Missed you last week. Life got busy. It happens.
But I owe you the WING verdict I promised. So let's start there.
The answer is pass.
Not for the reason you'd guess.
The question that started this
Several months ago, a friend — shout out Steve S. — asked me a question I couldn't shake.
What's the actual mechanism of compounding?
Not "what stock should I buy." Not "what's cheap right now." The mechanism. Where does the return actually come from.
I've read a lot of capital allocation books over the years. I gravitate toward Buffett/Munger, because it feels the most timeless. But chasing Steve's question backward through all that reading, I realized I don't run one strategy.
I run three. Sometimes separately. Sometimes stacked on top of each other.
And the investments that have all three going for them? Those are the ones that really shine.
Let's dive in.
1. Cigar Butts
The classic Graham/Dodd approach. Early Buffett's whole career.
You buy an asset for under its intrinsic value. You wait for the correction, and sell once it happens. Essentially, you got one last puff out of that cigar butt.
Where the compounding comes from: Market perception re-rating. Temporary pessimism correcting back to reality.
Biggest risk: value traps. Things that look undervalued but are, in fact, correctly valued. You bought a wet cigarette, not a discounted cigar.
2. Quality Compounders
The style Munger converted Buffett to.
You look at a company's ability to generate returns on invested capital, and whether its competitive advantage lets it keep doing that for a long time.
Where the compounding comes from: The business. Full stop. The management team and the organization do the heavy lifting.
Biggest risk: overpaying. This is exactly why Buffett said he'd rather buy a great company at a good price than a good company at a great price — the line that signaled his break from cigar-butt thinking.
3. Structural Investing
This one's mine. Built up over years, and if I had to name the influences, it's some blend of Dalio, Taleb, Diamond, Shiller, and Bezos.
Here you're not asking what's cheap or who has a moat. You're asking: what is most likely to happen over the long run, and how do I position for it before it's obvious.
Where the compounding comes from: Adoption and normalization. The world moving toward the thing you already bet on.
Side note: it also falls on you
Here's the thing I glossed over above. In every one of these three, the compounding still runs through your judgment. You're the one deciding what's mispriced, what has a moat, what's about to get adopted. There's no strategy that removes you from the equation.
But the three don't lean on you equally.
With a quality compounder or a structural bet, if you're right about the pick, the business or the wave keeps doing the work for you — for years, without you touching anything. With a cigar butt, there's no business doing the work and no wave carrying you. It's just you, your read on the mispricing, and your timing. Get it wrong and there's nothing underneath to catch you.
That's the real risk in cigar butts. Not just value traps. The fact that they amplify how much of the outcome is riding on you personally.
They're not MECE
You can find an investment with all three:
It's cheap relative to intrinsic value
It has a great moat
It has a multiyear tailwind
Structural tailwind + great capital allocation + reasonable price = the rare investment that actually deserves conviction sizing.
That's the screen now. Not "is this a good idea." All three, or it's not a top position.
So, WING.
When I ran it through the screen, I wasn’t impressed.
Moat — maybe. The franchise engine is still throwing off cash — Q2 net income and EBITDA both grew even while same-store sales fell. But growth right now is almost entirely new units, not existing stores selling more. Same-store sales have been negative for five straight quarters.
That's the Subway problem. Subway didn't die from an outside shock — it died from exactly this pattern: explosive unit growth, squeezed franchisees, stagnating comps, right up until it wasn't unstoppable anymore. A moat that only holds up while you keep opening boxes isn't the same as a moat like Coke's, where the existing footprint just compounds on its own. That's not proven yet either way.
Structural — no. The one I wanted to be true and isn't. The traffic decline is concentrated in lower-income consumers, with a live open question about whether GLP-1 adoption is permanently shrinking the eating-out market. At best, it’s unresolved.
Price — no, even adjusted for growth. Down ~70% and still trading at a premium to the sector, with a PEG ratio around 3-5x against a "fair value" of roughly 1x. Worth asking what kind of growth is priced in, too — mostly unit growth, not same-store. You're paying for growth that's partly self-manufactured.
Zero out of three. Good business model, unproven moat, muddy tailwind, still not statistically cheap. Not a hell-no-forever. A pass — until the comps show the moat is real without the unit growth doing the work.
Got your own version of this screen? Reply and tell me what you use to size conviction. I'll feature the best ones next issue.
