A new framework for improving investment decisions
A rare (but essential) skill as an investor is to be willing to acknowledge a mistake, analyze what went wrong, and strive to improve your process going forward. This week, John Huber of Saber Capital Management published something along these lines that I found deeply resonant—this piece is titled, “Flaws You Can Live With and a Framework for Decision Making.” I’ve been fortunate to get to know John over the last couple of months—and, without gushing too much, I can say he’s both an intelligent and an introspective investor. What I liked so much about this piece was John’s candid self-reflection about a specific investment decision/outcome—and how he analyzed that experience to reframe his investment process going forward.
“My friend Rishi Gosalia (who happens to work at Google) and I were exchanging messages Saturday morning and he made a comment that I spent the whole weekend thinking about: ‘Investing is not just knowing the flaws; it’s knowing whether the flaws are significant enough that I cannot live with them.’ I thought this was an excellent heuristic to have in mind when weighing a company’s pros and cons. Alice Shroeder once talked about how Buffett would so quickly eliminate investment ideas that had what he called ‘catastrophe risk.’ I wrote about this framework way back in 2013, and it has always been a part of my investment process. I still think it’s a critical way to evaluate businesses because many investment mistakes come from overestimating the strength of a moat. Conversely, nearly every great long term compounder is a result not necessarily from the fastest growth rate but from the most durable growth — the best stocks come from companies that can last a long time.”
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A potential 10x force on Spotify: Web3
This week’s post by the investor and analyst Antonio Linares is a provocative essay about how Spotify could even further disrupt the music/audio industry through blockchain and Web3 technologies. “If I am a singer-songwriter,” he writes, “I can tokenize a song of mine, put it out in the internet and make money every time someone listens to it… Web3 is perhaps the most likely 10X force candidate to Web2 platforms like Spotify.” Daniel Ek, founder/CEO of Spotify, talks a bit about how Spotify is thinking about the blockchain/crypto in this recent podcast, but I found Antonio’s piece to be one of the more detailed analyses on the subject I’ve come across yet.
“Fundamentally, Web3 enables private property on the internet. Web3 is powered by the blockchain, which simply allows computers to make commitments, because whatever information we store in the blockchain is very hard to eliminate / modify. More broadly, this allows for value to be sent around at a much lower marginal cost than in the analogue world, because now you can send any given asset with the same ease you are accustomed to send emails with. If you think about how we have enabled private property in the analogue world, what we have done is prop up a series of institutions and rules that make it hard to change information about who owns what and relatively easy only when a legitimate transaction takes place. As such, private property is feasible. Blockchain (web3) now allows us to do just that, but on the internet and with no intermediaries.”
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The man behind Meta
Facebook recently rebranded as Meta to show the world just how committed it was to the future of the metaverse. What does the metaverse looks like, exactly? I have no idea! The one person who probably does have a pretty good perspective on that future is Andrew (“Boz”) Bosworth, the 15-year Facebook vet helming the metaverse ship. The interview he did this week with The Verge was revealing, and hints at the broader ambitions behind the future of Meta. “The magnitude of technological shift that we are trying to manifest here hasn’t been attempted in a long time,” he says. He continues:
“I think certainly the creation of the internet in the late ’80s, early ’90s, mid-90s, was one of them. I think if you go back to Xerox PARC and the work they did on the Alto, that’s probably one of them. Obviously, Bell Labs and the transistor, that’s one of them. There are these really epic moments where a technology is pioneered and advanced well in advance of us really having a fully detailed understanding of all the ways that it’s going to affect us and do things. And I get to be a part of that. I get to be a part of that history. It’s not happening just at one company, it’s happening in the entire industry right now. And it’s, yeah, it’s daunting. It’s terrifying. But it’s obviously also a tremendous honor and privilege.”
“I chose not to trim. As a general rule, I don’t trim. I let the portfolio get undiversified and unbalanced, which is a natural outcome of a healthy long-term orientation, in my view. Over time, certain positions are just going to get big. I think this is one of the paths to generating great overall returns in a portfolio. It’s the path I’ve chosen to follow.”
“In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss (i) using macro data in the investment process — specifically, the one source of macro data Phil uses regularly; and (ii) an area ripe for interesting investment ideas: companies whose product or service is important to the customer but represents a small portion of the customer’s total cost.”
“We talked about her experience during the telecom bust, the airline bankruptcies, and the financial crisis, how to deal with losses and stress, distressed as a chess game, the difference between generalist and sector specialist models, how to pitch and build an asset management business (she built Canyon’s loans securitization business after the crisis), and the hedge fund industry in general.”
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