When you analyze a company, you (hopefully) come up with an investment thesis at the end.
But it’s nothing more than that - a thesis.
The future is yet unwritten thus unknown.
“How do you know?”
You never know!
In investing, you have to act on incomplete knowledge.
I came across a great article by @honam lately.
In it, he discusses his decision-making under the condition of an unknowable future.
I think the learnings are worth sharing 👇🏼
When you analyze a company, you (hopefully) come up with an investment thesis at the end.
But it’s nothing more than that - a thesis.
The future is yet unwritten thus unknown.
That’s why your work isn’t done after the decision to buy.
Investing is a journey.
You have to reevaluate your investments constantly.
Although they’re primarily VC (Venture Capital) focused, I believe we can all learn something from them.
Especially in the VC world, but also with bigger and more established companies, it’s not a given companies make money.
There’s a tendency to overpay for vision and underpay for value at the moment.
But Cash-Flow is a form of safety.
“Difficult times are when the best companies separate from the pack.”
First, look for what’s already there (Cash-Flow, etc.) and only afterward think about what ‘might’ can be built on that in the future.
Every attractive long-term option has to have something that makes it unique, inimitable.
No matter how good the profits or cash-flows are, if nothing protects them, it’s just a matter of time that they’ll vanish.
Look for structures (positive feedback loops, a mission-driven culture, etc.) that give the company a long-term advantage.
Especially young companies only survive if they offer something others don’t.
This third point is primarily important to figure out when to exit.
After the company got successful, new liquidity has to flow into the company (higher salaries, more employees, more projects).
This last point is probably not very practical for most of us (who are not in the VC business).
At least for Altos. (The company Ho Nam Co-founded and works for as a Managing Director)
If the relationship between stakeholders/investors and the management starts to shake, it might be time to call it an end.
Same or at least similar priorities are important.
For more content like this, feel free to follow me @MnkeDaniel
Here’s the original Article by @honam:
https://t.co/f34Wg4BMXN
https://t.co/W1uq4pQOUY
@realdennishong
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@ValueInvestorAc
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More from Daniel
Rakesh Jhunjhunwala is one of the most successful investors of all time.
He turned ~$100 into $5.8 billion and never managed outside money.
That's a 67% CAGR over 37 years
He never wrote a book, memos, or investing letters.
However, there are some interviews and transcripts👇
Here's a compiled PDF:
https://t.co/ypNv9QeUx9
If you have additional material, please let me know, and I'll update the PDF.
Follow the Substack for free to get all the Resources I read to learn more about investing.
He turned ~$100 into $5.8 billion and never managed outside money.
That's a 67% CAGR over 37 years
He never wrote a book, memos, or investing letters.
However, there are some interviews and transcripts👇
Here's a compiled PDF:
https://t.co/ypNv9QeUx9
If you have additional material, please let me know, and I'll update the PDF.
Follow the Substack for free to get all the Resources I read to learn more about investing.
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I’m torn on how to approach the idea of luck. I’m the first to admit that I am one of the luckiest people on the planet. To be born into a prosperous American family in 1960 with smart parents is to start life on third base. The odds against my very existence are astronomical.
I’ve always felt that the luckiest people I know had a talent for recognizing circumstances, not of their own making, that were conducive to a favorable outcome and their ability to quickly take advantage of them.
In other words, dumb luck was just that, it required no awareness on the person’s part, whereas “smart” luck involved awareness followed by action before the circumstances changed.
So, was I “lucky” to be born when I was—nothing I had any control over—and that I came of age just as huge databases and computers were advancing to the point where I could use those tools to write “What Works on Wall Street?” Absolutely.
Was I lucky to start my stock market investments near the peak of interest rates which allowed me to spend the majority of my adult life in a falling rate environment? Yup.
Ironies of Luck https://t.co/5BPWGbAxFi
— Morgan Housel (@morganhousel) March 14, 2018
"Luck is the flip side of risk. They are mirrored cousins, driven by the same thing: You are one person in a 7 billion player game, and the accidental impact of other people\u2019s actions can be more consequential than your own."
I’ve always felt that the luckiest people I know had a talent for recognizing circumstances, not of their own making, that were conducive to a favorable outcome and their ability to quickly take advantage of them.
In other words, dumb luck was just that, it required no awareness on the person’s part, whereas “smart” luck involved awareness followed by action before the circumstances changed.
So, was I “lucky” to be born when I was—nothing I had any control over—and that I came of age just as huge databases and computers were advancing to the point where I could use those tools to write “What Works on Wall Street?” Absolutely.
Was I lucky to start my stock market investments near the peak of interest rates which allowed me to spend the majority of my adult life in a falling rate environment? Yup.
