Capital Employed
A round-up of the Q3 fund letters just published.

24 so far to get stuck into, with many more being uploaded over the coming weeks as they're released.

https://t.co/wUDSfhSG8N https://t.co/xOrFqlI07t
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Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $ICE 🧘🏽‍♂️

•NTM P/E Ratio: 22.13x
•5-Year Mean: 22.31x

•NTM FCF Yield: 5.19%
•5-Year Mean: 4.83%

As you can see, $ICE appears to be trading slightly near fair value

Going forward, investors can expect to receive about the same in earnings per share & ~7% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $ICE is a quality business

BALANCE SHEET🆗
•Cash & Equivalents: $1.00B
•Long-Term Debt: $17.36B

$ICE has an OK balance sheet, an A- S&P Credit Rating & 5.78x FFO Interest Coverage

RETURN ON CAPITAL🆗
•2020: 7.8%
•2021: 8.6%
•2022: 8.3%
•2023: 7.5%
•2024: 8.5%
•LTM: 9.2%

RETURN ON EQUITY🆗
•2020: 11.4%
•2021: 19.2%
•2022: 6.6%
•2023: 10.0%
•2024: 10.5%
•LTM: 11.1%

$ICE has decent return metrics as the company relies heavily on acquisitions

REVENUES✅
•2014: $3.09B
•2024: $9.28B
•CAGR: 11.62%

FREE CASH FLOW✅
•2014: $1.34B
•2024: $4.20B
•CAGR: 12.10%

NORMALIZED EPS✅
•2014: $1.93
•2024: $6.07
•CAGR: 12.14%

SHARE BUYBACKS❌
•2014 Shares Outstanding: 573.00M
•LTM Shares Outstanding: 576.50M

MARGINS✅
•LTM Gross Margins: 100.0%
•LTM Operating Margins: 49.4%
•LTM Gross Margins: 31.0%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive about the same in EPS & ~7% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ICE has to grow earnings at an 11.07% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2028 EPS growth over the next few years to be slightly more than the (11.07%) required growth rate:

2025E: $6.93 (14% YoY) *FY Dec

2026E: $7.66 (11% YoY)
2027E: $8.51 (11% YoY)
2028E: $9.55 (12% YoY)

$ICE has a great track record of meeting analyst estimates ~2 years out, but let’s assume $ICE ends 2028 with $9.55 in EPS & see its CAGR potential assuming different multiples

25x P/E: $238.75💵 … ~13.9% CAGR

24x P/E: $229.20💵 … ~12.5% CAGR

23x P/E: $219.65💵 … ~11.1% CAGR

22x P/E: $210.10💵 … ~9.6% CAGR

21x P/E: $200.55💵 … ~8.1% CAGR

As you can see, we’d have to assume ~23x earnings for $ICE to have double-digit CAGR potential

At 24x - 26x, $ICE can CAGR near the mid-teens

$ICE is a high-quality business with a wide-moat & generates ~65% of total revenue from their exchanges revenue — the other ~35% from fixed income & data services revenue & mortgage technology

Though $ICE has traded for an average ~22x multiple over the past 5 years, I believe it’s justified for it to trade for 24x - 26x given its predictability & moat, among other things

$ICE is also still founder led — Jeff Sprecher (Founder & CEO) continues to be a brilliant leader with strategic foresight & a strong track record of executing complex integrations

Today at $162💵 $ICE appears to be a good consideration for investment with a decent margin of safety

#stocks #investing
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DISCLOSURE‼️: This is NOT Investment Advice. Babylon Capital® and its representatives may have positions in the securities discussed in this post.

The information contained in this post is intended for informational purposes only and should not be construed as investment advice to meet the specific needs of any individual or situation. Past performance is no guarantee of future results.

Information contained in this post has been obtained from sources believed to be reliable, but is not guaranteed as to completeness or accuracy.
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Andrew Sather
RT @IFB_podcast: Brazil has a population of almost 213 million people and a low debt to GDP of 77.5%. So far in the first quarter (August 2025), real GDP grew 5.7% on an annualized basis form the previous quarter according to Deloitte.

How the country's payments usage is creating huge opportunities:
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Dimitry Nakhla | Babylon Capital®
RT @SoJustFollowMe: I think $ICE is an excellent buy for long-term investors in the $135–155 range.

Also, Dimitry, I’ve got to say - I really enjoy the company breakdowns you post. And the companies themselves.

Since I started following you, I haven’t seen a single filler stock or some random hype play that overconfident retail traders jump into just because they’ve never lived through a bear market. Everything you post actually makes sense. Respect.
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Investing visuals
Follow-up: Diversification & risk reduction

There’s a lot of nuance around diversification and risk that the visual I shared earlier didn’t fully capture. As a result, it was a bit oversimplified.

Time to dive into the details and paint a more balanced, nuanced picture 👇

(~7 min. read)

1 - What is risk?

First things first. When talking about “risk” in the stock market, most people think about the chance of losing money. But risk isn’t one thing, it’s a mix of different forces that move prices.

At the highest level, there are two main types:

• Systemic (market) risk: the broad forces that affect nearly every stock. Think interest-rate hikes, recessions, geopolitical shocks, pandemics. No amount of stock-picking can fully escape these waves because they move the whole ocean.

• Idiosyncratic (company-specific) risk: the factors unique to each business. A failed product launch, an accounting scandal, a leadership change. These risks can be reduced simply by owning more than one company.

Understanding that distinction matters, because it defines what diversification can and can’t do for you.

2 - How diversification works

The whole point of diversification is to smooth out the bumps caused by idiosyncratic events and reduce the possibility of permanent loss of capital. If one company disappoints but another exceeds expectations, the overall ride gets steadier.

Now let’s look at what research has to say. The relationship between the number of stocks you hold and the drop in idiosyncratic risk isn’t linear. It’s a curve that falls fast at first, then flattens out. That’s what the visual I posted earlier highlights.

Classic studies like Evans & Archer (1968) and the Elton–Gruber model showed that the biggest drop in risk happens within the first handful of stocks. Add 10–20 reasonably uncorrelated names, and you’ve already diversified away most of the company-specific risk. That’s why the old rule of thumb says: “20 is enough.”

More recent work adds nuance to that:

• Statman (1987) found that to reach the same risk-reduction targets investors used in his models, you often needed closer to 30–40 stocks.

• Alexeev & Tapon (2013) went further, testing across five developed markets and different risk measures. To reduce about 90% of diversifiable risk with ~90% confidence, they concluded you typically need around 40–50 stocks.

• Domian, Louton & Racine found found that, when looking at tail risk (the chance of a disastrous outcome or large shortfall over time) there are still incremental benefits well beyond 50 stocks.

So, to nuance my visual: adding more stocks past 20 does continue to lower risk, but the effect becomes incrementally smaller with each extra name. None of this diversification touches systemic risk though. If the whole market drops, every stock feels it.

3 - When more stocks stop helping

Research broadly agrees on three points:

1. Diminishing returns: Going from 1 to 10 stocks slashes risk. Going from 20 to 40 still helps, but far less. Going from 40 to 100 makes only a marginal difference.

2. Correlation matters: If all your stocks sit in the same sector or move with the same factors, you’re not really diversifying, so you might need more than 20 to get the same protection.

3. Risk floor: There’s always a baseline level of volatility set by the market itself. Diversification can’t lower that.

4 - Putting it all together

Risk is the blend of market-wide waves and company-level surprises that can cause loss of capital.

Diversification is your main tool against it, and it works fast at first. Most of the benefit shows up within the first 20 or so reasonably different stocks.

But research is clear: the curve doesn’t flatten completely there. It continues to decline gradually up to around 40–50 stocks. Beyond that, you’re mostly just padding the edges.

And remember, no portfolio size can diversify away systemic shocks. That’s where asset allocation, cash buffers, a[...]

nd your own risk tolerance come into play.

I hope this write-up helps to clarify things and gives a more balanced take on diversification and risk management.

Thanks for reading! Below is the updated visual to reflect the nuances discussed.

https://t.co/wPiDIi1z72 - Investing visuals
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ToffCap
Daitron $7609is an interesting company, selling electronic components and semiconductor processing equipment.

~55% of market cap in current assets - total liabilities, most of which cash.

After a few years with slowing growth, the topline seemed to have regained momentum over the recent quarters.

Trading at ~3.5x ev/ebitda, Daitron recently started to buy back shares, buying back almost 5% in a quarter alone.

Pretty clean register it seems.
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Yellowbrick Investing
The prominent short sellers’ desires to short the highest momentum stocks while they are on a tear is baffling.

The stocks don’t even turn red on the reports

We're short $BMNR. Report at https://t.co/3bqQCVvys0. The DAT playbook has become basic & unoriginal: as near-identical copycats overwhelm the market, premiums are collapsing and the ability to issue shares well above NAV to boost ETH-per-share is disappearing. RIP DATs🪦🥲 1/8 - Kerrisdale Capital
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Investing visuals
$NFLX vs $SPOT: two of the best streaming businesses in recent years and strong compounders.

Which one would you rather own? https://t.co/rNkVhkLI8g
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Quiver Quantitative
UPDATE: Early this year, Jack Schlossberg, JFK’s only grandson, announced that he bought gold, $GLD.

$GLD is now up 52% YTD.

It has had its biggest rally since the 1970s. https://t.co/SIFMuWslun
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