But What For Takeaways - No. 023

"The first rule of a happy life is low expectations. That’s one you can easily arrange. If you have unrealistic expectations, you’re going to be miserable all your life."

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This Week from But What For?

First off, I want to say thank you to everyone who shared the Simple Sabotage Field Manual article from Sunday (see below) - it set a record for most email shares. Very much appreciate everyone forwarding around the article and welcome to all our new subscribers!

This week, I have been thinking a lot about my day job, which is attempting to make profitable investment decisions in the tech space. At the start of the year, many investors offer up “annual letters” or “year-end reviews”. As boring and old-fashioned as it sounds, I always look forward to hearing what Charlie Munger, Warren Buffet, and Howard Marks have to say.

What is interesting is how much general investment advice can be repurposed and thought of as applicable to many areas of a person’s life.

Unrelated to this topic is the very first link - an excerpt from one of Tim Ferris’ recent books. Last week, I mentioned I have not felt very interested in my day-to-day routine and was stuck in a bit of a negative spot (thank you to those that shot me a note). This excerpt probably stood out to me as a hold-over from last week. Sometimes you need a little kick in the butt to remember that moping around doesn’t help anyone - you got to get out there and do something!

I hope everyone has had a great week thus far,

— EJ

Latest from But What For?

The manual, published in 1944, has now been declassified – but it was once used as a reference guide for OSS operatives globally to train individuals in German-occupied territories how to best become “citizen saboteurs.” It says that “purposeful stupidity is contrary to human nature” and thus the manual means to serve as inspiration and direction for saboteurs.

In short, the best way that ordinary citizens, unhappy with the German occupation, could aid the Allied military was to drive inefficiency in their workplaces – to slow down every attempt at progress and make even the simplest tasks frustrating.

Specific examples involved mechanics not repairing engines on time, misplacing tools so that they are hard to find, or misusing tools so as to break them more frequently. Bus drivers could “accidentally” go past the bus stops where German officers would most likely be found or want to get off. Train operators could issue the wrong tickets to travelers so they end up at the wrong destination, or they could issue two tickets for the same seat to cause delays. Janitors could ensure a disorderly workplace environment by keeping things dirty or placing rice in water cooling systems. Even those without jobs could get involved – by giving wrong directions when asked, changing signposts to point the wrong way, or pretending to not speak whatever language the other person is using.

This all got me thinking about Charlie Munger, and how he has said it is often easier to solve problems backwards than it is to solve them forwards – try to uncover the things that would most effectively prevent you from achieving your goals and just don’t do those things – avoid what is certain to bring about failure so that you give yourself the best shot at success…


(Underlined titles are links to sources)

  • Takeaway: What do you really want?

I’m probably hopelessly out of date but my advice is to get real-world experience: Be a cowboy. Drive a truck. Join the Marine Corps. Get out of the hypercompetitive “life hack” frame of mind. I’m 74. Believe me, you’ve got all the time in the world. You’ve got ten lifetimes ahead of you. Don’t worry about your friends “beating” you or “getting somewhere” ahead of you. Get out into the real dirt world and start failing. Why do I say that? Because the goal is to connect with your own self, your own soul. Adversity. Everybody spends their life trying to avoid it. Me too. But the best things that ever happened to me came during the times when the shit hit the fan and I had nothing and nobody to help me. Who are you really? What do you really want? Get out there and fail and find out.

I got a chance a couple of years ago to visit a security firm, one of those places that guard celebrities and protect their privacy — in other words, a business whose total job was to say no. The person who was giving me the tour told me that the business screens every incoming letter, solicitation, email, etc., and decides which ones get through to the client. “How many get through?” I asked.

“Virtually none,” my friend said. I decided that I would look at incoming mail the same way that firm does. If I were the security professional tasked with protecting me from bogus, sociopathic, and clueless asks, which ones would I screen and dump into the trash? That has helped a lot.

In the world of writing, everyone wants to succeed immediately and without pain or effort. Really? Or they love to write books about how to write books, rather than actually writing . . . a book that might actually be about something. Bad advice is everywhere. Build a following. Establish a platform. Learn how to scam the system. In other words, do all the surface stuff and none of the real work it takes to actually produce something of value. The disease of our times is that we live on the surface. We’re like the Platte River, a mile wide and an inch deep.

  • Takeaway: A happy life is a simple life

I have a very simple idea on the subject. I think you should try and make your money in this world by selling other people things that are good for them. And if you’re selling them gambling services where you make profits off of the top, like many of these new brokers who specialize in luring the amateurs in, I think it’s a dirty way to make money. And I think that we’re crazy to allow it.

Well, I’m constantly making mistakes where I can, in retrospect, realize that I should have decided differently. And I think that that is inevitable because it’s difficult to be a good investor. I’m pretty easy on myself these days. I’m satisfied with the way things have worked out and I’m not gnashing my teeth when other people are doing better.

By the way, the Harvard Business School, when it started out way early, they started out with a history of the business. They’d take you through the building of the canals and the building of the railroads and so on and so on. You saw the ebb and flow of industry and the creative destruction of the economic changes and so on. It was a background that helped everybody. And, of course, what I’m saying is that if I were teaching business I would start the way Harvard Business School did a long time ago.

Well, I do have a tip. At times in my life, I have put myself to a standard that I think has helped me: I think I’m not really equipped to comment on this subject until I can state the arguments against my conclusion better than the people on the other side. If you do that all the time; if you’re looking for disconfirming evidence and putting yourself on a grill, that’s a good way to help remove ignorance.

What happens is that every human being tends to believe way more than he should in what he’s worked hard to find out or where he’s announced publicly that he already believes. In other words, when we shout our knowledge out, we’re really pounding it out. We’re not enlarging it. And, I was always aware of that and so I’ve accepted these damned annual meetings. I’ve been pretty quiet.

There’s an old German proverb I’ve always liked. It says that man is too soon old and too late smart. That’s true whether you’re Benjamin Franklin or Joe klutz. We all live with that problem. We’re all pretty forgiving of ourselves too which is probably a good thing.

I wouldn’t change my life all that well. I think most people who are assuming tolerable success in life are about as happy as they were ordained to be. They wouldn’t be a lot happier if they were richer or a lot less happy if they’d been poor. I think most people are born with a happystat. That happystat has more to do with their happiness and their outcomes in life

A happy life is very simple.

The first rule of a happy life is low expectations. That’s one you can easily arrange. If you have unrealistic expectations, you’re going to be miserable all your life. I was good at having low expectations and that helped me.

Also, when you get reverses, if you just suck it in cope, that helps if you don’t just fretfully stew yourself into a lot of misery.

There are certain behavioral rules. Rose Blumpkin had quite an effect on the Berkshire culture. She created a business with like 500 depression dollars that became a huge business. You know what her mottoes were? Always tell the truth and never lie to anybody about anything.

Those are pretty good rules and they’re pretty simple.

A lot of the good rules of life are like that. They’re just very simple. Do it right the first time. That’s a really good rule.

  • Takeaway: Never bet against America

Charlie and I will simply deploy your capital into whatever we believe makes the most sense, based on a company’s durable competitive strengths, the capabilities and character of its management, and price… If that strategy requires little or no effort on our part, so much the better. In contrast to the scoring system utilized in diving competitions, you are awarded no points in business endeavors for “degree of difficulty.” Furthermore, as Ronald Reagan cautioned: “It’s said that hard work never killed anyone, but I say why take the chance?”

In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned, capriciously switch from one to the other: Your message to potential customers must be consistent with what they will find upon entering your premises.

At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.

When you next fly over Knoxville or Omaha, tip your hat to the Claytons, Haslams and Blumkins as well as to the army of successful entrepreneurs who populate every part of our country. These builders needed America’s framework for prosperity – a unique experiment when it was crafted in 1789 – to achieve their potential. In turn, America needed citizens like Jim C., Jim H., Mrs. B and Louie to accomplish the miracles our founding fathers sought.

Today, many people forge similar miracles throughout the world, creating a spread of prosperity that benefits all of humanity. In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking.

Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so.

Our unwavering conclusion: Never bet against America

  • Takeaway: Times change; make sure you do too

His investment style relied on fixed formulas to arrive at measures of statistical cheapness.  Graham went on to achieve enviable investment performance although, funnily enough, he would later admit that he earned more on one long-term investment in a growth company, GEICO, than in all his other investments combined.

To summarize, businesses are both more vulnerable and more dominant in today’s world, with much greater opportunities for dramatic changes in fortune, both positive and negative. On the positive side, successful businesses have much more potential for long runways of high growth, superior economics, and significant durability, creating a huge pot of gold at the end of the rainbow and seemingly justifying valuations for the potentially deserving that are off-puttingly high by historical standards. On the negative side, it also creates immense temptation for investors to overvalue undeserving companies. And companies with here-and-now cash flows and seeming stability can see those evaporate as soon as a bunch of Stanford computer science students get funding and traction for their new idea.

Skepticism is important for any investor; it’s always essential to challenge assumptions, avoid herd mentality and think independently.  Skepticism keeps investors safe and helps them avoid things that are “too good to be true.” 

But I also think skepticism can lead to knee-jerk dismissiveness.  While it’s important not to lose your skepticism, it’s also very important in this new world to be curious, look deeply into things and seek to truly understand them from the bottom up, rather than dismissing them out of hand. 

Value investors are likely to consider it easy to predict and value Company A, with its time-tested product, stable revenues, well-established profit margins and valuable production facilities.  The process requires only a few simple assumptions: that something that has been successful will remain so; that next year’s sales will be equal to this year sales plus some modest growth; and that the profit margin will remain where it has been for years.  It seems intuitively obvious that chugging along as in the past is more predictable and reliable than rapid and durable growth, and thus that industrial stalwarts are more capable than innovators of being valued with precision.

Company B, on the other hand, is at an early stage in its development, its profit margins are far from maximized, and its greatest assets go home every night rather than residing on the balance sheet.  Valuing it requires guesses about the ultimate success of its products; its ability to come up with new ones; the response from competitors and the targeted industry; its growth runway; and the extent to which it will be able to increase profitability once doing so becomes its focus.  Company B seems more conceptual in nature and more dependent on developments in the distant future that are subject to significant uncertainty, so valuing it might have to be done on the basis of broad ranges for future sales and profitability rather than reliable point estimates.  Assessing its value also requires conversance with a technologically complex field.  For all these reasons, value investors are likely to consider Company B hard to value, “speculative” and thus not investable under the canon. 

When you find an investment with the potential to compound over a long period of time, one of the hardest things is to be patient and maintain your position as long as doing so is warranted on the basis of the prospective return and risk.  Investors can easily be moved to sell by news, emotion, the fact that they’ve made a lot of money to date, or the excitement of a new, seemingly more promising idea.  When you look at the chart for something that’s gone up and to the right for 20 years, think about all the times a holder would have had to convince himself not to sell. 

In other words, if you have a compounding machine with the potential to do so for decades, you basically shouldn’t think about selling it (unless, of course, your thesis becomes less probable).  Compounding at high rates over an investment career is very hard, but doing it by finding something that doubles, then moving on to another thing that doubles, and so on and so on is, in my opinion, nearly impossible.  It requires that you develop correct insights about a large number of investment situations over a long period of time.  It also requires that you execute well on both the buy and the sell each time.  When you multiply together the probabilities of succeeding at a large number of challenging tasks, the probability of doing them all correctly becomes very low.  It’s much more feasible to have great insights about a small number of potentially huge winners, recognize how truly rare such insights and winners are, and not counteract them up by selling prematurely.  

Take care and have a great rest of the week,

— EJ

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