Old School Value Nugget Fest (September 4th Edition)
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I was listening to a business podcast this week that talked about how, as an entrepreneur, you have to do what you love and/or believe in, because it’s just so hard.
Then my wife told me about some advice she’d heard: that you have to do something you’d be willing to eat a shit sandwich for. There’s always going to be shit sandwiches in anything you do, but for what are you willing to eat them without complaint?
This sentiment was echoed by the Collaborative Fund article below, which has a nice translation to what that means in the world of investing: you’ve got to invest in companies you care about because otherwise, you’ll never be able to stick with them.
I don’t take this to mean I have to be passionate about the companies I’m investing in, but I have to believe in what they’re doing or how they’re doing it to a point where I care and develop conviction. The double-whammy of losing money and not caring about the company is too much, so you have to care.
Best,
Mike
Gurus
The Big Short’s Michael Burry Sees a Bubble in Passive Investing (Bloomberg)
“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally.”
However, I highly recommend reading this rebuttal: The Real Bubble has Always Been in Active management (The Reformed Broker). “The twenty year period from 1987-2007 was the real aberration. What’s happening now is a reversion to normalcy.” (This does not mean that small caps aren’t being ignored, though.)
Not My Guru (Humble Dollar)
“The lesson here isn’t that David Swensen is or was wrong. So what is the moral of the story? Conventional wisdom isn’t always mistaken and it’s folly to slavishly imitate the master investors. Instead, we need to master our own worst impulses—one of which is to rejigger our portfolios every time the gurus speak.”
Markets & Investing
From Shareholder wealth to Stakeholder interests: CEO Capitulation or Empty Doublespeak? (Damodaran)
“In my view, a much healthier discussion would be centered on creating more transparency about how corporations treat different stakeholder groups and linking that information with how they get valued in the market.”
When Will Value Stocks Perform (Klement on Investing)
“Thus, we are left with the third major possibility for value stocks outperformance: a proper bear market… When overall market returns for the preceding two years were positive, the value premium disappeared, while the value premium shot up after a two-year period with negative market returns.”
You Better Love This (Collaborative Fund)
“Invest in a promising company you don’t care about, and you might enjoy it when everything’s going well. But when the tide inevitably turns you’re suddenly losing money on something you’re not interested in. It’s a double burden, and the path of least resistance is to move onto something else.”
Better Is Fragile—Different Is King (Ramp Capital)
“Successful people are different people. To do something better means it’s already been done before. To do something different means it’s something new—it’s singular.”
Company & Strategy
Framework for Evaluating Enterprise Software Companies (SlideShare)
Some good nuggets in here, though I think he conflates business models with customer/user acquisition models, which confuses his message.
“He’s Full of Shit”: How Elon Musk Gambled Tesla to Save SolarCity (Vanity Fair)
“When Tesla bought SolarCity, it said the deal would add more than half a billion dollars in cash to Tesla’s balance sheet over the next three years. But it appears to have had the opposite effect. ‘I think it’s a big source of the cash-flow deficit,’ says one longtime analyst. ‘I think it is a big thorn inside of Tesla.”
LaCroix Won the Bubble Battle, But It’s Losing the Sparkling Water War (Bloomberg)
“For all the genius Caporella once attributed to LaCroix, it turns out that just about anyone can inject carbon dioxide into water, flavor it, and package it.”
How Uber Got Lost (NYT)
“It wasn’t unheard-of for a new hire to enter Uber’s headquarters having never managed any significant enterprise, and be sent out to take over a new city.”
“The premise and the promise of this whole [DTC health care space] is that it’s a huge industry, there’s a lot of repeat purchases, and so there is a huge lifetime value promise,’ said Richie Siegel, founder of retail consulting firm Loose Threads. ‘The flip side is to do that, you have to build an immense amount of trust and deliver on that trust consistently over, over, and over again.”
How Amazon’s Shipping Empire Is Challenging UPS and FedEx (WSJ)
“Amazon is no longer handling a small glut of overflowing orders. It is the primary carrier of its brown boxes. The shift over the past few years is staggering… Amazon now delivers nearly half of its orders, compared with less than 15% in 2017.”
Podcast
Mastering the Art of Investing (AOM)
Art of Manliness May 2019 episode. “When it comes to investing, your brain can be your best friend or your worst enemy.” Brett interviews Daniel Crosby, behavioral finance expert, and the author of The Behavioral Investor.
