List of Books on Investing

Below is a list of investing books I recently shared with a friend seeking recommendations. This list is broadly applicable to all investors, with a slant towards technology private equity investing.

1/ Value Investing – From Graham to Buffett and Beyond: Great for developing an investor’s mindset leveraging the principles of value investing in knowledge-based businesses.

2/ Venture Deals: A tactical guide to the venture game from the Foundry Group team.

3/ The Most Important Thing: Very accessible book on investing, again, with more of a value investor bent. The wisdom in here is deep. Howard Marks co-founded Oaktree Capital. Howard also regularly publishes thoughtful investor letters – deep thinker.

4/ Technological Revolutions and Financial Capital: Quite theoretical, but provides a nice set of frameworks around the hype that is venture and why the seemingly irrational behavior at times makes sense broadly. Helpful to think through not blowing oneself up while investing in technology (there are no brave old people in finance!).

5/ Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment: Fascinating perspectives across asset classes – if the CFA is the best avenue for multi-asset class number crunching, then this is the best avenue for bringing it all together at the existential level. Very helpful for considering your role within a long-term focused institutional investment program.

6/ Running Money: Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score: Very entertaining author who bluntly tells it how it is. Helpful insight into the pressure associated with investing other peoples’ money, particularly in the Technology industry. Much of what he says still rings true today.

7/ Where are the Customers’ Yachts?: A cheeky perspective on the fund management business. Written in 1940, but still equally relevant today in my experience. Mind the sharks!

8/ You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits: Terrible title, but great book on the merits of special situations investing. Here is my book review if you want the cliff notes version.

Giving More Than You Get

The high school that I attended has a simple mission: Develop “men and women for and with others”.

Last week I had dinner with the CEO of one of Wall Street’s largest investment banks. Unlike other CEOs operating banks of similar scale and scope, he built his bank from the ground-up. He is an impressive entrepreneur who built an organization with a $10 billion+ market cap.

These statements from our conversation stuck with me: In business, he always gives more than he gets; He is a big believer in business karma; karma takes longer to materialize than you would like, so be patient.

I would sum this up as: Lend your help to others who deserve it and be persistent with your career goals.

We each have something unique to offer others. This can be knowledge, time, or simply money (to name a few). I highly recommend finding something unique to offer with a “for others” mindset. I say this because, like giving Christmas gifts, it’s often more rewarding to give than get, and every so often, you unexpectedly get something fantastic in return. 

Jeff Bezos: What Makes a “Dreamy Business”

Below is a great quote from Jeff Bezos.

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time–with the potential to endure for decades.”

Simple to say. Hard to do. But it sure is fun figuring out hard stuff.

Machine Learning and Neural Networks

If you ever wanted a good example of what machine learning is and how neural networks work, just check out this video.

Now imagine this same technique applied to a massive data set, processed with computing power by, for example, Google’s off-the-shelf Machine Learning Platform.  Leveraging these tools with unique data sets and specialized know-how will be the vector of differentiation for software companies over the medium term.

Risk (Loss Ratio) Management is Key to Long Term Success in Investing

There are no brave old people in finance. Because if you’re brave, you mostly get destroyed in your 30s and 40s. If you make it to your 50s and 60s and you’re still prospering, you have a very good sense of how to avoid problems and when to be conservative or aggressive with your investments.

This is such a good quote from Steve Schwarzman via Dan Primack.

Having just come through a massive risk-on investing period in Silicon Valley, an era where seemingly nothing but reward has been discussed (irrespective of investment entry point in a company’s life cycle) it is a nice reminder that reward AND risk management matters. Some risky bets might not fall you today, especially in private equity where feedback loops are long, but I can tell you from observing investment firms come, go, and stick around, over time, risk is a killer to a fund manager’s career and investors’ capital. (more…)

Mental Models and Technology Investing

As a lower risk operator in the technology investment markets, I operate well behind the venture capital frontlines, where hype and momentum reign supreme (because that’s just how that game works). Yet, it is still helpful to consider where the Seed-Stage and Early-Stage VC technology investment horizon is heading. What trends are real versus hype? Now that hype has worn off and the opportunists have moved on to the next buzz word, who is left doing real work? Which companies are emerging as winners from overfunded early-stage areas? What is realistically going to occur over the next 5-7 years with a winning company? What market segments are perhaps cheap due to investor biases? (AdTech?) Even though I might not make a move for years, pondering these questions is helpful to form a prepared mind.

HBR Transformative TechnologyConstantly questioning technology’s evolution is why I found the mental model shown at left from this HBR article interesting. This model highlights the differences in proliferation between foundational versus transformative technologies, comparing Blockchain today to TCP/IP (i.e. the Internet) in 1972.

While this model is helpful to compartmentalize things, the reality is that investing in technology is sloppy business. Sometimes it is hard to see where technology is heading, like driving in the fog. Other times, it’s obvious – less a matter of if, but when. Yet, even if a technology trend is obvious and the timing of its proliferation is roughly predictable, determining the winning company for investment is difficult, especially when squared with entry valuation and the number of “horses in the race” on a hyped technology trend. (more…)

Confusing Simplicity with Ease

Yesterday I had a nice conversation with a very thoughtful investor. He noted that while investing is pretty simple — buy low, sell high — people often confuse its simplicity for ease.

I love this notion. Because over the years, I have come to realize that investment success is predicated on some pretty basic principles: Hard work, thoughtful valuation discipline, strong underwriting and careful portfolio construction. As an investor, this enables you to find unique opportunities and buy investments to sell at a higher price, while ensuring that the distribution of profitable and unprofitable investments in a portfolio, on average, deliver a solid return. This sounds pretty easy, right?

After analyzing the strategies and results of countless public and private investment strategies over the past 16 years, I have come to realize that no matter your strategy or “angle”, making profitable investments, especially above-average investments, is not just hard, it’s extremely hard. The good news is that there are strategies which can make this challenge easier, namely specialization. Employing a narrowed focus, whether it be sector, stage or geography, can meaningfully stengthen the building blocks of investing (hard work, valuation, underwriting). Specialization enables you to work a niche, uncovering riches in the niches.

So, while the seductiveness of investing’s simple nature can make something hard seem easy, there are some basic things that can make a hard thing easier. And what is more fun than winning at something that is hard?

Starting a Company Feels Like You Are Unemployed

I have had numerous friends and family members negatively affected by the shakeout at Zenefits, so I was hesitant to write this post, but this quote from Parker Conrad, the founder of Zenefits, is a key one that I wanted to reflect upon.

“When you start a new company, it kinda feels like you’re unemployed,” Conrad told Axios shortly after his Demo Day presentation. A program like Y Combinator can motivate and bring structure to a founder’s work, he added.”

I couldn’t agree more about the unemployment bit. At the beginning, even with great co-founders, starting a company is a mental challenge and feels a lot like unemployment (save for all of the hard work you are doing). No paychecks. Sparse email traffic. No direction. Limited accountability. Total schedule flexibility.

Answering the, “What do you do?” question at social gatherings can feel awkward, especially if you allow doubt to creep into your mind.

I’m not sure that structure through a program like Y Combinator is a silver bullet, though. Sure, it certainly greases the skids and makes life easier during a tough time. But ultimately, I have found the most helpful thing during the start-up stretch is a clear sense of principles and focus, as well as a robust set of opinions (loosely held, of course) informed by experience and reinforced constantly by speaking to the smartest people you can find to offer their insights. I have found this combination helpful to (1) stay motivated, (2) have a clear sense of what you will and won’t do as firm, and (3) rapidly adjust your thinking on #2 based on others’ feedback, but not by taking feedback wholesale or blindly.

As things get busier and the “unemployed” feeling fades due to increased email traffic, principles and focus remain critical to allocate time. Why is managing time so important? Because time costs money and both are in short supply during the start-up phase. So whether bootstrapping or venture-funding your business, managing time and priorities carefully seems to be the best way to go from feeling unemployed to over employed. 🙂

 

Thoughts on the Snap IPO

Professionally I don’t get too excited about consumer technology IPOs, but I sometimes find myself entrapped, following certain consumer names for personal reasons. Snap is my current haunt. Snap has been a fun saga to follow and experience. I went from skeptic, to Snap user, to Facebook Stories user, and now back to being an avid Snap user (for good). I used to live in Venice Beach and skateboard past Snap’s first office before Snap was Snap; my old boss is now Snap’s #3 exec; and I constantly toil with wrapping my head around the sheer size of the opportunity around this company (it’s a big one).

For all of these reasons, I wanted to put my brief thoughts down on paper to hold myself accountable and to share some insights with readers. For full disclosure, I am not buying IPO stock, I don’t own any stock, and this is not investment advice (see disclaimer below). This is just my initial set of high-level thoughts to focus in on what I believe are the key issues. If you want vast reams of analysis, metrics, and fun with numbers, I would point you to Snap’s S-1Goodwater Capital’s review, RetailRoadshow, or here, here, and here. Lastly, apologies for the poor grammar below; I am in heavy GSD mode these days due to my two start-ups (family and company). (more…)

Michael Mauboussin on Maximizing the Probability of Investment Success

Sourcing, underwriting and constructing a portfolio of investments that produce attractive investor returns is tough and sloppy work. That is why I liked this quote from Michael Mauboussin on putting process around investing.

“We have no control over outcomes, but we can control the process. Of course, outcomes matter, but by focusing our attention on process, we maximize our chances of good outcomes.” — Michael J. Mauboussin