Category Archives: Deep Thoughts

Influential Reads – November 2022

Reading Time: 2 minutes

“Nothing gets people to look the other way like easy money.” – Does Not Compute, Collaborative Fund

I am very tired of seeing articles about FTX and SBF.

Here are my most influential reads for the month – in no particular order:

  1. Getting Wealthy vs. Staying Wealthy – “But there’s only one way to stay wealthy: some combination of frugality and paranoia.”
  2. That Sound You Hear Is the Fed Breaking Something – “As I have stated before, the Fed will keep hiking until something breaks, and clearly the cracks are forming.”
  3. Borrowing Surge Makes Quick End to Rate Hikes Unlikely – “Even as money growth is stalling, Joseph Carson, former chief economist at AllianceBernstein, points out that bank credit growth is booming. “
  4. The Munger Operating System: A Life That Works – “You want to deliver to the world what you would buy if you were on the other end.”
  5. Inflation Tends to Linger. Could It Last a Decade This Time? – “Given that U.S. inflation has run above 6% for the past year and over 8% for the seven months through September (before dipping to 7.8% in October), history indicates that the median time it will take before inflation eases below 3% is 10 years. “
  6. Here’s How Quitting Can be Your Competitive Advantage – “Imagine it’s a year from now and you stayed in your current position. What are the chances that you’re happy?”
  7. Papa Doble. Hemingway Revisited. – “The toolbox for achieving great financial outcomes has changed quickly, as have the accompanying implications of these higher, risk-free, short-term rates.”
  8. The Pandemic Housing Bubble is bursting—U.S. home prices falling 15% looks ‘conservative’ – “That Pandemic Housing Boom coincided with a staggering 42% jump in U.S. home prices between March 2020 and June 2022. At least 60% of that appreciation, researchers at the Federal Reserve Bank of San Francisco estimate, can be attributed to the elevated demand for “space” that occurred during the pandemic.”
  9. Committed & Unattached: A Powerful Way to Work – “But while you’re committed to making it happen, you are unattached to the outcome.”
  10. Higher Interest Rates Alone Won’t Fix the Inflation Problem – “The problem is that the longer the Fed’s balance sheet stays elevated, the more likely it is that QE becomes irreversible.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Top clicks across the site last month:

  1. Financial Model vs. Operating Model
  2. Excel Tips: Football Field Chart
  3. EBITDA Is Not A Good Proxy For Cash Flow
  4. Influential Reads – October
  5. Operating Model Tips

Updated stats:

Read ArticlesBooks
January891
February1100
March1023
April1032
May1343
June740
July822
August1127
September724
October614
November815
December
Total1,02031

Bears Watching: Housing

Reading Time: 2 minutes

This draft has been sitting in my folder for a couple months now.  And is possibly some bandwagon jumping.  Although at least I have been on the bandwagon a bit (Bears Watching: Observations In Real Estate).  However, the transition to lower prices requires a psychological shift in the market, especially on the part of sellers, and that is going to happen reluctantly (and slowly).

I realize the residential real estate market is large and diverse.  And, most homeowners are not transacting frequently making price moves somewhat less relevant for many.

However, I might be nervous if:

  1. I bought a house in the last 18 months – to the right of the line on the price history chart below.
  2. In an area with a price history chart that looks like this one.

I am not really a practitioner of technical chart analysis.  But that is starting to look a lot like a head and shoulders pattern.

The question is – is how much of runups like the one above are due to inflation vs. speculation / an asset bubble driven by low interest rates.  The inflation component is unlikely to subside.  Or said differently, slowing inflation will not cause prices to retrace their prior ascent.  Only deflation will cause that.

However, the component fueled by historically low rates stemming from monetary and fiscal policies that appear to be in the rear view mirror are at risk of reversing. In fact, they are reversing – you just have to squint a bit and adjust for the rapidly declining transaction volumes.  Also realizing that asking prices on Zillow are not indicative of transaction prices.

But sellers will be slow to acknowledge that their houses have not doubled in price in the last two years and will be until forced to do so.

Another Prediction

Reading Time: < 1 minute

There’s a lot of commentary out there about how forecasting is fruitless.

Fruitless but fun.

So, let me call another peak (I called a couple here).  You have seen peak Joe Manchin.

With the Nevada senate seat win giving the Democrats 50 and a solid and improving chance to prevail in the Georgia run-off now that the implications for control are gone (i.e., less Republic turnout), that would result in not depending on Joe Manchin for a deciding vote.

Good riddance.  

Who would have thought that would be a result of the mid-term elections?  Seems like folks are getting tired of bat shit crazy.

Ukraine is on the offensive and retaking their country. Election deniers got the short end of the stick. You may have seen peak Donald – too early to call.

I haven’t been this optimistic in months.

Influential Reads – October 2022

Reading Time: 3 minutes

“If you stick to a path that is no longer worth pursuing, whether it’s a relationship that isn’t going well, or a stock that you’re invested in that’s losing money, or an employee that you’ve hired who isn’t performing, that is when you lose ground.” – Brain Food, Farnam Street

I have some thoughts here, but have not had the time to put them into writing.  So I am not sure if they are good thoughts or not.  

I continue to feel the risks here are massive and still mostly hidden, and there is a good chance of getting squished.  Which I would prefer not to have happen.  Squishing mechanisms include but are not limited to U.S. treasury market illiquidity, imbalances created by the currency market / massive USD strength, and real estate market trend changes.

Midterm elections will be interesting.  But I cannot watch.  There seems to be a faction of people that are “bat shit” crazy.  And there is not a rational middle ground between “bat shit” crazy and not “bat shit crazy”.  So, we should just stop trying.  But tolerating “bat shit” crazy is not a good option.

And, I think you have witnessed peak Zuckerberg and Musk, but for slightly different reasons.  Do you want to be bold and call peak Private Equity while we are at it?

Continuing to notch some “easy” reads:

And that got me to my objective:

Here are my most influential reads for the month – in no particular order:

  1. Rare Skills – “People don’t like leaving opportunities on the table, and it’s counterintuitive to realize that you’ll likely end up with more than those whose appetite for more is insatiable.”
  2. Brief amicus curiae of The Onion filed – “Rising from its humble beginnings as a print newspaper in 1756, The Onion now enjoys a daily readership of 4.3 trillion and has grown into the single most powerful and influential organization in human history.” SMS: Not a follower of the Onion, but this is some inspirational writing.
  3. August JOLTS report: the game of reverse musical chairs in the jobs market is ending – “This is simply more confirmation that consumption leads employment, and we should expect monthly jobs numbers to decelerate further, and go to virtually zero m/m by early next year.”
  4. Harvard predicts looming markdowns to private assets – ” Private funds, however, have not been adjusted to reflect new market conditions, and many have gained in value through to the end of mid-year — a disconnect Harvard predicts will hit portfolios later.”
  5. What to Buy? Bonds. When? Now. – “Looking at the latter half of the 1970s, however, rates increased from 5% to 10%, yet bonds kept making money.”
  6. Summary of My Post-CPI Tweets – “It’s a mistake, the same one people are making in rents & home prices. Rates of change could mean-revert. Prices will not. Prices are permanently higher, b/c the amount of money in the system is permanently higher. This chart shows the price level. Not going back to the old days.”
  7. E-Bikes Need Their Own Classification System on Public Land – “Rapidly increasing E-mountain bike (eMTB) use on non-motorized trails is increasing these conflicts and impacts.”  SMS: Explain to me how a eMTB is not a motorized vehicle?  Is a Tesla not motorized?
  8. You weren’t supposed to see that – “In total, the Federal government created $4.3 trillion in direct economic stimulus of which $3.95 trillion was dropped onto the economy, as if by helicopter, in a period of under 18 months.”
  9. 3 Reasons International Investing Hasn’t Paid Off – “…the U.S. dollar has recently enjoyed its strongest run in 20 years.”
  10. The bond market massacre of September 2022 – “The fear is that as central banks end the long period in which they systematically supported bond markets, deep cracks will be exposed. “

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Top clicks across the site last month:

  1. Financial Model vs. Operating Model
  2. That’s a bunch of…
  3. Influential Reads – September
  4. EBITDA Is Not A Good Proxy For Cash Flow
  5. Excel Tips: Football Field Chart

Updated stats:

Read ArticlesBooks
January891
February1100
March1023
April1032
May1343
June740
July822
August1127
September724
October614
November
December
Total93926

That’s A Bunch of…

Reading Time: < 1 minute

“Rep. Marjorie Taylor Greene (R-Ga.) recently attacked Transportation Secretary Pete Buttigieg for trying to “emasculate the way we drive.” Asked about the remark, he said he could barely make sense of her complaint.” – Huffington Post

I have a new product idea.

I think all these contractors and tradespeople – driving around in their big diesel pickup trucks are feeling emasculated – because most of their hand-held power tools are battery or electric powered.

Now, if they were diesel powered…

Influential Reads – September 2022

Reading Time: 3 minutes

“When you are a Bear of Very Little Brain, and you Think of Things, you find sometimes that a Thing which seemed very Thingish inside you is quite different when it gets out into the open and has other people looking at it.” ― The House at Pooh Corner by A.A Milne” 

Writers that can consistently and frequently write new and interesting pieces always impress me.  I am pretty thrilled if I have what I consider to be one new and unique thought a month.  Then have the luck to capture that fleeting moment down in writing. And, that generally turns into the Winnie the Pooh moment described above. 

That previous paragraph may be an awkward way of explaining why I have been fairly quiet these days, on top of just being busy at work.

For similar reasons, reading was a bit off this month – although I did notch some easy reads.

Correct, I am a touch out of order on the Travis Mcgee series, but that does not seem to matter too much.

Here are my most influential reads for the month – in no particular order:

  1. You’re not good at this. – “Zero percent interest rates plus fiscal and monetary stimulus with housing up 40% and stocks at an all-time high was a ridiculous policy.”
  2. Entering the Superbubble’s Final Act – “The current superbubble features the most dangerous mix of these factors in modern times: all three major asset classes – housing, stocks, and bonds – were critically historically overvalued at the end of last year.”
  3. A Housing Bubble and Kim Kardashian: More Troubling News for Markets – “Pumped up by Federal Reserve expansionary policies, the public’s wealth in equities and residential real estate has ballooned, relative to the economy, even faster and more furiously than during the housing bubble of the 2000s and the dot-com daffiness of the 1990s.”
  4. Three Things I Think I Think – It’s Breaking – “At 7% the math is totally broken. “
  5. Grim (equity) tidings – “A Fed paper says tax and interest rates can’t fall much further, and that bodes poorly for stocks.”
  6. Quantitative Tightening Is About to Ramp Up. What It Means for Markets. – “Market pricing is determined by supply and demand, and in the coming years, there is going to be a tremendous supply of Treasuries coming from two sources.”
  7. Seeing Red – “Is China our enemy or competitor? The answer is yes.”
  8.  Would You Still Buy A Tesla? – “I used to be a fan of Elon Musk, no longer. The guy is irrational, and he believes the rules don’t apply to him. And he acts like he’s the only one who owns the truth, who can move us into the future, and that’s just hogwash.”
  9. Pillow fight – “That’s like going to a Dallas Cowboys football game at AT&T Stadium, seeing 80,000 fans dressed in silver and blue with stars painted on their faces, all cheering wildly when the Cowboys score. Then, based on that experience, determining everyone across the nation is a rabid Cowboys fan and the 82,500 people at MetLife Stadium cheering for the Giants simply just can’t be real.”
  10. One Of The Smartest Things Anyone Has Ever Said To Me – ” I was finished with my Righteous Indignation phase and had settled more into a phase I would maybe call Please Just Don’t Hit Me With Your Car.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Top clicks across the site last month:

  1. Financial Model vs. Operating Model
  2. Cash
  3. Solamere Trail Loop
  4. EBITDA Is Not A Good Proxy For Cash Flow
  5. Excel Tips: Football Field Chart

Updated stats:

Read ArticlesBooks
January891
February1100
March1023
April1032
May1343
June740
July822
August1127
September724
October
November
December
Total87822

Bears Watching: That Sound

Reading Time: < 1 minute

Multiple choice question.

That giant sucking sound you hear is:

  1. The Fed reducing its balance sheet (i.e., quantitative tightening).
  2. Enormous amounts of paper gains in all sorts of artificially inflated assets vanishing.
  3. Both

Influential Reads – August 2022

Reading Time: 4 minutes

“So much advantage in life comes from being willing to look foolish in the short term. ” – Farnam Street

Happy Labor Day.  After you read this, go outside and ride your bike or something.

Seven books last month!  And I spent some good time reading through aging articles on my list (see How I Read) and culling others to help make my list a bit more manageable.  I am also working on a categorization scheme to guide my reading & research prioritization in the months ahead.  More on that at some future date.

So, I found the John MacDonald Travis McGee series.  So, in the vein of these two thoughts below, I made up some ground on my reading goal.

“I think it’s good to read ambitious books. But if you only get ambitious books (or worse, you force yourself to finish them before reading fun ones) you’ll kill any potential joy for reading you might have. So always have “fun” books—light, easy reads that make you feel good in addition to weightier tomes. That way you can switch between styles depending on whether you want challenge or relaxation and never give up the habit of reading.” – Scott Young

“Yet, many people—even those with a voracious reading habit—make the same mistake: They hardly, if ever, read fiction. They even brag about it! They’re too busy. They don’t have time for “art.” There’s plenty of “real” stuff—the characters in fiction that bear little resemblance to the world we know? I don’t have time for it. But fiction, like all wonderful art, is filled with beautiful bits of insight about the human condition. It can change your life and teach you just as much as any non-fiction book. Actually, no, it can teach you more! It can shine a light on universal truths that non-fiction, bounded by the facts and figures of its specific world, often cannot (to say nothing of the research that connects literature with improved empathy, reduced stress, and hone social skills).” – Ryan Holiday

Here are a few highlights from the series:

  • “Savagery, venom and guile are good survival quotients.”
  • “There is as much danger in overestimating as in underestimating the quality of the opposition.”
  • “These are the slums of the heart. Bless the bunnies. These are the new people, and we are making no place for them. We hold the dream in front of them like a carrot, and finally say sorry you can’t have any. And the schools where we teach them non-survival are gloriously architectured. They will never live in places so fine, unless they contract something incurable.”
  • “Somebody has to be tireless, or the fast-buck operators would asphalt the entire coast, fill every bay, and slay every living thing incapable of carrying a wallet.”
  • “Being a beach bum takes money. If you want to do it with flair. If the money comes in regularly, then you’re working for it, and you lose your status. I have to come by it in chunks now and then, to protect my way of life.”
  • “The old city was being filled with these tall tasteless rectangles, bright boxes which diminished the people who had to live and work in them. People kennels. Disposable cubicles for dispensable people.”
  • “Self-evaluation. It is the skin rash of the emotionally insecure.”
  • “Temptation does not deliver most of us into evil, because temptation is a constant and evil is a sometime thing with most of us.”
  • “The incomparably dull tract houses, glitteringly new, were marching out across the hills, cluttered with identical station wagons, identical children, identical barbecues, identical tastes in flowers and television.”
  • “My friend Meyer, the economist, says that cretins are the only humans who can be absolutely certain of their own sanity. All the rest of us go rocketing along rickety rails over spavined bridges and along the edge of bottomless gorges. The man who believes himself free of any taint of madness is a damned liar.”
  • “The stars were bright. A dog-thing hollered a hundred miles away. Somebody walked over my grave.”

Here are my most influential reads for the month – in no particular order:

  1. Recession Is Already Here for Many Small Businesses – “That’s for good reason. Some analysts say that while a mild fall in demand has weighed on energy prices, the drop in gas prices is largely due to the government’s release of strategic petroleum reserves.”
  2. Finding persistent invisible systems – “But plastic persists as a commercial solution, because the system is invisible and resilient. Each member of the system does what they do, usually for good reasons.”
  3. Brain Food: Appearing Foolish – “To be a good manager, you want things to run smoothly. And insights are not ways of running smoothly. Insights are disorganizing and disruptive. And so, that’s a major reason that organizations, without even intending to, block the insights that come their way.”
  4. Brandon Sanderson’s Advice for Doing Hard Things – “I can do hard things. Doing hard things has intrinsic value, and they will make me a better person, even if I end up failing.”
  5. Latticework: The New Investing – “Hagstrom makes a case that a successful stock picker must be ready to shift models and look at the markets from different vantage points with the passage of time.”
  6. Welfare Queens – “The Inflation Reduction Act (“IRA”) is being hailed/hated as a climate bill, but it’s really just the most recent investment by Eagle Capital”
  7. The Climate Bill Is About to Reshape Global Energy – “The age of renewable energy, by comparison, is coming on with lightning speed.”
  8. I Beg to Differ – “The basic idea behind second-level thinking is easily summarized: In order to outperform, your thinking has to be different and better.” and “Readily available quantitative information with regard to the present cannot be the source of superior performance.”
  9. The Fed Is About to Ramp Up Balance-Sheet Shrinkage. It May Get Dicey. – “Starting next month, those caps will rise to $60 billion and $35 billion, respectively, meaning the pace of balance-sheet runoff is about to double”
  10. A Simple Way to Introduce Yourself – “That’s it for the self-introduction framework. Present, past, future. Eloquent and effective”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Top clicks across the site last month:

  1. Financial Model vs. Operating Model
  2. Excel Templates & Other Free Stuff
  3. Solamere Trail Loop
  4. Operating Model Tips
  5. EBITDA Is Not A Good Proxy For Cash Flow

Updated stats:

Read ArticlesBooks
January891
February1100
March1023
April1032
May1343
June740
July822
August1127
September
October
November
December
Total80618

Three Take-Aways: Titan: The Life of John D. Rockefeller, Sr.

Reading Time: 2 minutes

“Rockefeller equated silence with strength: …’success comes from keeping the ears open and the mouth closed.” (pp. 174)

This was a beast of a book: 676 pages not including Acknowledgments and Notes.  I fought a valiant fight and eventually made it through it.  The book was an interesting take on the industrialist period and Rockefeller’s contribution to it, but not gripping.

Three take-aways from the book:

  1. Legacy

“As architect of the first great industrial trust, he proved the ultimately fragile nature of free markets, forcing the government to specify the rules that would ensure competition and fair play in the future.” (pp. 667)

Rockefeller’s legacy has oscillated a bit depending on the time and viewpoints.  A point made in the book about Rockefeller and other industrialists (a.k.a. robber barons) of that period, is that they operated in a business environment that was radically different than the one we have today.  Many of the laws around corporations and capitalism did not exist, or took a much different form.  And so, defensibly, many of the industrialists felt that they were pioneering and stabilizing forces in their industry rather than anti-competitive.  In hindsight, we look at their actions with a much different lens.   

  1. Timing of Wealth Creation

“Beyond his talents as a businessman, Rockefeller benefited from a large dollop of luck in his life, making more money in retirement than on the job.” (pp. 557)

Compounding.  The eight wonder of the world.  If you read about Buffet, the pattern is similar in terms of wealth creation.  Rockefeller made more money after the Standard Oil breakup than before it.

  1. Personal Finances & Philanthropy

“Rockefeller engaged in strenuous rituals of austerity, and he grimly sought to simplify his life and reduce his wants.” (pp. 504)

“They [his children] were expected to spend a third of their money, save a third, and donate a third to charity.” (pp. 629)

Rockefeller was not ostentatious like some of his contemporaries – at least relatively speaking.  In fact he was almost humorously frugal, which stemmed from a fairly religious (Baptist) belief system.  And he required his kids to follow suit.

Rockefeller Sr. also pioneered a model of philanthropy imitated by many of the wealthy today.  And he was notoriously private and hand-off regarding most of his philanthropic works – including the University of Chicago and some of what are now National Parks – like Grand Teton.

A few other recent book reviews:

  1. Range
  2. Principles
  3. That Wild Country
  4. Superforecasting: The Art and Science of Prediction
  5. Essentialism: The Disciplined Pursuit of Less
  6. Fortune’s Formula