Gunslinger Weekly
Alright, I am going to try something new. I spoke recently with two of my Canadian friends. We like to talk every so often and we have Investments that overlap so we spend a lot of time talking about these ideas, when it comes to rational decision-making, it isn’t the best exercise. When three bulls get together to go over an idea I find myself always thinking, “I should own more” after we hang up. I talk myself down off the ledge because I’m in the “stupid zone” and walk away.
But I noticed they have been somewhat inactive on Twitter as of late and I asked, “Why?”
The short answer: They didn’t want to get lost in the noise.
I have found this to be the paradox of FinTwit. The great thing is this awesome community of all kinds of investors who can communicate with each other and clash ideas, grow discussion, and collaborate on a ton of things. The serendipitous nature of this place is where the magic lies and since giving it more attention than before, I have been sucked in and love it. But, 99% of the content on FinTwit is noise and it’s easy to get lost in it. Using FinTwit is playing with fire.
To combat this idea, I have decided to put together a weekly list of the content I found over the past week that I got a lot of value from. I hope it helps sort through all the noise and highlights the signal. The value being created nowadays on FinTwit is impressive but it’s like drinking from a firehose so I am going to try and provide a little help.
Listen to the article:
This Week’s Top 5
These are all in no particular order, pick and choose whichever you like or are feeling. I found them all helpful and entertaining.
1/ The Value Hive Podcast with Dan McMurtrie and Brandon Beylo
I try to listen to anything with Dan. In the middle of the interview he began to speak about “short putting” yourself at 25 years old, my ears perked up because this is me. He began to give a masetrclass on risk managment for an investor in their 20s. Here is what stuck in my head:
1) Your positions probably should be smaller than you think. Staying in the game for a long period for a long time super seeds a long term record of out performance. Smaller positions might sacrifice more out performance, but if it keeps you from blowing up if you’re wrong, it’s always worth it.
2) Everything that can go wrong, will go wrong, and it will happen all at once. You will be in the middle of a drawdown, a family member will get sick, and your girlfriend will leave you all at once. You have to set yourself up to survive all of these.
3) Respect the tails. Those 20% tail events happen all the time and one of the best ways to prepare for them is to have cash and the liquidity to act when chaos ensues.
Dan comes off with an “invest scared” framework, Howard Marks also encourages this mindset. During the interview he also discusses positioning sizing, trimming investments that have run-up, and managing a team for success. It is clear he has no labels on himself and focuses on optimizing for after-tax IRR. At the end of the day he has two jobs: Defend capital and make money. His battle tested wisdom is something everyone can learn from especially if you’re a younger investor.
2/ The Business Brew Episode with Chris Cerrone of Akre Capital Management
Anyone who sits next to the investment legend Chuck Akre for more than a decade can not help but be spilling with wisdom. If Chuck is Mister Miagi, Chris is probably the Karate Kid. When you listen to him speak he embraces the zen nature of investing and leaves me with the mental imagery of him sitting lotus style in his old tavern office, incense burning, with his Gong and black lab, doing nothing but thinking about Quality and the companies that embody the word. The best way to sum up the interview is the 4 quotes he leaves us with at the end. The first 3 are etched in the crown molding in their conference room, the last one is one he has framed himself.
1/ The bottom line of all investing is rate of return
2/ Focus
3/ Everything should be kept as simple as possible but not simpler- Einstein
4/ “It seems to me if there is an answer it lies in these words: Restraint. Quality. Simplicity.” - Evyan Chenard, Founder of Patagonia
3/ The Chapter from ‘The Deals of Warren Buffett Vol. 2” by Glen Arnold highlighting the Capital Cities Investment.
My girlfriend got me the hard copies of this Trilogy, which I recommend to any Buffett fanboy, and was leafing through it when I came back across this specific chapter.
Over the past few months, I have been thinking about quality businesses and what really is the best way to go about buying them. They often pass the test of “you know it when you see it but you can’t define it”, and then I look elsewhere because the stock is “expensive”. Which then turns into me missing a big return.
I am aware this kind of thinking is littered with mental fallacies like hindsight bias, resulting, neglecting to think about alternate histories, or forgetting that there were plenty of companies I thought were, “winners” but failed to perform as well. It’s human to only see the ones that would have made us money and forget the losers. Thus, the big debate around quality and what to pay for it continues.
Everyone who studies Buffett knows how big this deal was for Berkshire, it is touted as the “advantage of buying quality businesses” investment along with Coke. But here are the details I find more interesting:
1/ Buffett knew the entire time an investment with Cap Cities would be a good long-term investment. He even bought 220K shares at $49 a share for about $10 million in 1977 then sold them between ’78-’80 for around $43 a share. Six years later he bought $3 million shares for a much higher price of $172.50 a share. If he held, his $10 million would have been worth ~$37.95 million a 4 bagger over 8 years ~ 18% CAGR, we have hindsight bias and there was opportunity cost of capital they had to pay attention to so keep this in mind before labeling this idea of selling as a “mistake”.
2/ This deal took 15 years to come together. Only after 15 years of watching Cap-Cities was Buffett ready to take a bigger bite and when he did, he plowed 25% of Berkshire’s Net Worth into the company. Talk about waiting for the fat pitch. The ability to resist the temptation of watching the share price continue to climb, knowing it was a quality investment, and still not buy it is uncanny. He never deviated from his margin of safety principal but when the opportunity came, he swung hard.
This situation really makes me think about my own investments and how fast I was in the past to allocate a big chunk of my capital to an idea, Buffett bet 25% after 15 years of thinking. Just makes me shake my head even more at my prior self. Hopefully, this trend continues.
4/ The Documentary on Carl Icahn
HBO Max did an excellent documentary on Carl Icahn. It follows him through the years and highlighted some of his big investments like Tappan, TWA, and Herbalife.
Carl Approaches investing with such a playful attitude it’s clear he plays for the game but the money is a nice side effect. The documentary covers his coming up through the ranks of the investment business, how he was one of the only raiders that survived the junk bond filled chaos of the ‘80s, his battle with Ackman, and the transition of power from him to his son who seems to be the chosen successor of Ichan Enterprises. If you’re looking to take a break from the focus-heavy work of investing and want to relax, this is an excellent documentary for an individual who loves the game of investing.
5/ Guy Spier Interview on Investing with Tom
I have followed Guy for many few years now and vividly remember listening to his audiobook during my days as a logger. It took me a while to come to appreciate his wisdom and when I did decide to give him a listen I was mad at my prior self for writing him off without reason.
Guy is one of the most candid individuals I have ever come across. Although he is an investing ledge in his own right, I believe his legacy will have nothing to do with it. He is a caring individual who really wants others to find success. His warmth is contagious and I always come away desiring to become a better person and be a little more like him.
There is one sentence in the interview I want to highlight:
“We have to prepare ourselves for the possibility that we are not Tom Brady” - Guy Spier
One of the harshest realities we all face as investors is the conclusion we eventually reach when you look in the mirror and say, “I am not going to be the next Warren Buffett”. It was a letdown for myself but reality and the truth was when I thought I could be, I tried to invest like him. This meant I would take massive positions relative to my net worth and focus on a few things. I had no appreciation for risk and I am just happy I escaped this period of growth without blowing myself up.
When I reached this conclusion for myself I needed a new roadmap and I belive listening to Guy has given me a new roadmap.
Guy makes investing human for us normal IQ individuals who are not Warren Buffett or Tom Brady. The likelihood that we are like them is slim so we must conduct our affairs with this in mind. We will probably be wrong more than them and won’t achieve the 20% CAGR over 50 years. It doesn’t make individual investing a non-worthwhile endeavor but it’s best to have more guardrails in place to make sure you don’t step on a landmine and end up losing 75% of your net worth.
All in all, I enjoyed all of these and recommend you check them out. As for me, I didn’t publish any new articles this week.
There was plenty of content from the BTN report:
BTN Thesis:
BTN Risk Analysis:
I worked on other things that will be distributed at a later date.
That’s all for this week. Enjoy your weekend. Get outside. Hug a loved one.
Peace and Love ❤️,
Michael 🤠
Please be advised, Wall St Gunslinger is not an investment advisor and does not give personal investment advice. All content is for educational and entertainment purposes only and should not be interpreted as anything other than such. Investing entails a lot of risks and should be managed appropriately. Please do your own research and consult with an investment professional before making any investing decisions. Thank you.