Quote of the week:

“Inspiration does exist but it must find you working.” – Pablo Picasso

What it takes to beat the market

“If I were to teach a ten-class course on investing,” says the investor Rob Vinall, “the first nine classes would be about how the market and other factors mess with your ability to think clearly. In the tenth, I would say: ‘Oh by the way, this is how you build a DCF model, and this is what constitutes a moat’.” Rob’s retrospective essay was written on account of his 15th anniversary running RV Capital’s Business Owner Fund. But beyond a simple retrospective, the piece offers deep and timeless wisdom about market psychology, how to actually take a long-term view, and my favorite: the purpose of doing research. “The purpose of research is to have the emotional fortitude to stay the course when an investment is going against you,” Rob says. (Sign up here to read the memo online.) He continues: 

“When an investment is doing poorly, someone is going to forward you an article saying something along the lines of ‘the largest customer is about to in-source,’ or ‘Amazon with its bottomless pockets is planning on entering the market,’ or, more simply, ‘the company is a fraud.’ If you have not put in the long hours of research, when this happens you will panic and head for the hills. ‘Are not several pairs of eyes better than one,’ you might ask, ‘when it comes to building a 360-degree view of a company?” Of course. There is no rule that you cannot collaborate with other people when it comes to research. The investment decision, however, needs to be made independently.”

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Speculation vs. investing

I always liked Annie Duke’s book Thinking in Bets. It’s not exactly about investing—Duke is a poker pro—but it’s about the art of making the best decisions with imperfect information amidst an uncertain future. (Which is, arguably, the nature of investing.) In a similar vein, Conor Mac explores this notion of speculation through a related, but perhaps more critical perspective: Why do smart investors seemingly make the same bone-headed bets over and over? Conor hypothesizes that a few enduring human traits—boredom, greed, amnesia—explain why cycles tend to repeat (and how to recognize them early).  

“Forecasting is hopeless, most people understand that. Even still, investors will forecast macroeconomic shifts, build multi-year discounted cash flow models, project a company’s free cash flow decades into the future, and so on. But as far as speculation is concerned, which you could argue modelling is but one form of, our present environment influences the relative optimism baked into our forecasts. Even if a perfectly rational man were to create forecasts, the future unfolds in a way that no amount of rationality could account for.”

A few more links I enjoyed: 

How to Craft a Winning Investment Process and Spot World-Class Companies – via Tegus
“Join IGSB Founder, Reece Duca and Tegus CFO and former Investor, Bob Casey to explore how to craft a winning and repeatable investment process. Reece will share experiences as a fundamental investor, founder, and partner, highlighting how he identifies world-class companies and where to look for the right opportunities.”
Foundation Models – via Gavin Baker
“This isn’t a ‘Game of Kings.’  This is a ‘Game of Emperors.’ Amazon trying to enter the game via Anthropic which is a ‘Crown Prince’ at best right now.  Google invested in Anthropic primarily to help TPU ecosystem – Amazon likely needs both the LLM engineering talent (no great internal LLM yet) and to help Trainium ecosystem. Bedrock good strategy though and P5 is the best H100 instance.  Apple is nowhere which is a risk to them – their only potential friend is Grok/Tesla with some shot of Microsoft/OpenAI via a search deal for Bing. Meta could’ve been a friend, but whoops – ATT sure was fun but a few years later turned out to have been irrelevant and only increased the competitive advantages of the largest apps like Meta. Exact opposite of what Apple wanted to accomplish Possible that if Gemini leads to a dramatically superior assistant vs. Siri then Android starts really gaining share.”

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