I’ve been investing now for 13+ years and have ignored my own advice that writing galvanizes ideas making them durable and referable to others.
In an effort to codify my investing decision-making process and rationalize why I currently invest in what I do, I’m writing down my assumptions and how they inform my investing thesis.
Assumption #1: The Failings of Conventional Wisdom & Best Practices - The Implications of Exponential Technology
The proverbial "those who do not learn history are doomed to repeat it" should be balanced by how important it is to explicitly heed the modern world and notice that things change. To pay attention to now is not an ignorance of history; it is one of history's main teachings.
A linear model in an exponential world is an encumbered framework. Conventional investment wisdom underestimates the exponential implications of technology. In doing so, it’s demonstrated its inability to price the upside asymmetry for disruptive and innovative companies.
Conventional investing wisdom prescribes certain investment behavior based on a company’s historical performance, valuation against that performance, and forecasting (using financial concepts like EPS, P/E ratios, DCFs, liquidity metrics, leverage, etc.). In the past 20 years though, if you had followed that conventional wisdom, you’d have missed out on the best investment opportunities and the companies behind them (Amazon, Tesla, Netflix, Shopify, Nvidia, etc.).
Rapidly declining unit-costs for disruptive technologies—spanning AI, EVs, automation, 3D printing, genomic sequencing, etc.—stack in such a way that forecasters severely underestimate their impact over meaningful time horizons. For example, DNA sequencing costs have fallen >1,000,000-fold during the past 15 years.
"The greatest shortcoming of the human race is our inability to understand the exponential." - Albert A. Bartlett
Furthermore, software has driven the marginal cost of production to zero and afforded technological leverage to amplify the capabilities of individuals. What used to require millions, multitudes, and years is now possible with thousands, individuals, and immediacy. The nature of work has changed and exponential technologies afford society more with less.
Assumption #2: Learning in Practice is Better Than Learning in Theory
Conventional wisdom taught me best practices, in theory. In practice, those best practices did not align with my own reality and observations.
Learning in practice is better than learning in theory. No matter how many books I’ve read, having money in the stock market has proven the best way to learn about investing in the stock market.
It is one thing to read Charlie Munger’s work on mental models and behavioral biases, Morgan Housel’s cannon on frugality and psychology, Nasim Taleb’s incerto on risk and asymmetry, Seth Klarman’s book on margin of safety, and Ben Graham’s take on value investing - but until you have money in the market and experience your own biases, financial psychology, tolerance for risk, and outlook, it is all theoretical.
Having skin in the game - money in the market - allowed me to deduce my own assumptions about the implications of exponential technology and to formulate a thesis around how to best capitalize on it.
Why invest in the first place? It is a simple question with an obvious answer, but it is worth making explicit. Invest to make money! The easiest way to grow your capital over a meaningful time horizon in the past century has been to simply invest and let compounding take effect. Again, it is very different to read about it and to experience it yourself.
This is not a suggestion to forgo the theory. What people have already figured out and written down is the best intellectual shortcut that exists. Mentors need not be someone you know. Check the internet. Browse a book. Wisdom is abundant, counsel is free, and there are so many who have been kind enough to write their ideas down making them referable and accessible to anyone curious enough to read. Mentors transcended limitations of time as soon as people could write:
"From no age are we shut out--we have access to all ages--and if it is our wish...to pass beyond the narrow limits of human weakness, there is a great stretch of time through which we may roam" - Seneca ~49AD
This is a suggestion to reason for yourself. A conventional piece of wisdom that holds true is to reason from first principals. I’ve deduced the world is changing and made the assumption that some conventional wisdom no longer applies. These are assumptions I have made bets on; I have put my money where my mouth is by investing in them.
These assumptions inform my investing thesis.
My investing thesis revolves around:
Simply, if a company satisfies these criteria, I’ll invest.
Relevance gauges how important a company is today. If it disappeared tomorrow, would society notice, care, or be affected in any material way?
Longevity and optionality gauge a company’s ability to sustain relevance into the future. Two decades from now, will the company exist at all? If the company still exists, will it be valued for what it is relevant for today or for something else?
Beneficence is a reflection of my own values. Investing is a choice. There’s no reason to invest in a company that does not align with your values, even if it’s relevance, longevity, and optionality are strong. Is the success of this company a good thing for the world? Given the subjective nature of that question, the personalized corollary is whether this company’s mission aligns with your values? In the same way employment represents a choice indicative of your values and how you spend your time, investing represents a choice indicative of your values and how you spend your money.
When you invest in a company, you are not simply buying a financial asset, you are becoming an owner of that company. I only want to own companies that I believe are doing good in this world.
Ultimately, we are the stewards of our planet which is a sobering responsibility considering our descendants comprise indefinitely many generations if we operate responsibly and play our cards right. If we play our cards anything but right, and proceed as recklessly as we are, we are practically denying those generations the right to exist. If we are all to deploy the limited capital we have, we may as well try and align it with the companies we think are forging a better future state.
We’ve all won the lottery. I’d wager some of my lottery winnings that each of us has some idea of what we’d like to do with a lump sum of money to spend at our sole discretion.
The lottery we’ve all won however, is not a lottery of money, but one of time. We’ve all been afforded a lump sum of time to spend at our sole discretion.
We’re taught that “time is money”, as the old aphorism goes. The equivalency drawn between time and money is the opportunity cost of time spent in a particular way; any time not spent making money, could instead be spent making money.
Alternatively, time is money could be viewed through the financial power of compound interest. The longer time has to work the magic of compound interest on money, the more money there will be. If the equivalency holds though, we ought to think about how to allocate, spend, and invest time as we would our money.
But it does not, and we do not.
Pay attention is a sad double entendre. What you pay in exchange for your attention is your time and there is no refund policy. Fewer companies today are competing for our money; far more companies are competing for our attention and are in competition with how we spend our time. Reading is their competition, sleep is their competition, exercise is their competition — anything we spend our time on beyond the confines of their time-taxing offerings are their competition. Our time is their money.
And our time is a strictly waning resource; money comes and goes, time goes.
Consequently, we should be more discriminating, more frugal, more systematic, more thoughtful in our allocation strategy of time. Where an entire financial industry exists for financial planning, budgeting, combating behavioral economic tendencies that harm investments, advisory services and management, for time, we’ve been left to our devices — with an increasing range of attention traps eroding our time — to form a long term perspective and good habits. For all the effort we expend on financial plans, it may behove us to do the same for temporal planning — what are the things you enjoy spending time on the most, what’s the return on time spent, what are the metrics, how do you quantify it?
While time can be money, time is a more valuable asset than money. Time is freedom. Money can’t buy time.
Main Public Market Investment Holdings (>90% as of January 2020):