5 Key Ideas To Wrap Up The Year
I’ve been absent for a long time since markets have basically remained over-valued and I had no real new opinions to share.
But I decided this substack doesn’t necessarily have to remain purely investing focused - it just has to bring you value. Just note that the following topics will vary widely in topics and this introduction is meant to prevent mental whiplash.
Let’s dive in.
#1 - Buy Companies That Provide Stability To The Volatile Human Life
There are disruptors, companies like Meta back before social media ever had a real existence, or Grab/Uber/-insert random ride hailing app name, disrupting taxi services.
Then there are companies like Watsco, NVR, Otis, Kone, UNP, ICE, EXPD, EPD, MMP - companies that bring stability and operate critical infrastructures that enable modern life and lower total volatility across human existence.
I hesitate to name these companies “low-beta” companies or simply “low volatility” companies, but the central idea remains around buying companies whose cashflow are tied to non-discretionary expenses in the truest form of the word.
And by non-discretionary, I mean that these are the kinds of cash consumers would pay even before they pay rent and food. Insurance and travel is a good example. Most people are hesitant to be uncovered by insurance or to be without a mode of transport (in the US particularly). If you can find an ethical, profitable business, reliant on such concrete cash streams (without being predatory), buy it. Otis, Kone are such examples, though their valuations remain stretched. Meta is such an example for tons of SMEs, whose main ability to earn any form of revenues are through creative marketing methods to distinguish products/services.
Moving on.
#2 - Aim To Solve Problems Versus Complain Or Bitch About Them, Bonus if You Can Learn To Use The Process To Reduce Your Own Stress
I have a bad habit of bitching about problems while simultaneously solving them.
The issue isn’t that you can’t or shouldn’t be grieved about them. Being grieved about a problem is natural. It’s how you know you’re still human.
Rather, it’s how you deal with your own emotions arising from it that is the issue. Too much mental time, energy, and effort, has been spared by me towards being angry about problems when I could have just moved on and focused on solving problems and just making my life better.
There are tons of minor issues that will crop up day to day and like Matt Damon in “Martian”, you just kinda have to solve problems one at a time and push forward.
Mind you, solving problems one at a time and pushing forward requires energy all on its own. Next time you find yourself getting angry or irritated about something, just ask yourself if the energy is better spent moving on and doing other things or solving the issue at hand.
As a bonus, I’ve learnt the process of simply focusing on solving the problem actually lowers my overall stress versus complaining about something and then having it heightened.
It might seem/sound pretty basic, but actually putting this into practice is pretty difficult.
#3 - Get Good At Identifying Incentives, Outcomes, Goals, and Processes
If you walked out onto the street today and asked someone what constituted a “good investor”, a lot of people would probably chime back with some or all of the following:
A nose for “good businesses”
Can find good ideas regularly
Knows how to spot “value”
Bargain hunter
Not many of them would give the answer of “someone good at identifying incentives and key outcomes of those incentives”.
What I’ve noticed about some of the best investors in the world and in business are that they are extremely focused on aligning incentives/business outcomes. Granting reasonable, decade long vesting stock based compensations versus high cash-pay for c-suite executives for example is a form of long term incentives alignment. Especially when more stocks are granted for better financial outcomes over the long run.
In the same vein, granting stock options for simply moving the share price of a company up without moving up free cash flow would be quite disingenuous (I’m looking at you Tesla), since the move up in stock price would not quite necessarily be correlated with better financial health, higher roics, or better free cash flow generation. Autozone does this really well and I highly recommend investors check this particular aspect out more. I would prize this more highly over #1 since even a good business can be easily destroyed by misaligned incentives.
#4 - What Do You Bring To The Table?
Constantly ask yourself what you bring to the table. Civilizations evolved because early mankind split itself up into groups and silo’d their skillsets.
Someone got really good at farming.
Someone got really good at fighting.
Someone got really good at governance and processes.
Someone got really good at manufacturing goods.
The list goes on.
Today, that trait remains, though modern economics have broadened the competitiveness and provision of said goods/services and processes. IE; we have more than one food source, more than one energy source, more than one source or clothes, medicine, weaponry, products, billing systems, etc cetera. And the competition ensures survival of the fittest.
But back to the point - what do you bring to the table?
This question isn’t intended to be a rude awakening or even an insult. It’s meant to be procedural.
If you look at a marketing agency for example, there are often various roles:
Team leader - the person who interfaces with client bosses and lands the deal
Consultants - executors on the ground bringing together the marketing processes to deliver an outcome.
Designers - whose goal is often to come up engaging/eye-catching designs, seamless website experiences, etc cetera
Web developers - there to bring up and solidify the web experience, clear out issues/bus, deliver the final product
Obviously, roles and responsibilities vary, but its a useful framework to use because each role brings something unique and valuable to the table.
So what do you bring to the table? Sometimes, the answer to that question is simply “a problem solving focused mindset that doesn’t quit”.
Other times, there’s more. Maybe you have years of experience and can foresee problems. Maybe you have a flair for creative copywriting. Maybe you’re a design whiz. Maybe you’re a coding expert. Whatever the case is, you need to bring something to the table, so you can eat at the table.
If you’re not bringing something to the table, you’re not particularly valuable. Which means you’re replaceable. If that is truly the case, get working on bringing key value to the table. If you already do, work harder to bring even more value. When you apply for a job, you’re asking for a seat at the table.
When you want to be paid more, you’re asking to get more from the table at the expense of everyone else. The bar for you to get more is therefore justifiably higher.
Everyone at the table has to be able to at least look your way and say “yeah, they do deserve one more slice of the pie”.
So get working on what you bring to the table.
#5 - Think About How You Want To Die
Think about how you want to die. Truly.
How would you deal with it? How do you wish to go? Surrounded by wealth? Doctors? Patrons? Friends? Families? Loved ones?
Everything has a cost.
If you want to die surrounded by family, you need to have cultivated a family that naturally cares a great deal about you.
If you want to die with no regrets, you need to have thought very carefully about the deepest (not darkest) desires you have in life and whether or not you have accomplished them.
Death is an uncomfortable, ghastly topic. We are not, as a species, programmed to think about it. Ironically, its only through thinking about we would want to die would we have been able to think about how we want to have lived.
In the Blacklist, a criminally under-rated show, James Spader (again, criminally under-rated actor) said this while trapped in a glassbox surrounded by his enemies: “Have you ever sailed across an ocean, Donald? On a sailboat, surrounded by sea with no land in sight, without even the possibility of sighting land for days to come? To stand at the helm of your destiny. I want that, one more time. I want to be in the Piazza del Campo in Siena. To feel the surge as 10 racehorses go thundering by. I want another meal in Paris, at L'Ambroisie, at the Place des Vosges. I want another bottle of wine. And then another. I want the warmth of a woman and a cool set of sheets. One more night of jazz at the Vanguard. I want to stand on the summits and smoke Cubans and feel the sun on my face for as long as I can. Walk on the Wall again. Climb the Tower. Ride the River. Stare at the Frescos. I want to sit in the garden and read one more good book. Most of all I want to sleep. I want to sleep like I slept when I was a boy. Give me that, just one time. That's why I won't allow that punk out there to get the best of me, let alone the last of me.”
And while I admit I am not the artsiest of people, I do admit to wanting to do literally everything he has said at least once before I die. And that his little tv speech has inspired me to at least think about what I’ve wanted to accomplish/do before my life is truly over.
Live well, dear readers. And think about how you want to die.