The jagged path to long-term compounding

My colleague Zak Lash, our firm’s COO, published an essay this week about the necessary skills (and mindset) required to invest in the next 10-bagger stocks—which I think is especially relevant for investors in recent weeks. “Even when markets are captivated by doom and gloom,” Zak writes, “and sentiment is bearish, these 10x opportunities are often right in front of our nose.” In particular, Zak writes about the pitfalls of reasoning by analogy, and the important of analysis that begins with “a blank sheet of paper” approach.

“The great thing about generational opportunities is that time is on your side. From our perspective, rather than reasoning by analogy, we take that blank sheet of paper approach, seeking to ensure we aren’t missing those details that could make all the difference. Sure, doing so takes more time and effort, but that’s okay with us. We have a duty to our investors, and we genuinely enjoy the deep research that we do. We’re a competitive group that strives to do the best job we possibly can, we refuse to take any shortcuts, and we try to make the decisions we believe are best, regardless of mainstream views or sentiment.”


Patience is potential energy that can quickly convert to kinetic energy

Brent Beshore of Permanent Equity recently published “How Patience Pays Off,” a meditation on why patience is so essential as an investor—and often so hard. These types of essays can often wade into the cliché, but Beshore does a nice job illustrating a powerful mental model for distinguishing between “active patience” and “passive patience.” As Brent writes: “We believe it’s active patience that pays off.  Pulling back an arrow and holding that tension may not look like much in the moment, but you’re creating the circumstances for a powerful event to take place.”

“Most people, including us, are not naturally inclined to wait, to be content building energy and potential. In fact, ‘progress anxiety’ is a term regularly used around the office. We balk at the idea of passive, unproductive, non-strategic waiting and also believe that ‘good things take time.’ The quality of restraint is downstream from purpose. The long game requires a plan. It demands clear vision, helpful structure, and healthy incentives that promote active patience and curb tendencies towards frenetic action, short feedback loops, and quick wins (over sustainable ones) in the name of showing progress. Patience is a choice, and it’s one that must be made continuously and rigorously, through long-term commitment and persistent discipline. Put another way, it’s hard and we’re still learning.”

A few more links I enjoyed: 

“If that didn’t properly shock you, let me state it again for clarity: whoever wins the AV technology race will be poised to take ownership of up to one quarter of the global economy by the 2030s. If you are an institutional investor or policymaker, now would be a very good time to take a close look at the AV leaderboard and dial all of your concerns about technological unemployment up to eleven.”
“Ted Weschler is one of Berkshire Hathaway’s top two investment managers. He got started at W. R. Grace and Company as a Junior Financial Analyst before helping start the private equity firm Quad-C Management, where he was a partner for 10 years. In 1999, Ted went out on his own founding Peninsula Capital Advisors, which was a hedge fund he launched in 2000 above a bookstore in a Charlottesville mall. He joined Berkshire Hathaway in 2011. Ted lives in Charlottesville with his wife, Sheila, and two daughters.”
“In 2019, Barton embarked on his biggest BHAG yet—and his most disastrous. The previous year, Zillow had introduced a new business, Zillow Offers, that was meant to compete with a buzzy new crop of companies, called iBuyers. More than $2 trillion worth of homes change hands in the U.S. every year through a process that often combines the excruciating task of selling a house with the exasperating job of buying one. The iBuyers used software to figure out what homes were worth, then bought them for cash, made light repairs, and listed them for sale. (The idea was to charge customers a convenience fee for relieving the headache of selling a home.) Zillow’s entrance into the business made some sense: It had a huge audience and lots of experience estimating the prices of homes. But it was attempting to pivot from selling online advertising to operating what amounted to a hedge fund and a sprawling construction business, two fields in which it had no experience at all.”

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