Category Archives: Deep Thoughts

Influential Reads – February 2023

Reading Time: 3 minutes

Influential Reads – February 2023

“Standards apply not just to the quality of work you produce but the opportunities you work on. If you accept substandard work from yourself, you’ll only get average work from others. If you say yes to average projects, you’ll have no time for exceptional ones.” – Brain Food, Farnam Street

Big news in my world: I resigned my CFO role at a private equity backed software maker after selling the business to a new private equity group.  I will be taking some time off to “to evaluate, to collect, to dream, to wonder and to wander.”

Reading and writing more is definitely a goal.

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

  1. Jim Chanos: The Golden Age of Fraud in Finance – ” One of the things that is as old as financial markets is that we don’t see oversight or new laws and regulations until after people lose money.”
  2. “Disinflation” Hoopla Sunk by Spiking Prices – “Not only did all the relevant measures get a lot worse in January, but the prior three months, October through December, were revised higher – much like the CPI inflation readings a couple of weeks ago – showing substantially greater inflation momentum at the end of the year than originally shown.”
  3. The Wisdom of Non-Effort – “Non-effort is letting yourself take a walk and notice what comes up for you as something to write about, and trusting that”
  4. Just Twenty-Five Pages a Day – “The solution I devised for myself is a simple one: 25 pages a day. That’s it. Just commit to that, and then do it.”
  5. Buffett Profile from 1979: “The investor’s investor” – “The essence of Warren Buffett’s thinking is that the business world is divided into a tiny number of wonderful businesses well worth investing in at a price and a huge number of bad or mediocre businesses that are not attractive as long-term investments.”
  6. When TIPS Outperform and How I Invest in Them – “TIPS outperform regular Treasuries when the market underestimates future inflation.”
  7. We Are All Bond Traders Now – “What this means is that if interest rates are low, you care a great deal about the interest rate. Any change to your numerator is easily wiped out by a small change in the interest rate you are discounting at.”
  8. The Forgotten Lessons of 2008: Seth Klarman – “You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.”
  9. Enough Part 2 – A Framework – Calibrating Capital – “Too many of us run too hard for too long, reaching a point of exhaustion (or worse) when we could have taken a breather (or several of them) long ago.”
  10. Microsoft and the Metaverse – “I suspect that this is the path that virtual reality will take. Like PCs, the first major use case will be knowledge workers using devices bought for them by their employer, eager to increase collaboration in a remote work world, and as quality increases, offer a superior working environment.”

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. Sign of the Times: New Homes For Rent
  2. Financial Model vs. Operating Model
  3. Excel Tips: Football Field Chart
  4. Operating Model Tips
  5. Influential Reads – January 2023

Updated stats:

Read ArticlesBooks
January800
February622
March
April
May
June
July
August
September
October
November
December
Total1422

Influential Reads – January 2023

Reading Time: 2 minutes

On Reading More “The solution I devised for myself is a simple one: 25 pages a day. That’s it. Just commit to that, and then do it.” – Farnam Street

Well, that is one way to start the new year.  Set a few goals.  Miss them all.

Certainly behind on the book reading front.  Also, want to maintain an average of writing one article a week.  And behind on that one.

So there is no where to go but up!

Big news is in the works on the career front.  That one is actually going according to plan here in February.  More to come once the fat lady sings.

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

  1. After a Timeout, Back to the Meat Grinder! – “Now things get more complicated. While the most extreme froth has been wiped off the market, valuations are still nowhere near their long-term averages.”
  2. Why the Federal Reserve Should Raise Rates by Half a Percent – “Financial conditions have loosened significantly in recent months and, by some measures, are around levels that prevailed last March when the Fed initiated this hiking cycle.”
  3. Why Competitive Advantages Die – “The only thing harder than gaining a competitive edge is not losing that advantage when you have one.”
  4. How to Get New Ideas – “The way to get new ideas is to notice anomalies: what seems strange, or missing, or broken?”
  5. On Email and Horses – “The right question is not, is this useful? But instead, how do we want to use it?”
  6. The Federal Reserve Is Trimming Its Assets. It’s Not Working – ” The Fed’s QT has had relatively little effect on financial conditions since it got under way last year. And in a surprising twist, the new battle over the nation’s debt limit will largely negate any impact QT might produce”
  7. Inflation, Rising Interest Rates Brought End to Cheap Money – “Cheap money—an incredibly popular and influential feature of finance that led to a surge of wealth, speculative trading and booms in ridiculous investments such as   meme stocks and   digital images of cartoon monkeys—died suddenly in 2022. It was 14 years old. Cheap money is survived by its estranged relative, expensive money.”
  8. Rental Housing Is Suddenly Headed Toward a Hard Landing – “Why has the rental market turned so weak? As rental housing economist Jay Parsons points out, new lease demand cratered in the second half of the year, and was negative for the full year for the first time since 2009.”
  9. 2023 is the Year of _________ – “2023 is a pivotal year for many startups. Churchill once said, “Never let a good crisis go to waste.””  SMS here: SFTE could turn out to be a pivotal year for the family; need a moto.
  10. The Critical Question – “They assume you’re price sensitive, and expect you to ask why something doesn’t cost less…but they are not expecting you to ask why something doesn’t costmore.”

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. Excel Template: Bridge Waterfall
  4. Book Report: The Hard Thing About Hard Things
  5. Operating Model Tips

Updated stats:

Read ArticlesBooks
January800
February
March
April
May
June
July
August
September
October
November
December
Total800

That’s A Bunch of…

Reading Time: < 1 minute

Attempting to avoid some of the politics here, I would like to pose a question:

Where haven’t they found classified documents?

Another question, again, attempting to avoid the politics of the situation:

Who the hell is in charge of securing classified documents in this country?

Influential Reads – December 2022

Reading Time: 2 minutes

“We tend to assume that the worst that has happened is the worst that can happen, and then prepare for that. We forget that “the worst” smashed a previous understanding of what was the worst..” – Brain Food: Figuring it Out (https://fs.blog/brain-food/december-11-2022/)

Happy New Year!

First post of 2023.  I’ve set a goal for posting more.  Competing priorities last year, especially the fourth quarter, hampered my ability to read, write, and post.  

However, we successfully sold the business to a new set of investors, delivering a great outcome for our prior shareholders.  So with that behind me, I hope to be spending more time here.

Note on the book reading front – I did knock out the entire Travis McGee series.

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

  1.  Take Calculated Risks – “Making an unconventional decision can be a very lonely action. Yet, when the person making it has intimate knowledge of a situation and has calculated the risks involved, it often proves to be precisely the right one.”
  2. 3Q 2022 GMO Quarterly Letter – ” Looked at in this way, it seems as if a value strategy in the U.S. should be avoiding the “shallow value” stocks that are mildly cheap relative to the market and focusing solely on the “deep value” quintile. “
  3. Summary of My Post-CPI Tweets – “Overall Core ex-housing (which includes core goods) is down to 5.2% y/y. That’s the lowest since…well, September 2021. Going the right direction but unless core services start to decelerate, there’s a limit to how good this picture can be.”
  4. The Fed is Dead – “In fact, rather than slowing corporate price increases, the Fed’s rate hikes seem to be having the opposite effect.”
  5. Billionaire David Tepper Is Betting Against the Stock Market Because of the Federal Reserve – ” I think the upside/downside [risk here] just doesn’t make sense to me when I have so many central banks telling me what they are going to do”
  6. Q&A with Scott Reardon: Great Investor Track Records – “Generally they were looking for companies where free cash flow yield + growth rate equaled 20% or more. In other words, they were looking for returns double the market average, which is exactly what all of them achieved over their long careers.”
  7. How private markets became an escape from reality – “Private equity firms reported gains of about 3 per cent this year, when public markets were down 20 per cent or more and tighter money battered all markets similarly.”
  8. How to Hedge Inflation and Avoid the Biggest Bond Risk – “Inflation is the biggest long-term risk for bond investors.”
  9. BNP Paribas studied 100 years of market crashes – “A typical recession bear market is 1.5 years in length, with a median drawdown of 38% and a median peak in the VIX of 40.5. “
  10. TeamDynamix Secures Investment to Deliver Rapid Innovation for IT Automation – ” TeamDynamix, a leading IT automation provider, today announced that it has secured an investment from New York-based Level Equity Management while existing investor, K1 Investment Management, will roll a material portion of its proceeds from its exit into the business.”

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.

Updated stats:

Read ArticlesBooks
January891
February1100
March1023
April1032
May1343
June740
July822
August1127
September724
October614
November815
December765
Total1,09636

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…