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. Depending on your strategy, success requires a varied combination of hard work, thoughtful valuation discipline and underwriting, and careful portfolio construction. As an investor, this enables you to find unique opportunities, buy investments to sell at a higher price at a later date, while ensuring that the distribution of profitable and unprofitable investments in a portfolio, on average, delivers a solid return. This sounds pretty easy, right? Nope. It’s not.
After analyzing the strategies and results of countless public and private investment strategies, 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 and getting harder in certain market segments. (However, to be fair, investing is not rocket science.) Yet, due to the seductiveness of investing’s simple nature, I am always amazed by those with limited experience in complex investments boldly doing so with the assumption that making money is easy.
When the history books are written on “Unicorns”, I believe it’s this confusion of investing “ease” that will be an interesting tale to tell.
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. (more…)
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-1, Goodwater 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…)
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
I love this quote and often use it to keep things in perspective, especially careers.
When reading professional biographies and interviewing job candidates, it often seems as if careers are a linear process. However, as I grow older, while it is true that some people enjoy careers that are truly linear, I am coming to appreciate that careers are more like a journey with a rough destination in mind. Individuals are constantly striving to reach their long term career goal, while having fun (however you define it) and picking up pieces of knowledge at each stop along the way to help them do so. (more…)
I recently came across the below life tips from Byron R. Wien, Vice Chairman, Multi-Asset Investing, at Blackstone. Good reminders to keep life heading in the right direction!
1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.
2. Network intensely. Luck plays a big role in life, and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by (more…)
After 3+ years of hibernation due to the silence required by my technology investment banking role at Credit Suisse, I’m excited to be back to writing!
When I left off in 2012, my posts were getting increasingly long and complex, and as a result, more time consuming. I enjoyed long-form writing when I had a lot of free time. However, nowadays, I have less time for writing due to increased demands from work and a growing family. As a result, now that I’m back to writing, it may be more sporadic and it will certainly be more brief and less heavily edited. (more…)
As I continue to unwind from investment banking, I have been enjoying reading a lot again. I have already worked my way through more books in the past six months than I did during the the three years of working at Credit Suisse. At the same time, I have been back to writing more, too. My writings have mostly been investment memos at work, but I am beginning to consider posting on my blog again as well. Overall, I am feeling more reinvigorated than ever before.
At the same time, it feels like our little tech sector corner of the universe is reaching a turning point. It seems like the pendulum that has been swinging within the industry from fear to greed since 2005, (more…)
While analyzing stocks for buy/sell recommendations for the USC Student Investment Fund, I discovered one key factor that often flipped my valuation opinion from buy to sell. This factor is share-based compensation (accounting treatment, here). When it’s added back in a discounted cash flow analysis, cash flow goes up and a stock looks like a buy, yet when it’s subtracted out (like a cash expense), cash flow goes down, making a stock look like a sell.
Share-based compensation is the largest valuation issue that I see discussed the least. (more…)