Our Conversation with Ram Parameswaran, Octahedron Capital – Part Two

Following up on yesterday’s HX Daily, here is the second part of our conversation with Ram Parameswaran of Octahedron Capital.

Again, this was one of the most insightful conversations we have had with any investor in the last decade, and we thought it would be great to share with our readers.

You can also listen to the original podcast episode here or watch it on YouTube below.

Here is the rest of our conversation…

A different definition of the “TAM” and the “growth mindset”…

I actually think TAM analysis is completely wrong when it comes to technology companies. Let's take Uber as an example. When Uber was created ten years ago, most people looked at the TAM and passed. People laughed Travis out of the room for the most part; they said, you're replacing taxis. The taxi TAM is this small; who cares? Well, it doesn't matter because if you talk about, hey, how do people commute in their lives? Is that a way to take a lot of their volumes and put it on the system?

The second important thing is the “growth mindset," the growth behavior of the management team. And number three, and most important, are the unit economics. How do you make money on a per unit basis?

And those three things matter to me more than TAM. In 10 years of doing this, I've got TAM analysis almost entirely wrong—almost every time. My history on TAM analysis is probably like 10%. It's just wrong. It's always surprised me to the upside because I'm not an imaginative person.

Some long-term ideas…

Yeah, generally speaking, it's not our style (finding ten-baggers).

The way I think about this is that you can pick something that, across an extended time horizon of 10 to 15 years, can have that kind of upside. If you find a reasonable quality company you can do it. I can make some recommendations that I think have a high chance of going up ten times if you look at a long-term timeframe.

An example of a company where I have reasonably high confidence this could happen is DoorDash Inc (NASDAQ: DASH). That could be a five-plus bagger on a long-term horizon.

Another one is that there is a reasonably high chance is Uber Technologies Inc. (NASDAQ: UBER). It has the chance to be a five- to ten-bagger on a reasonably long time horizon.

Another reasonable chance is Coupang Inc (NASDAQ: CPNG) in Korea. It has a chance to be a five- to ten-bagger on a longer time horizon.

Finally, I have confidence that Nubank (Nu Holdings Ltd (NYSE: NU)) in Latin America has a chance to be something similar, but you've got to look really, really long and far.

His core methodology…

Company's stocks go up when companies beat numbers. We are looking for companies that beat numbers and beat numbers for the quarter, for the year, and for three years ahead, also, where we have a varying perception of earnings and revenues.