1/ A thread on Sidecar Investing, or “free riding on the superior capability of others” -Richard Zeckhauser

A stock’s return will be driven by what isn’t in the spreadsheet.

Meta at $540: "Zuck is a copycat who has never invented anything." Meta at $720: "Zuck is going to disrupt ecommerce, marketplaces, enterprise software, payments...and this is just the beginning!" Oh how do the narratives shift

Remember this, for every multibagger you miss, there’s always another one to find right around the corner. You’re never going to run out of chances. So, don’t let regret paralyze you.

In 2009, I graduated law school and joined our 4th generation family business. Over the next 16 years I traveled to Asia 14 times, Mexico 15+ times, and offices of retailers around the country countless times. Last year I left the family business after being in the CEO seat for 5 years after new investors got involved. They turned out to be very low integrity, and life is too short for that…so I said ✌🏼 out. Now I'm COO of a national architecture and design firm. New industry for me, great people involved. A constant through it all has been my passion for investing. Usually I'm quiet about my process and investments, but I've become more vocal, writing more and engaging more here on @X and @MicroCapClub. All this to say…I'm just getting started on X and look forward to what's to come! This platform never ceases to amaze me.

When evaluating a management team, I like to use a simple exercise: Imagine the company makes a surprise announcement tomorrow. What’s in the press release? Are you excited or nervous? That gut reaction tells you a lot about how much you really trust management.

Every investor should pin this to his wall

“During periods of rapid growth, capital expenditures rise faster than Revs. This weakens near-term cash flow. The returns appear years later, after the new capacity is operating + generating Revenue. Investors who focus only on current cash flow see the worst part of the cycle.”

Fabulous book.. 51 books in and this is one of my favourites this year.

Just finished narrating The Investing Mind with the wonderful folks at Factory Underground @fustudios. It was a grind but fun to go back through the material: theinvestingmind.com/ Order now if you you like to listen to books - it will release at the same time as the physical book!

One thing it took me a long time to appreciate is how difficult it is to hold even great companies for long enough for compounding to kick in. It takes a rare level of commitment, especially when the business changes in ways you never anticipated. It’s helpful to focus on things that don’t change a lot over time: the people, the culture, and the operating system a company uses to make capital allocation decisions. Together, they form something like a company’s DNA. Danaher is a great example. The Rales brothers’ first acquisition, in 1981, was Master Shield, a vinyl siding company. Not exactly the obvious starting point for a once in a lifetime investment. Yet over the next 40 plus years, Danaher evolved from this to a tool manufacturer to a diversified industrial conglomerate, then into life sciences and, more recently, a leader in medical diagnostics. This was the progress required to keep the company relevant. But to many investors, it would look like thesis drift. What I find interesting is that while what Danaher does has changed dramatically, its focus on building per-share value has remained remarkably consistent. That’s a reason there’s value in approaching an investment with the intention of holding it forever, even if it rarely works out that way. This shifts your attention away from what a company does today and toward the people, culture, and systems that could help it evolve over decades. There are certainly no guarantees, but I’ve found this can help you stay invested as the business changes in positive ways nobody could have predicted.

Several years ago after a stock pitch, someone replied “that’s a hard way to make money” and I haven’t thought about anything more since.

At what point do people agree that Mark Zuckerberg might be one of the greatest CEOs in history? Reminder that he has never held a job other than at Meta his entire life. Started the business from a college dorm and continues to run it to this day at the age of 42 Completely changed his entire branding for the sake of saving the business. Pivoted a bunch of times when necessary. Copied every last thing that was good about any of his competitors (Snapchat stories, acquired Instagram, Reels) On top of that, he is one of the only founders of a business that scale who hasn't gotten a second wife or a divorce

The unfortunate reality is 99% of investors can’t handle the volatility needed to generate exceptional returns.

Ken Langone probably has one of the most insane returns in stock market history. He co-founded Home Depot and has held the stock since its IPO, when it had a $40M market cap — Home Depot has been the best performing stock in the S&P 500 over the past 45 years. He later became a shareholder in Eli Lilly through a buyout, when Lilly's market cap was $2B; he still holds those shares today, with Lilly now at a $1T market cap. Incredible. Besides this interview, I recommend his book: I Love Capitalism!: An American Story. piped.video/watch?v=g6Fjdke0…

Moat is often just a label given to successful businesses after the fact. Many of the best investments have been companies with ordinary products but obsessive, relentless focus. Execution in the moat.

Peter Thiel handed Mark Zuckerberg a term sheet about an hour after meeting him for the first time. Charlie Munger needed roughly ninety minutes to decide to buy the stock and bonds of Tenneco, a company then on the verge of bankruptcy. The Owner's Memo #23 is about why the best investment ideas tend to be simple, explainable in a short paragraph and sometimes in a single sentence. I look at three examples that worked for different reasons: ✔️ Carl Icahn's investment in Apple in 2013, laid out in a 3,000-word letter whose key point fits in two sentences (and Warren Buffett's purchase of the same stock, at a similar discount, three years later) ✔️ Peter Thiel's $500,000 investment in Facebook in 2004, agreed to on the day he first met Zuckerberg ✔️ Charlie Munger's investment in the stock and bonds of Tenneco, a decision made in 90 minutes Keep it simple. A complex thesis carries risks beyond simply being wrong because, as conditions inevitably change, complexity has the potential to create boogeymen and cause an investor to bail out early. In fact, the Apple story contains a surprising example of exactly that, from the very investor who called the stock a "no brainer." open.substack.com/pub/theown…

This is an incredible treasure trove: a compilation of old Outstanding Investor Digest (OID) volumes. h/t Kevin Gee / @mjmauboussin

The right directors can have a big impact on your microcap company

Invest when the moat is being built.

The Greatest Advantage of Being an Individual Investor A lot has been written about the advantages individual investors have over professionals, especially the ability to invest in small companies. That is real. But I think the biggest opportunity is something else. You don’t have to conform to anybody else’s expectations. You don't have a tracking error budget or have to worry about the style box. You don't have to explain quarterly, monthly or even daily performance attribution. There aren't clients asking why you are underweight in a large sector, a consultant wondering why you don't own the latest hot stock or enough of it, or a committee questioning every trade. While this sounds obvious, it is enormously powerful. Professional investors are surrounded by people with different goals, incentives, and relationships with money. Even when nobody directly tells them what to do, what is expected of them is clear. A fund is expected to have specific characteristics and not stray too far from its benchmark. One year of underperformance is understood, two years gets you on a watch list, and three years gets you fired. Even if you are doing the right things. Over time, these pressures quietly shape behavior. You start buying things because other investors own them. You worry about looking out of step. You focus on what the market is rewarding now. You feel pressure to remain fully invested. You spend a lot of time explaining why you are different. The individual investor doesn't have to play this game. You can build your process around your unique perspective and experiences, whether that’s spotting inflection points, finding undervalued assets, or identifying great businesses in obscure corners of the market. Whatever your advantage is, nobody has to approve it. This freedom also extends to how you spend your time. A professional investor has to do things that have nothing to do with finding great investments. Meetings, conferences, investor calls, benchmark analysis, portfolio reviews, attribution reports, and countless other obligations can consume time without improving performance. You can spend your morning on a hike or reading an annual report from a $50 million company that nobody on Wall Street has reason to care about. You can do your research at the coffee shop, at your own pace. You can follow a company simply because you find it interesting. There is no requirement that your process look professional. It just needs to work for you. This is one reason I think individual investors should be careful about trying to imitate professional investors. There is a natural tendency to assume that the people managing billions of dollars must have a better process. They do have more connections and resources. But they also have constraints that you don't have. A manager will need to explain why a stock is down 30%. There will be pressure to capitulate and sell at the wrong time. If appropriate, you can just shrug. You don't have to beat the S&P 500 every quarter. You don't have to outperform another manager. You don't have to gather assets. You don't have to make your portfolio look good in a presentation. You can focus on the only thing that ultimately matters: making good decisions with your capital. You don't have to chase what is popular or justify a decision to someone else. In a world where most investors are constantly being pulled toward consensus, simply having the freedom to think independently is an enormous advantage. Years ago, I heard a story about a man, let’s call him Greg, who had done very well in the market and retired in Boca Raton. A friend invited him to an investment lunch where someone was pitching a fund. Greg said he had done much better himself and expected to keep doing so. The fund manager tried to shut him down by asking what his Sharpe ratio was. Greg replied, “I don’t know and I don’t care. I made enough to retire in Boca.” To him, that was the only measure that mattered, and there is a ton of wisdom in that.