18/52: More, 'Charlie says...'

#CapitalAtRisk

Above: Poor Charlie’s Almanack

The 2010s was the decade of the Entrepreneur. The 2020s will be the decade of the Investor.

“Many people believe that owning a hundred stocks makes them more professional investors than owning four or five. I regard this as lunacy”

Charlie Munger

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Charlie on…

I’m still reading Poor Charlie’s Almanack. I have one chapter (each is a talk of his) left to read and the last is, The Psychology of Human Misjudgement speech (this one with some revisions and notes).

Here are some notes on my top four take-aways from the last couple of chapters I read this weekend and how I interpret them for my work.

1. On ‘Man with a Hammer’ syndrome

To a man with a hammer, every problem looks like a nail.

In venture it often seems that VC General Partners (the GPs are the people who make the investment decisions for their funds) are highly incentivised to buy something. I’ve seen this most from S/EIS funds as they have ‘use it or lose it’ tax breaks for UK investors.

Great investors get great returns, and many would do better to think as farmers rather than hunters chasing for fear of FOMO.

2. On efficiencies and second-order thinking

In all the cases, the people who sell the machinery — and, by and large, even the internal bureaucrats urging you to buy the equipment — show you projections with the amount you’ll save at current prices with the new technology. However, they don’t do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I’ve never seen a single projection incorporating that second step in my life. And I see them all the time.

Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years”.

So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you've earned a return of only about 4% per annum. That's the textile business. And it isn't that the machines weren't better. It's just that the savings didn't go to you. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment.

This is perhaps why startups pitching that they can save customers loads of money haven’t hit the mark with me. Intuitively I’ve always wanted startups that make money by making their customers make more money, rather than trying to make money by saving their customers money.

3. On Warren

Consider Warren Buffett again. If you watched him with a time clock, you’d find that about half of this waking time is spent reading. Then a big chunk of the rest of his time is spent talking one-on-one… with highly gifted people whom he trusts and who trust him.

Reading, great — I do a fair bit of that, mostly during weekends, but when I do read during the week (which I often put off to do ‘work’¹) I always feel much, much smarter and more focused even if it’s just 20 minutes with a good book.

The ‘time is spent talking one-on-one’ is really interesting though. Talking one-to-many is what’s done when we post on LinkedIn, Twitter or the like. It feels good, people can look & feel smart but it’s the one-on-one conversations that really move things forwards.

As I wrote about, here, I ran an experiment throughout April during which I gave up LinkedIn and Twitter between 8am and 8pm, Monday through Friday.

How did it go? Well, after dipping in & out of Twitter and LinkedIn for the first week or so of May I’ve decided to get back into that habit of not using it 8-8, M-F.

As I did during April I’ll miss it however the self-imposed ban is about giving up what I want now for what I want most.

We don’t get likes, shares or comments on the one-on-one conversations though so I do sometimes question myself on whether they’re the right ones to have and if much progress is being made. Charlie’s quote about Warren is reassuring though — keep having those one-on-ones with smart people you trust and can learn from, they’ll compound and stitch together until all of a sudden…

4. On self-pity

You do not want to drift into self-pity. I had a friend who carried a thick stack of linen-based cards… The card said, “Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you”.

People often say, “Oh, it could always be worse”. That’s true, and what the above quote is bluntly getting at, but it could also be better!

The real truth is that we are each where we are. Everyone feels down in the dumps from time to time and that’s completely normal. But when it happens I have to remind myself that it’ll pass and it’s up to me and only me to crack on²³.

When I read that I also remembered my parents banging on about a Terry Waite quote they loved. It goes, “No regrets, no false sentimentality, no self-pity“⁴.

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