Blog

Tren Griffin on Richard Zeckhauser

“People feel that 50% is magical and they don’t like to do things where they don’t have 50% odds. I know that is not a good idea, so I am willing to make some bets where you say it is 20% likely to work but you get a big pay-off if it works, and only has a small cost if it does not. I will take that gamble. Most successful investments in new companies are where the odds are against you but, if you succeed, you will succeed in a big way.”

Much useful information about the need to overcome loss aversion AND the difficulty of visualizing an amazing result. Solution? Learn to look for situations as described. I’ll be looking more into this.

https://25iq.com/2018/09/08/risk-uncertainty-and-ignorance-in-investing-and-business-lessons-from-richard-zeckhauser/

Tren Griffen on Proprietary Product Distribution

Businesses that can create proprietary product distribution are modern day alchemists.

“Proprietary product distribution is a customer acquisition system that is within the control of the business itself and which generates a customer relationship that the business owns.” This is in contrast to paid ads, which are increasingly less effective.

“Proprietary product distribution is the only approach to acquiring customers that can generate the necessary scale to create businesses with multi-billion dollar valuations.” There are also businesses which are a mix of proprietary and mixed. He uses the example of Disney, with its own network and also ads in other places.

And a nice bonus quote from Jeff Bezos, “The balance of power is shifting toward consumers and away from companies…the individual is empowered… The right way to respond to this if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service and put a smaller amount into shouting about it, marketing it. If I build a great product or service, my customers will tell each other…. In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts.” “Your brand is formed primarily, not by what your company says about itself, but what the company does.”

Interview with Anthony Deden

European wealth manager on picking companies for “permanent” investment. Looking for durability, thinking like an owner, and how to think about competitive advantage. Also advises to completely separate oneself from the financial industry, for example, growth through acquisition is “an accident waiting to happen”, and projected financials are worthless. “I’ve never had an investment idea from reading the news.”

https://www.youtube.com/watch?v=a4_U6bS-cU4&feature=youtu.be

Notes: https://saetacapital.com/2018/06/10/notes-from-anthony-deden-interview-by-grant-williams/

Transcript: https://www.slideshare.net/malpani/interview-with-anthony-deden

 

 

 

Chris Voss interviewed on negotiation.

As Chris Voss says, if you are thinking “I want”, you are in a negotiation. If I must negotiate, I will try to be half as good as Chris Voss. He has given a number (100?) of similar interviews promoting his book, “Never Split the Difference”. He is claiming to take “Getting to Yes” and updating it with some modern mental models, especially loss aversion. Many hacks as well as deep wisdom, especially about listening.

https://fs.blog/2018/01/chris-voss/

 

Patrick O’Shaughnessy on Momentum vs. Glamour

A paper and Twitter thread on factor investing. The first half of the paper talks about value investing. Returns are primarily based on the market’s recognition of stabilizing fundamentals and thus multiples expand.

An offshoot is that outperformance for a given security tends to continue for years. This is also consistent with a strategy of buying what’s hated.

Momentum vs. Glamour is also well explicated. In fact, the most successful momentum strategy suffers from multiples *decreasing* every time the portfolio is rebalanced, but earnings growth outweighs that.

The lesson for investors is that if you want to find companies that are going to experience strong upcoming growth, you should look for companies with strong recent returns [Momentum], not companies trading at high valuations [Glamour]. Empirically, strong recent returns are a much better predictor of future growth than simple expensiveness.

An interesting offshoot is that for the momentum strategy, outperformance of a given holding ends after a year.

http://osam.com/Commentary/factors-from-scratch

The Danger of Chasing Margins (Clayton Christensen)

I’ve always been leery of focusing on margins. I think because I would look at other successful companies and see they did not necessarily chase the high margin business. The ticket size matters. The CAC matters. The long term market stability matters.

I was just reminded of this by this anecdote about large enterprises leaving the low margin segment. The competing companies in that segment eventually moved into the high margin segments as well. Point being that based on profit analysis, it was rational.

Clayton Christensen: Disruptive innovation

Or maybe there are just too many factors to generalize.

Another main point of the article is that Innovation/Disruption takes the complex and replaces it with Simple and Affordable. Mainframe > PC > Laptop > Cell Phone.

As an aside, what will replace the cell phone? Pencil and Paper? Worked well for me.

Here, Prof. Christensen makes a clearer statement of his theory (around 12 min mark).

Creative Disruption & The Innovator’s Dilemma | Clayton Christensen (HBS & Author) @ Startup Grind

If you try to make a better product than incumbents, they will kill you. The successful disruptors always enter at “the bottom” of the market. I believe he means the least expensive end of the market.

Also includes the milkshake story; the customer is not the right unit of analysis, it’s the job that needs to be done. In the case of the milkshake, it works as something to eat on a commute. The characteristics of the person matter little.

Adventur.es on acquiring, Search Fund whitepaper

If you wrongly assess the situation, and have a team that needs constant direction, makes unwise decisions, or creates a bad culture, you’re screwed. After a crash, it’s nearly impossible to get the train back on the tracks.

Someone has a way with words, lol.

https://www.adventur.es/how-to-acquire-your-first-smaller-company

I think my favorite Brent insight, which he did not include here, is that a business needs a mix of Messy and Un-messy people to work. He probably prefaced that with, we’re all messy, but I’m not sure. I’ll try to dig up the exact quote.

 

And the interesting link about search funds, including some typical metrics,

THE EVOLUTION OF ENTREPRENEURSHIP THROUGH ACQUISITION