Monthly Archives: August 2021

Three Take-Aways: Superforecasting: The Art and Science of Prediction

Reading Time: 2 minutes

“Superforecasters are perpetual beta.” – Superforecasting

This is meant to be more of a book report, than a review.  In particular, I want to highlight three lessons from the book, Superforecasting: The Art and Science of Prediction by  by Philip E. Tetlock and Dan Gardner that I found impactful.  This also serves as a way for me to recall influential points in the book.

Forecasting is near and dear to my heart. Although I have evolved my view a bit over the years.  One thing is for certain in my financial forecasts.  I am wrong.  It’s just a matter of how “wrong”.  But in many cases, the most important part of forecasting is not the absolute accuracy of the forecast, it is the discipline and planning the forecasting process instills.

Three take-aways from the book:

  1. Forecasting Is Not Mystical

“Foresight isn’t a mysterious gift bestowed at birth. It is the product of particular ways of thinking, of gathering information, of updating beliefs. These habits of thought can be learned and cultivated by any intelligent, thoughtful, determined person.”

This kind of reminds me of how strategy is sometimes viewed.  Forecasting and strategy have a bit of mystical aura.  In practice though, both are bit less sexy than most folks think.  They are hard work. They are an incremental process.

If you think someone is going to hike up to the mountain top and come down with the answer, prepare to be disappointed. If someone tells you they can go to the mountain top and come down with the answer, be highly skeptical.   

  1. Forecasting As A Skill

Similarly to the first point, forecasting is a skill.  And skills require consistent practice to build and maintain.

“Superforecasting demands thinking that is open-minded, careful, curious, and—above all—self-critical. It also demands focus. The kind of thinking that produces superior judgment does not come effortlessly. Only the determined can deliver it reasonably consistently, which is why our analyses have consistently found commitment to self-improvement to be the strongest predictor of performance.”

One of the tools I use to assist in my forecasting practice is the Stagger chart – that I learned about in Andy Grove’s book, High Output Management.

  1. An Ensemble Approach

Good forecasters assimilate lots of external information.  Constantly.  And update their views accordingly.  See my incremental comment earlier.

“Now look at how foxes approach forecasting. They deploy not one analytical idea but many and seek out information not from one source but many. Then they synthesize it all into a single conclusion. In a word, they aggregate. They may be individuals working alone, but what they do is, in principle, no different from what Galton’s crowd did. They integrate perspectives and the information contained within them. The only real difference is that the process occurs within one skull.”

And asking questions is an important part of getting additional information.

“Practice “constructive confrontation,” to use the phrase of Andy Grove, the former CEO of Intel. Precision questioning is one way to do that.”

And do not expect a consensus view (a major pet peeve of mine).

“A smart executive will not expect universal agreement, and will treat its appearance as a warning flag that groupthink has taken hold.”

A few other recent book reviews:

  1. Essentialism: The Disciplined Pursuit of Less
  2. Fortune’s Formula
  3. The Hard Thing About Hard Things
  4. The Conscious Parent

The Mountain West: Not All Sunshine & Lollipops

Reading Time: 2 minutes

We have really enjoyed being out here in Park City, Utah for an extended period of time.

I have written about the path that got us here.  In short, we were here when the pandemic started and decided to shelter here for a little while. A little while turned into a while longer.  

Last year, we missed most of fire season.  There were a few days where you could tell there was something going on with particulates in the air.  Mostly eerie sunsets.

This year has been a different story.  We have seen a lot of these kinds of forecasts.

We have learned about PurpleAir.  There have been consecutive days where it has been legitimately smokey – with smoke coming over from California (i.e., the Dixie Fire).  

And we had our own fire recently.  There were evacuations and disruptions. And a lot of smoke.

VLAT Operating Over Parley’s Canyon Fire near Park City, Utah

Recent events have made us appreciate the clear days even more.  Even the locals are distressed with the situation this year.  

Fire season is something to understand if you are considering the Mountain West.

Family Mission: Teton Canyon

Reading Time: 2 minutes

We had something to take care of up in Driggs, Idaho  and decided to combine that trip with a little camping.

One of the features we like about the greater Salt Lake City metro area is its proximity to a lot of great outdoor destinations.  We joke that you are four hours from anything, but four hours from a lot of stuff.

We found a campsite at the Teton Canyon campground.  Must have been a cancellation.

The campground turned out to be ideally located for a couple things.  It is located close to Driggs and Alta, Wyoming, but far enough away to feel like camping.  It is a “primitive” campground, there are bathroom facilities and water.  But not much else.

But the main attraction appears to be that the campground is located close to a few popular trailheads that are essentially the backdoor into the Teton Crest trail system and Grand Teton National Park.

We did two hikes.

On the first day, we drove in and had a bit of a later start than hoped, but did part of the Table Mountain Loop trail.  

We did not go all the way to the summit.  Instead, we just did the loop part.  I would like to tell you that it was a time constraint.  However, that trail is no joke.  We did about 3,000 vertical feet, and there was another 1,000 to the summit.  And our elevation gain was essentially over 3 miles.

Those are the Tetons in the background.

On the second day, we did a shorter hike down the South Teton trail to just past the turn off to go up to Hurricane Pass.

We will definitely be back. We are eyeing either the hike up to Hurricane Pass and the Schoolroom Glacier or continuing on the South Teton trail into the Alaska Basin.

Check out a few prior missions:

Questions To Ask About Your Stock Options

Reading Time: 4 minutes

This is not financial advice.  Talk to a financial advisor if you need financial advice.

Congratulations!  That job offer you just received included a stock options award.  Welcome to the big time!  Or something…

The question everyone wants to know is what could those stock options be worth.  But it seems like a lot of employees are afraid to ask.   Don’t be afraid.  

I am going to assume that you understand the basics of options.  If not, there are plenty of articles covering option mechanics.  Here is one from Morningstar. There are plenty of others.

If the options are for stock in a publicly traded company, then this is probably a relatively easy question to answer.  They are probably worth $0 when issued – as the strike price will correspond to the current stock price and most of the other relevant information will be publicly available.  

However, if we are talking about a privately held company, then you need to collect some data to ascertain if those options are your path to a life of luxury or just a little extra kicker.  I am a firm believer in finding ways to accumulate wealth that has leverage, and owning part of business is certainly a good way to do this.  But, if we’re talking private companies, then generally it will take some sort of liquidation event (i.e. a sale of the company) to trigger any payout, so all that is baked into my comments below.

Fully Diluted Share Count

First, to evaluate how much those options might be worth someday, you need to understand how many shares are outstanding.  In other words, how much of the company do your options represent?  So, I personally would phrase this question as:  What is the fully diluted share count?

This matters because if a company is worth $150 million and there are 50 million shares, then every share is worth $3 dollars.  Your options would be worth:  Option Count x ($3 – Your Strike Price).

You need the total share count to help you estimate how much a share could be worth at different valuation numbers, for example.

Who Gets Their Money Before Shareholders

Second, you also need to know if anyone is going to get paid out before the shareholders.  There can be a number of mouths to feed before shareholders see any proceeds including the following:

  1. Bankers, Lawyers & Any Transaction Fees
  2. Working Capital Adjustments
  3. Debt
  4. Preferred Shares

For simple math, you can probably ignore the expenses related to bankers, lawyers, and other transaction fees.  This is not to say they are going to be small.  But we are doing horseshoes and hand grenades math here.

Same with the working capital adjustment.  This is a purchase price adjustment due to estimating how much money is going to be left in the business by the sellers vs. how much actually gets left behind.  Since the negotiations typically take place several months before the close, an estimate is used and then trued up based on actuals.  But for our purposes let’s ignore it.

Debt.  This is not to be ignored.  If you sell the aforementioned business for $150 million but there is $50 million of debt, then only $100 million is left over for shareholders.  This, as a shareholder, you care deeply about.

Preferred Shares.  This could be a topic of an entire post, but for simplicity, you should understand that there can be different “classes” of shares and each class may have different provisions.  The provisions you care most about is the preference in the proceeds waterfall.  Let’s say in the aforemention business with 50 million shares, that 25 million are Participating Preferreds that get paid out at $2 a share.  And then participate ratably with the other 25 million Common Shares.  So, take your $150 million purchase price and subtract off $50 million of debt.  Then take the remaining $100 million and pay the Participating Preferred their $2 per share ($50 million), leaving $50 million.   Then all shares, both Participating Preferreds and Common Shares, get the rest, so each share is worth $1.

So, as a Common Shareholder, you also care deeply about Preferreds.


This one is a bit subjective, but you should have some decent data points.  The strike price on your options should be a reasonable approximation of how much the company thinks the shares are worth today.  Under IRS guidelines, you should not be issuing shares under fair market value.  Now for private companies, that can be highly subjective, but at least you have a starting point. And the fair market value should take into consideration any of the considerations above.  You can take the strike and the total share count and work backwards to get a total equity value and if necessary, add back any debt, to get a total company value.   

Some companies, depending on their culture, may consider some of those data points to be confidential or at least highly sensitive.  If that is the case, then I think it would be an extremely fair request to ask if they could put together a schedule that showed the potential share price at various valuation levels.  They could bake in all the items above, without having to disclose them specifically.  

I am always a little surprised by how many employees do not ask these questions.  But , hopefully that helps you evaluate any stock option awards that you have been offered.  

I Am A Closet Active Investor

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I am a closet active investor.

This statement is partly predicated on the fact that most investing decisions, including purchasing index ETFs, contain an element of active decision making.  Unless you are 100% invested in the entire market, even the index ETF selection process involves the selection of asset classes, which is by definition, an active choice.  

As Rick Ferri, perhaps the most notable expert in the world when it comes to indexing says, “there’s no such thing as passive investing. It’s true. Passive investing in its purest form doesn’t exist. Only lesser degrees of active management exist.”  – The Myth of Passive Investing

In fact, some research suggests asset class selection is potentially the most significant driver of returns.

“More than 90% of the variability in returns for institutional portfolios had to do with the asset allocation decision.” – Four Investing Lessons From David Swensen

Also, I believe that a lot of the research on “passive investing” vs. “active investing” is based on periods of history where the aggregate level of “passive investing” was much lower than it is today.  So it will be interesting to see how those relationships hold up as the amount of “passive investing” increases to a much higher percentage in the research dataset or if that relationship changes and additional opportunities for more active selection decisions present themselves.  Further, we have had a fairly long stretch of broad gains across almost all asset classes, which seems like the perfect environment for less active decisions.  It is possible the environment will change in the future.  I may write more on all that later.

Based on my investing philosophy, I have a portion of my portfolio that is invested mostly in the equity of individual names.  The starting point is based on some of the tenets laid out in Joel Greenblatt’s book, The Little Book That Beats the Market

I have been doing this for over a decade.  And I have created a little bit longer checklist as I have attempted to enhance my investing decision making process.

So, for your enjoyment, here is my investing checklist:

This is not investment advice.  Use at your own risk.  If you do use this checklist, you will likely be publicly shamed based on your under-performance, generating excessive fees and taxes, lack of non-income producing assets in your portfolio, and knowing what EBITDA means. Other legal disclaimers.  Blah, blah, blah.  

Influential Reads: July 2021

Reading Time: 2 minutes

“Problems are a feature. They’re the opportunity to see how we can productively move forward. Not to a world with no problems at all, but to a situation with different problems, ones that are worth dancing with.” – Seth’s Blog

July disappeared.  Time seems so distorted these days.  March 2020, the beginning of the pandemic for most folks, seems like both an eternity ago and just the other day. I am coming up on my three year anniversary at work, but have not seen anyone face to face for half that time. Crazy.

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

  1. How to Think: The Skill You’ve Never Been Taught – “Good decisions create time, bad ones consume it.”
  2. Tradeoffs: The Currency of Decision Making – “Tradeoffs aren’t always easy, which is probably why we try to avoid them.”
  3. The thirsty West’s dreaded water crisis is here – “At the heart of the problem is a lie — or call it, more forgivingly, a convenient fiction.”
  4. What Does the Delta Variant Mean for the U.S. Economy? – “For the variant to have a major impact on G.D.P. and employment, Zandi said, businesses would have to close down again and people would need to go back to sheltering in place, both of which he considers very unlikely.”
  5. Comments on existing home sale prices – “A huge number of people held off selling during the pandemic lockdowns last year in spring. Those houses are going to come back on the market, and I expect inventory to surge as the pandemic recedes.”
  6. How This Ends – “We are in the middle of one of the great asset bubbles of modern times.”
  7. The OODA Loop: How Fighter Pilots Make Fast and Accurate Decisions – “If you are able to be nimble, assess the ever-changing environment, and adapt quickly, you’ll always carry the advantage over any opponents.”
  8. The Surprising Power of The Long Game – “The most successful people in any field all play the long game.”
  9. A Memo to Investors – “This surely will sound quaint and stale to a few readers, but – and I’m sorry – the future value of a thing is ultimately based on the dividends the thing will eventually pay you, or someone to whom you are prepared to sell your shares.”
  10. Robinhood and iAddiction – “The company’s mission to “democratize finance for all,” is similar to Pablo Escobar saying his mission was to “democratize cocaine.”

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 Template: Football Field Chart
  3. Family Mission: Solamere Loop Trail
  4. EBITDA Is Not A Good Proxy For Cash Flow
  5. Three Take-Aways: Essentialism: The Disciplined Pursuit of Less

Updated stats through July: