000! A 2017 Ford Fusion (I looked)! Your child won’t have to put another penny in the account and they’ll be millionaires — all because you started putting $60 a month into an index fund when they were born until their 18th birthday. It’s that easy, and it’s that difficult.

We don’t have the power to change the cards we were dealt. But we do have the power to shuffle the deck for our kids.

“It’s good to have people in your life who you don’t want to disappoint.” — Warren Buffett