I am now ~6 years into writing this blog and find it has turned into a rather messy journal, perhaps to the detriment of the reader’s experience. For ease of reference, I have compiled a few nuggets from the various investors profiled over the years. This is not an exhaustive list and is in no particular order, just some concepts I have found helpful and/or interesting. Please note much of what is below are not direct quotes and might be paraphrased or edited for brevity; any mistakes are my own.
On investing topics:
Ashvin Chhabra on the most important thing he has learnt over the course of his career: investing is not about the market, it’s about you. The person investing the money has to figure out what is the purpose of that money, the role that it plays in his or her life and proceed from there. It is not about looking at the markets and figuring out what’s cheap, hot etc. Pretty subtle, even though it sounds obvious when you state it. The entire industry is focused on markets. Took him many years to figure out that most of that is all wrong and one needs to take a step back from the market.
Source: Ashvin Chhabra (Wealth Of Wisdom)
Kerr Neilson’s advice to analysts: simplicity is the key. Start with the answer (the reasons you think the market has got the story wrong) and then elaborate backwards from there. Don’t laboriously take everyone through a vortex of confusion because you lose your listener. But also understand that you are trying to persuade and you have no right to stick to your view; you may have done a lot of work but there is always another point of view around some of the interpretation.
Related to the last point above, he talks about how the greatest strength of investors such as Soros and Druckenmiller is they have no path dependency, which is where your actions earlier determine what you do today. They are able to sever that link and say that was yesterday, today I’m seeing the world this way. Most of us have a consistency requirement. They feel no need to show any consistency.
Source: Kerr Neilson (Investing for Life)
Sam Reeves on the mentality needed to be successful: whatever happened last year is already behind you. You have to start afresh and be excited for the year ahead. Try not to make any mistakes early, get a little win, get some profits in and that allows you to take more risks, roll the dice a bit more. You never want to have a losing year.
Source: Sam Reeves (How Leaders Lead)
Richard Lawrence on the cash flow statement being the most “abused” of all the financial statements. His team calculates four separate cash flow metrics, but perhaps the most interesting insight relates to the importance of understanding the cash flow of the corporate structure. They likes to map out the organization in detail to understand where exactly the company’s cash and borrowings reside. Failing to do this often trips investors up because they don’t have good visibility into how easily cash can move through the organization.
On his biggest investing mistake: he says he has made them all at one time or another. One thing that he should have done is hedged the currencies in Asia when current accounts went above 5%. Back then, however, he was still influenced by Buffett who was saying just buy stocks and don’t look at the economy. That didn’t work out well in the crisis and they pay more attention to macro indicators now.
Source: The Overlook Playbook, Compounding in Asia
Marc Andreessen on the value of studying the opposites: he likes to study investors who are on the opposite end of the spectrum from him in terms of investment philosophy. He says that investors like Buffett are essentially betting against change, while his firm is betting for change. So, when Buffett makes a mistake, it is because something changes that he didn’t expect. When Andreessen Horowitz makes a mistake, it’s because something doesn’t change that they thought would. Andreessen talks about how “every time [he] hears a story like See’s Candy, [he] wants to go find the new scientific superfood candy company that’s going to blow them right out of the water.”
Source: Marc Andreessen (Studying Opposites)
Cheah Cheng Hye on the advantage of entering the investment industry via a different route: his background as a journalist allowed him to put events in a historical, social and political context. At the time, this was a big advantage versus fund managers who could only look at things from a financial perspective. He says that an increasingly competitive society has made young people today put too much of an emphasis on hard skills versus soft skills (communication skills, courage, imagination).
Source: Cheah Cheng Hye On Star Media
Stanley Druckenmiller on risk management: he has never really used risk models or VAR. Prefers to watch his P&L everyday instead. Risk models are great until complete chaos happens and all correlations breakdown; they can suck you into a false security. He has been watching his P&L for 30-40 years and finds it much better warning system if things start acting in a strange manner.
Source: Stanley Druckenmiller (GS Interview)
Soo Chuen Tan on thick vs. thin cultures (link): as a [global] investor, bridging the gap between thick and thin cultures may not be easy. Capital allocation decisions that may seem irrational when viewed through a thin culture lens (e.g. the US), may seem perfectly reasonable and even necessary when viewed through the lens of a thicker business culture (e.g. Europe). Likewise, a thin culture view of ownership as primarily an economic and legal concept is sometimes at odds with a thick culture conception of ownership, which might contain more social and historical meaning.
Source: Soo Chuen Tan (Novus Podcast)
David Halpert on digital decolonization: from an investment perspective, thinking about technology on a local/regional rather than global basis is becoming an important thematic. There are several factors contributing to this localization trend. One is a growing awareness among some developing countries that their own cultures, values and economic interests may not necessarily be perfectly aligned with those of cross-border foreign technology companies (e.g. one example relates to the ownership and management of consumer data). He thinks this is giving rise to a business opportunity for local entrepreneurs to build national and regional champions in the technology space.
Source: David Halpert (Better Mousetrap Podcast)
Marc Faber on ignored macro trends that investors may not be looking at: a shift towards socialism in the US and Europe (along with the likely implications of this). Increasing wealth and income inequality over time in these countries has created a very poor political environment. In turn, this has led to policies being implemented that are not favorable for economic growth and capitalist systems. If you speak to young people in Europe, they generally want more, not less, government. Sentiment could be similar in the US over time.
Source: Marc Faber On Nothing Exempt
Anil Thadani on risk appetite and how this changes over time: you never want to bet the farm. Take as much risk as you can knowing, if things go wrong, you will still live to fight another day. Betting the farm also means different things in your 20s and 30s vs. when you are 70. Your risk profile changes over time. When you are young, you have plenty of time to make it up.
On having conviction: if you don’t believe in what you are doing, you shouldn’t be doing it. Whether you will be successful or not is a different matter and depends also on your ability to take risks, to treat failure more as an educational experience etc. If you decide to do something though, it’s all about execution. Most of the time, if you have patience and time, inflation covers up your mistakes.
Source: Anil Thadani (Pass The Power Podcast)
Yen Liow on handling losses: in general, you learn very little from success, but you learn a tremendous amount from failure. There is a difference between emotional vs. intellectual learning when it comes to mistakes. You need to feel mistakes deeply, but only deep enough that it helps and does not hinder your development. The intellectual layer won’t do anything for you, but if the learning is deep enough in terms of the emotional layer, you will learn from mistakes and won’t repeat them. He calls it the Gandalf moment (“you shall not pass”) – that will never happen to me again.
Source: Evolution Of A Public Market Investor
Angus Tulloch on portfolio construction and diversification: if you are building a portfolio, you want to have something coming out and flourishing the whole time, don’t want it to be feast or famine. A camel is a horse designed by committee – you can’t have a group of people constructing a portfolio, you need one person responsible for making sure that all the things fit in, but the rest of the team have to make sure that person isn’t taking ridiculous risks, is sticking to the philosophy and so on. You have to find underlying profit drivers that are truly differentiated, that is where you are going to get the best diversification. That’s also how you avoid the one bullet risk where one thing can take out a large percentage of your portfolio.
Source: Kennox In Conversation – Interviews
Lou Simpson on portfolio management: One thing a lot of investors do is they cut their flowers and water their weeds. They sell their winners and keep their losers, hoping the losers will come back even. Generally, it’s more effective to cut your weeds and water your flowers. Sell the things that didn’t work out, and let the things that are working out run.
Source: Kellogg Insight: Interview With Lou Simpson
Stephen Diggle on counterparty risk during a crisis: the problem in 2008 was that every counterparty was suspect for about 48 hours. Then that problem was solved. During Covid-19, the problem was more widespread and outside of the banks. The only thing you could do with counterparty risk is to hug those who have access to government money. The biggest banks and corporates will get bailed out. You also want to go with counterparties where the government is more interventionist. This might not necessarily be good for the equity holders (e.g. the BoE stopped HSBC, Stan Chart from paying out dividends), but the solvency of them as a counterparty is likely to be good. Making sure you can get paid, and on time, is incredibly important.
Source: Stephen Diggle Interview
Howard Stevenson on building wealth: assets are more important than income. If you have a high income, you usually have high expenditures. He has always tried to focus on the asset side, because you can’t spend it. He gives the example of how some of his teaching colleagues at the Harvard Business School would take on consulting gigs (usually a euphemism for teaching courses at GE) and make a lot of money, which they would then typically spend on expensive cars and the like. By contrast, he would go to relatively far-flung places like Lima, Ohio and so on, where he was only paid $300 a day, but also got 1% of the company.
And on having a long-term perspective: most of the world is only interested in the first two or three years of return. Warren Buffett is the classic example where, if you look at his results, it’s largely because he bought long duration cash flows. He’s buying the three to fifteen year cash flow. It’s much harder to outguess the professionals that have better information, quicker execution etc. in the first three years.
Source: Sal Daher With Howard Stevenson
On entrepreneurship topics:
Charles Rolls on finding start-up ideas: it is key to have an insider’s perspective and knowledge. You can do research and that’s helpful, but only when you get really involved in an industry can you start to understand where the opportunities might be. The other thing is that only you as an entrepreneur really care about your business, no one else really cares. So you have to give someone else part of the value chain; people will only start to care when you have breathed margin into the whole system so that other players can make some money.
Source: Charles Rolls (Enterprise Lab)
William Sahlman on the fundamental rule of entrepreneurship: don’t run out of money. It’s not so much about the cash in the bank, because the fundamental rule of entrepreneurship is that you are never going to get enough money to get to the nirvana of cash flow independence. It is more that you run out of trust, where you have produced information about yourself, your team, or the idea that causes people to lose faith. You run out of money when the value inflection points are such that the math doesn’t work – you can’t create and capture enough customer value to pay the people who give you their services as employees or their financial resources.
Source: Entrepreneurship Lessons
Hakeem Belo Osagie on leadership traits: courage is vital in whatever you are doing. You are leading people down a path in which you pretend you can see the end of the tunnel as a leader, but you can’t really (he calls it the “fog of business”). Great leaders have the ability to live with not knowing all the answers, but being able to carry people along and solve those issues as they arise. They need to have a sense of security of saying to themselves they don’t know everything but will solve problems as they come along.
Source: Hakeem Belo Osagie (Grit & Growth)
Glenn Solomon on being a great start-up CEO: one key skill is the ability to manage momentum. Start-ups are very hard and you need to be able to build momentum across every dimension of your business (e.g. financing, news and PR, customers, partners, the employees you attract and retain). You need to continually step up and to the right but without overreaching. Skip a step and you introduce quite a bit of risk into the equation.
Source: Interview With Glenn Solomon (20VC)
Zhang Lei on the qualities he is looking for in entrepreneurs: there are many things and most of them are not mutually exclusive. He highlighted a couple of things. First, empathy, which he defines as the the ability to connect with people who are different from you, including your customers, competitors and employees. The best entrepreneurs see their competitors as positive force and think about how they can nurture the market together. Second, a commitment to lifetime learning. Not just because you want to make more money, but because you are intellectually curious and you want to become a better person everyday. Finally, the ability to build an effective organizational culture. He has seen many different types of cultures in Chinese companies. The one he likes most is the sports team culture – you want to win, but by playing by the rules and as a team. You can lose any particular game, but you will be better in the next one.
Source: GS Interview With Zhang Lei
Sanjeev Bikhchandani on his approach to VC investing: they have mostly learnt by doing, forming their own heuristics and valuation parameters. Just focus on backing good founders. One key thing is if the product is getting natural traction (visitors growing without spending money on marketing), it often means the founders are on to something. Second, they like to ask where did you get the idea from? The answer often tells them a lot. Third question, after we fund you, what is the salary you want to pay yourself? No right answer, but what the founder says tell you a lot about them as a person, their motivation, goals etc.
Source: Sanjeev Bikhchandani (Forbes India Interview)
On life & other topics:
Irving Grousbeck on having difficult conversations: directness with respect is one of his principles. Second, meet the person where they are, which is an old phrase of the hospice movement. Think a little bit about where they’re coming from in the conversation. The last thing is that it’s really easy to write bullet points in advance of a difficult conversation and figure out what you’re going to say. But when you start to put them into words, it’s not always so easy. So you need to practice those difficult conversations. Hopefully with a partner or a spouse, or maybe in front of your phone and play it back or in front of a mirror. Practice makes it easier and makes you stumble less.
Source: Irving Grousbeck Interview (Stanford GSB)
Sam Reeves on the key to a robust and balanced life: for him, you can break life down into 5 aspects – occupation, family & friends, mental, physical and spiritual. You have to connect all of them. He didn’t want to live his life as a layered cake, wants a marble cake, you don’t have time to do all of them separately. We are here to be hosts in the world, not guests.
Source: Sam Reeves (How Leaders Lead)
Howard Stevenson on work/life balance: balance is a very static concept and implies we can make trade offs that are stable over time. It doesn’t work. It’s more about juggling than balancing. You have to keep your eyes on all the balls. When you look at the process of juggling, when you touch something, you have to give it energy. If you don’t throw it high enough, you won’t have enough time to catch the other balls. You’ve got to give it energy, then release it. You also have to throw each ball thoughtfully and carefully. And you have to practice. Most importantly, you’ve got to catch the falling ball. One of the things you see in success in life – if people want all four, any ball that they’re losing track of is a problem. Some of the balls, like family, may be made out of glass. Drop it and it may shatter. In his view, the career and happiness balls are more rubber-like.
Source: Howard Stevenson – What’s Enough?
Graham Duncan’s advice to a graduating college student entering the workplace: he says it may be helpful to picture a river flowing between two banks – one side is chaos and the other side is rigidity. Healthy integration is swimming in the middle. Most college students have started life closer to the rigidity bank. Over the course of their careers, they will experiment with swimming towards the middle. In your 20s, you are still acquiring skills. It is important to learn the jargon of an industry, apprentice under somebody to develop judgement and discover your own zone of genius. Swimming in the middle happens most often in one’s 30s or 40s. You can start crafting your own language for what you do, make your craft your own and view your life as more self-expression than just playing out other people’s roles for you. Some small percentage of people will paddle over to the lane next to chaos. We experience them as consistently asserting reality through powerful storytelling while always bearing the risk that their egos grow too big and their creative narcissism gets too well-defended (e.g. maybe Steve Jobs, Elon Musk).
Source: Tim Ferris Interviews Graham Duncan
Peter Koenig’s concept of “source”: based on his study of hundreds of start-ups, found that there was always a single “source” – the person who took the first risk on a new initiative. This person maintains a unique relationship with the original idea and often has an intuitive knowledge of what the right next step for the initiative is. Other people who join later to help with the execution often lack the intuitive connection to the founder’s original insight. Many organizational tensions and power struggles often revolve around lack of explicit acknowledgement of who the source of the initiative is. Handing off the source role is possible but extremely difficult and often mishandled. Key to a successful transition is for the original source to move on and allow the new leader room to move.