Thoughts, Readings, & Movements (portfolio & otherwise)
Housekeeping, ideas, travel, developments in the port
Out of pure curiosity I ran a poll earlier this week. It broadly asked subscribers what they wanted to see more of. I did this mostly as a way to get feedback on my writing. As the newsletter gets more and subscribers, there’s a very real chance this could be a full time gig. That would be excellent, and I’m keen to keep sharpening the knife to make this happen.
The outcome of the poll should have been unsurprising - almost 75% of respondents were interested in stock specific ideas and analysis. The second most popular poll option was historical case studies. So in the spirit of giving the people what they want I’ll be making a tweak or two.
Firstly, most of my Sunday pieces are already either stock specific analysis (including earnings updates), or case studies. This will remain a permanent fixture going forward - although with more of an eye towards new ideas from here on out (the people have spoken). The midweek piece will centre around general blog pieces. The focus, much as it is now, will be around ideas, general business, and changes in the portfolio. Doing more than one heavy research piece a week is unsustainable while I keep a full time job. Things will stay mostly the same, but hopefully you’ll get more of what you want - although those of you who asked for more memes and the next 10x crypto pump will be left sorely disappointed. Please head back to my Twitter for the unhinged content and dating advice.
Most people who I meet, who are also interested in investing, are usually a little confused as to how my line of work reconciles with my interest in finance. There is virtually no overlap in these two parts of my life. I have spoken about this a little on a podcasts or two, but for the most part I’m a person who is interested in business. Investing seems like a natural extension of a genuine curiosity about how the world works. It is also well suited to those of us who like to work alone.
During my time at University I came to a conclusion that the law wasn’t for me, and also that I really didn’t want to work at a large corporate. I decided to take a road much less travelled, with an eye to ending up somewhere in ‘tech’. All this time I kept investing a long the way - as much to test out my business ideas than it was to make a return on the capital I saved up (which for a long time wasn’t very much).
I ended up at a small internet travel company that traffics in some very niche pieces of software (a kind of OTA in a box solution, a central reservation solution for national parks, and an operating system for visitor centres) and website development. I have learnt a lot a long the way - negotiating with big corporate and government bodies, and starting new business lines almost from scratch has been exactly what I wanted to do. Having done almost everything I set out to, I’m sticking around for a final swing at my own pet project within the business. I think it could get to decent scale - there’s the semblance of a network effect, it would need very few employees to run, and there’s a decent sized unaddressed market which could result in something quite operationally leveraged. What it needs right now is sales and distribution, and I’m the man for that. After this we will see - in the meantime we keep turning over rocks.
I’ve also nearly completed my yearly sojourn to the fair town of Sydney. I have quite a few friends here, and usually I’ll meet an interesting person or two. This particular trip has been excellent on the latter front. I won’t be naming any names, but during some of these caffeine-fuelled chats I did make a point to write down two ideas which I thought were particularly insightful:
“The best businesses in the best industries….”
I have never characterised my own approach in these terms, but I do feel as though this would be an accurate representation of what I do none the less. This was brought up by a couple of guys who I share an alarmingly high level of stock coverage with.
In our modern context, I have and continue to see technology (that would be the convergence of media and information technology) and financial services broadly as the two quintessentially high quality industries. Both are highly leveraged, and are punctuated with franchise businesses. There are network effects, standard moats, and scale economies galore. While it’s impossible to see the future, it’s quite hard at the moment to see either domain be substantially disrupted. Naturally occurring monopolies, money changers, ticket clippers, de facto government tax collectors, and digital newspapers. They’ve been great businesses in the past, and they’ll continue to be great businesses in the future.
Another investing friend once told me that game selection was one of the most important things in life. There may be a substantial difference in the IQ of a real estate agent and a chemical engineer, but the matter of how successful their respective careers are isn’t necessarily a result of grey matter. In investments I feel the same the way - I don’t want to become an expert industrials analyst just to find out there isn’t a dime to be made there.
“Why am I going to get paid here?”
I thought this was incredibly well said. It has also been an idea that I have been grappling with recently. This broadly corresponds to the old adage:
If you’ve been sitting at the poker table for 30 minutes and you don’t know who the patsy is, you’re the patsy!
As I look back over some of my best investments there has always been some disconnect between broad expectations and the reality of a situation. The form is familiar each time, but it’s never the exact same. Some of these are:
Sell-side pessimism driven by a fundamental misunderstanding of events, or the nature of the business,
Uneconomic or forced selling by indifferent or irrational market participants,
Lack of coverage driven by geography, or obscurity of the business,
Lack of investor interest driven by an unusual corporate action or unfamiliar circumstances,
Investor pessimism driven by extrinsic factors which are temporary or not really related to the quality of a particular business.
The more cogently you can argue why a particular opportunity should make you a dollar, the more likely you are to have come across a legitimately good idea.
If I could add my own third, but also related idea, it’s to steal good ideas, kindly. While I believe investment decisions are best made alone (accountability), the further one reaches up the idea generation funnel, the more communal it should become. Some of my best ideas started as a DM from an anonymous Twitter user. Each time I went off an did my own work, and applied my own frameworks, but the marketplace for high quality ideas is an open bazaar not room in a library. What goes around come around too - when we share ideas with each other with fulfil one of our deepest evolutionary predispositions: reciprocity. Reciprocity is virtuous cycle that builds trust and leads to long term mutually beneficial relationships.
In the spirit of all of that I’ll wrap up with a short summary of an idea that has come to fruition, and new one entering the fray…
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