October 2026 Random Ramblings

Summary

• Walker opens with a “brainteaser” on Solstice Advanced Materials (SOLS): the spinoff announced a merger of equals, dropped ~20% in a day or two, then called it off a few months later and bounced ~15% — so do you credit management for listening or distrust them for trying? His tension: no team announces a deal expecting shareholders to hate it, so its capital allocation decisions may be suspect, and “the next one, you might not be able to get out of.” He deliberately leaves it unresolved: “I don’t think there’s a right or wrong answer.”
• The Starbucks–Chipotle rumor (denied on CNBC Oct 11) is “the silliest merger I can possibly imagine” — zero synergies, different kitchens and supply chains — unless you believe it’s a Brian Niccol key-man play. The only logic is Steve Jobs–style: the combined company is worth more under one uniquely talented CEO. The scoreboard cuts both ways: Starbucks jumped $78→$95 on his hire and sits at $93 (flat two years with dividends), while Chipotle went $55→$30 since he left.
• Indices mask a “bloodbath underneath the hood”: the S&P is up ~13% and Russell ~10–11% YTD, yet Walker’s small/value-investor friends are “borderline despondent.” Of ten sector ETFs, all are roughly ±5% on the year except energy (+~45%) and tech (+~35%, concentrated in semis) — if you weren’t long those, you massively underperformed — and the Russell 2000 is down ~8% since June 30, approaching correction territory.
• The “Russell is a broken index” critique — it “cuts its winners and waters its losers” — has perversely worked in its favor. The Russell rode SMCI’s 10x in 2024, booted it, and missed the ~80% accounting-allegation collapse; this year it kicked AI winners like Bloom Energy (alone ~1.5% of Russell return) around their June peaks, dodging subsequent drawdowns.
• Monopolies that push pricing too hard invite unexpected competition: FICO drew a government crackdown, and with Dune 3 reserving IMAX theaters, Disney is trying to launch “Infinity Vision” and pitch it to other studios for the Avengers weekend. The lesson for investors who say “I wish this management would just pull that pricing lever harder”: push enough and “somebody’s gonna figure out a way to bring supply or competition online in one way or another” — as Walker also illustrates with Valeant.
• Netflix’s real threat may not be Disney or HBO but Chinese-produced microdramas — essentially Quibi “a little bit ahead of its time” — now a big, data-driven business of short, formulaic clips. With Netflix at ~$70 vs ~$110 before the Warner Bros. bidding began, the bear question isn’t a terminal zero but whether in 10 years people watch far less scripted TV in favor of cheap, targeted quick bites.
• Oura delayed its IPO at a proposed ~$15B valuation, which Walker thinks may have been buoyed by the prospect of monetizing unique wearable data in an AI world. His hunt for second-order AI windfalls leads to homebuilders: Lennar is down 25% YTD to ~$75, around book value, with Berkshire buying. If AI firms paid to install equipment in new communities, that could give current lots a one-time ~5% uplift before competition bids the return away; Oura’s data could instead be an ongoing benefit.

Deep dive

1. The SOLS brainteaser: do you credit a management team for killing its own bad deal?

• Walker’s setup, from memory and off the cuff: Solstice Advanced Materials (SOLS), a spinoff from about a year ago that “every value investor is gonna look at,” announced a merger of equals that investors “hated for 1,000 different reasons” — the stock dropped ~20% in a day or two. Months later both sides walked (no break fees, as he recalls), and the stock rose ~15% — still down a little overall since the announcement, and “people were kinda looking at this company with a little bit of more funny eyes.”
• The bull read: “they took a shot, but they were willing to listen to feedback” — mental flexibility after months of diligence and a signed contract is rare and valuable. The bear read: no management announces a deal thinking shareholders will hate it, so “you can’t trust the management anymore… You got out of this one. But the next one, you might not be able to get out of.”
• He extends the test to smaller settings: if you tell a management team in Q1 that its pricing approach is wrong and it comes back in Q2 saying “we took your idea under advisement… we implemented it” — “you’d love to hear that.” On SOLS itself: “I don’t think there’s a correct answer on bullish or bearish, but I think it is interesting to play around with.”

2. Starbucks–Chipotle only makes sense as a one-man visionary thesis

• Starbucks denied the Chipotle acquisition rumor on CNBC the day before recording, but Walker lingers on it as “a merger with probably the least amount of synergies two companies in the same industry could possibly have” — different supply chains, different kitchens; unlike Yum’s Taco Bell/KFC, which at least share meat and cheese buying and can co-locate, “you can’t even put a Starbucks and Chipotle under the same roof.”
• The only coherent rationale: Brian Niccol, announced as Starbucks CEO in August 2024 and joining later that year, had been Chipotle’s CEO — “this merger doesn’t make sense unless you think Brian Niccol is so uniquely qualified that Chipotle and Starbucks under him is worth more than anyone else. In that case, there actually are synergies.” He analogizes to Steve Jobs and Pixar: when Disney bought Pixar, Jobs was on the board, and the deal could help keep a unique creative talent involved.
• The evidence is “in the eye of the beholder”: Starbucks went $78→$95 on the announcement and trades at $93 — basically flat over two years with dividends — while Chipotle fell $55→$50 on his departure news and sits at $30 now. Either “he brings the juice back” and there’s a lot of upside, or “maybe he was riding trends… Starbucks hasn’t exactly done great under his stewardship.”

3. State of the markets: double-digit indices, despondent investors, and the “broken” Russell dodging bullets

• Walker’s definitional aside first: he’s a value investor in the sense that “I want to invest rationally… buy things for less than they’re worth,” not the common usage of “I buy stocks at under 10 times price earnings.” His friends skew that way and toward smaller companies — and despite the Russell up 10–11% and S&P up ~13% YTD, they’re “borderline despondent,” frustrated enough that, blind, he’d “have guessed indexes were down 15% on the year.”
• Two drivers: the Russell 2000 is down ~8% since June 30, and sector dispersion is extreme — of ten big sector ETFs, everything sits around ±5% except energy (+~45%) and tech (+~35%, largely semis). “If you were not long tech/semis or energy… you are massively underperforming the indices.”
• The old complaint that the Russell “cuts its winners and waters its losers” — booting stocks that grow and over-indexing to the billion-dollar-cap stagnators — has lately been a feature. SMCI went up ~10x at the start of 2024, got kicked, then faced accounting allegations and fell ~80%. Walker recalls a wild auditor resignation letter: the auditor would confirm only that it had been SMCI’s auditor, and wouldn’t sign off on anything in the company’s financials. The Russell rode the up-leg and missed the crash. Same pattern this year: AI winners like Bloom Energy (adding ~1.5% to Russell returns alone) were kicked around their June peaks, just before “the situational awareness blow up,” and are down quite a bit since. “I don’t know what to take away from that, but I think that’s very interesting.”

4. Unexpected competition: FICO, IMAX, and the micro-drama threat to Netflix

• The pattern Walker keeps seeing: near-monopolies that push pricing too hard trigger a competitive or regulatory response. FICO — high P/E plus government-induced competition, “not a great combo” — is down quite a bit this year. Walker says IMAX pushed pricing with its real customers, the studios, including effectively telling Disney “go take a hike on Avengers” when Dune 3 reserved all the IMAX theaters. Disney is trying to launch a rival “Infinity Vision” format and pitch it to other studios, apart from Warner Bros. He also cites Valeant from 10 years ago as an example of pricing provoking a response. His warning to investors who always want management to “pull that pricing lever harder”: push enough and “there is always going to be a competitive response.”
• The Netflix angle comes via a New York Times piece on microdramas — short, formulaic, twisty clips (Walker gives the example of 20 90-second clips), portrayed as low-quality soap-opera-type shows with increasingly popular stars. They are filmed in English, with Chinese producers giving the cast data-driven notes, such as “we need to see blood on the screen.” It’s basically Quibi — Jeff Katzenberg and Meg Whitman’s mocked 2020 venture, whose intended phone-viewing use case was disrupted by COVID — and Walker thinks it may have been “a little bit ahead of its time.” Quibi shut down within a month or two.
• Netflix itself said “our competition isn’t HBO… It’s YouTube. It’s sleep.” Walker’s point: with the stock at ~$70 vs ~$110 before the Warner Bros. bidding, the bulls citing an unassailable distribution moat “are probably right,” but the right question is whether people watch as much scripted TV in 10 years — “if they’re spending more time there, they’re spending less time on Netflix… that type of competition coming is how something can break.”
• The quote that stuck with him, from an actor on the data-driven scripts: Chinese producers sent the line “How dare you, you lowborn peasant!” and the cast had to explain, “peasant isn’t really what you would call someone in America.”

5. Oura’s delayed IPO and hunting for second-order AI windfalls — his candidate: homebuilders

• Oura delayed its IPO after trying to price it at a “just absolutely insane” ~$15B valuation and seeking to raise $2.2B — best joke: it “just had a low readiness score.” Walker, a WHOOP user, thinks investors may have valued Oura’s unique body data for its potential use in an AI world; he says the company seemed to be trying to raise money on an AI play. The same business ten years ago “would’ve been raising nowhere close to $15 billion.”
• A side risk he admits he didn’t think of until rambling: dedicated trackers versus the Apple Watch and Google-owned Fitbit. Does specialization win, or the cheaper general-purpose device? “How do you think Kodak feels about its specialized camera business when the iPhone comes around?”
• Many first-order AI effects have already happened: crypto data centers built for “Bitcoin to the moon” turned out to be worth 10x more running as AI centers; an EV charging company with power allocated for something like 10,000 trucks a day could consider redirecting that power to data centers. His second-order idea: homebuilders, sold off on rates and other concerns — Lennar from $100 to $75, around book value, with Berkshire (not Buffett anymore) buying.
• If AI firms paid builders about 5% of a home’s value to install equipment — “AI data trackers or whatever it is” — across new communities, current lots could be worth 5% more. Walker’s crucial distinction: that homebuilder windfall would be one-time, because future land buyers would bid more knowing about the AI return and compete it away. Oura’s existing customer and data base, by contrast, might provide an ongoing benefit.
• Off-thesis, he ran HYROX in Boston with his buddy Logan and had a great time. He’ll probably do Miami HYROX in late March and says he has “six other different topics” he didn’t get to.