Things I've seen and learned

Clearing out a notebook of ideas that don’t justify a full post…

• Good ideas often aren’t good investments. We’re still early in this latest iteration of a tech shakeup. I’m sorry. I wish I could tell you otherwise. We got into some of the reasons why when I did the Smattering Podcast. I’m not going to rehash here. But if there is one thing every investor should be mindful of right now, it is to separate your love of the idea from your analysis of the business. I see far too many good ideas/helpful products that are never going to find a way to achieve sustained profitability. Or at the very least, have no clear path to sustained profitability. That’s likely to be a big part of the story in the second half of 2023 and beyond. Get ahead of it now.

• The costliest mistakes we make happen when we assume we know what someone else is expecting. This is a follow up to my thoughts on the power of “no”. The social game is hard. It is really hard when you are in high school, but continues to be a constant balance long after high school. It is opportunistic to fit in. To play the game. And that is fine, to the extent you can tolerate the game. But there is real danger in trying to anticipate what others expect of you, and focusing myopically on delivering on that expectation. You are almost never right. It is far better to be yourself, and don’t try to live in someone else’s head.

• Value investors remind me of libertarians. There are a huge number of people who claim to be libertarians. These days, same is true of value investors. Members of both groups tend to get very defensive about whether others who claim to be like-minded really qualify. And with both groups, no one can really agree on what exactly the qualifications are to be a member of the group anyway.

  Which is all apropos of nothing. There are certainly a lot of real members of both groups. But I guess it just shows how popular value investing is right now.

• How to cheat, pt. 1. As you are probably aware I have been hanging out this spring at a high school. I teach an elective course, which is a lot more laid back than the core curriculum. This has allowed me a lot of time to talk to the kids, and learn some of their secrets.
  Including… The easiest way to hit a required “word count” in 2023 is to go to the bottom of your document, change the font color to white, and then type nonsense separated by random spaces until the word count is satisfied. Now, any good teacher knows this, and can foil the plan by simply hitting “select all” when they open a document and scrolling to the bottom. Lesson one of high school is the adults aren’t nearly as clueless as the kids think they are. But I adore the simplicity of the attempt.

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• Cash is fine, but don’t get carried away. The hot new trend in investment punditry right now is “nothing is attractive, it’s ok to hold cash.” I tend to agree stocks, by in large, do not look undervalued. And it definitely is a lot easier to hold cash today, with cash paying something above 0% interest. But part of this is being too clever for your own good. Time in market still is more important than timing the market. It’s fine to build your cash, and it’s fine to be more patient now than you were when rates were zero. But I would suggest it is a lot better to just throw your long-term money into a low-cost index fund and let it compound over time, and then switch back to buying individual stocks when you see stocks worth buying.

• Nobody is paying attention to you. They’re all too neurotic about themselves. This is another social one. We spend way too much time worrying about what people think of us. Spoiler alert: They don’t. They don’t think about us. They are too busy being worried about what everyone thinks of them to devote the brain cells needed to fully break us down. Nobody cares about you. And that is liberating.

• How to cheat, pt 2. Google translate has to seem so tempting to students struggling with a foreign language class. But the tech is so good, it is pretty easy for teachers to tell when you use it. Unless, you outsmart the system by dumbing down your English. The key to using Google Translate is for your input to be “caveman English.” If you try to pass off the translation of “I ate a delightful dish in the lush green field by the tranquil pond” and it comes out correctly, you pretty obviously cheated. But if your input is “I eat food in grass near pond” what comes out of the machine could be passable.

  (There is a massive life lesson there, by the way.)

• The next big thing will not be like this big thing. Why do I think the worst is not over for stocks? Part of it is because the winners from recent years are the stocks rallying today. I don’t know what the next sector to lead will be. (Here is a really compelling case for asset-heavy companies with dominant positions and/or strong moats.) But I am convinced it won’t be big tech and SaaS. Until investors move on, we’re still in the previous hype cycle.

• How not to cheat. For what it is worth, every one of my students has experimented with ChatGPT and other AI. None of them say they have used it on an assignment. (And they were pretty honest about other things.) The reason? They say the output is far too obviously the result of AI. Yes, the tech is improving quickly. But maybe we should all chill out a bit about it.

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