No. 11: Richer, Wiser, Happier chapter takeaways; Handful of stocks, most of your return; Pinterest deep dive
This week’s edition has a special inspiration – William Green’s new book Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life. William has had quite distinguished career writing for many publications including Time, The Economist, Forbes, and Fortune, amongst many others.
I first got into contact with William in 2017, thanking him for one of his previous books and Google talks which changed the way I approached investing. He was kind enough to respond with a long email back saying the functional equivalent of “you’re on the right track, kiddo”.
What followed was a brief back-and-forth correspondence which he kept up basically because he’s a nice guy. He didn’t have to spend his time that way, but he did so anyway. William, if you’re reading, thanks a lot for the exchange and the early confidence boost!
Now that my plug for William is out of the way, I’d like to turn attention to a chapter of the book that interested me the most – the one about Nick Sleep and his business partner Qais Zakaria (Zak). This chapter alone made this book worth the €14 investment. Possibly the greatest ROI on any investment I’ve ever made.
For many years, Nick and Zak have been investment cult heroes – only I couldn’t find any information about them, apart from their stellar record. In a world where most investors run their marketing engines at full throttle to attract assets and social media followers, these two were nowhere to be found. So naturally, when I saw that William was able to interview and write a chapter about them, I rushed to buy it.
There were a couple of themes around Nick and Zak’s investment philosophy that stuck out for me:
Quality - They had an emphasis on running their investment partnerships and lives making high quality decisions. They never really marketed their fund, and therefore weren’t trying to woo investors for quick fee income. They made very few investments with an incredible degree of conviction, holding stocks for decades in an institutional investment environment where average holding time was less than one year. They also had a fee structure in which fees were accrued and ringfenced if they made money for investors, but then paid back to investors in periods of future underperformance.
It’s the direction I’m trying to move towards in my own life. Increase quality – in whichever way is relevant to me. Whether that be my interactions with people, investment decisions, and the way I spend my time in general. That doesn’t exactly mean I’m going to live super strict – after all I’m still a sucker for French fries and ketchup – but at least the intent is clear.
Scale economies shared – Nick and Zak came upon this model while studying Costco, and how it repeatedly shares scale economy savings with the end consumer, increasing customer goodwill and propensity to shop at Costco. Growth for Costco means they drive greater scale efficiencies, and so on. They saw that a similar dynamic was happening at Amazon, with faster shipping, greater selection and lower prices. Rinse and repeat. What interests me is that this was not a very complex insight – a 5-year old could have understood it. Yet so few people were willing to hold investments like this across decades. Nick and Zak’s ability to hold onto Amazon, Costco and Berkshire Hathaway across decades was simple, but deeply profound. During that holding time they didn’t have to listen to advisors or pundits, or pay any capital gains taxes from buying and selling. And the book reveals that it was painful at times. A quarter of their investors bailed on them in the depths of the financial crisis when they chose not to sell down the Amazon position – which at the time George Soros was famously shorting.
This is really the way I aspire to invest. Find a few simple ideas with scale, and then hold on tight for a long time. The scale economies shared part applies across many disciplines too. It’s essentially finding companies that can continue re-investing into the business at high rates of return. Amazon and Costco did it through dropping prices – but there are many ways of doing this in other industries too.
Of course, there is far more about William Green’s book that I enjoyed – but I’ll leave it to you, the reader, to make a great investment and buy the book.
Handful of stocks, most of your return
@Robinwigg posted this chart on Twitter, taken from an FT article, about how very few companies drive most of the US stock market returns. Something to keep in mind when investing actively – try not to pick out the bad companies!
Pinterest Deep Dive
This Value Hive podcast about Pinterest was eye-opening. I never understood it at all until I moved in with my girlfriend. And then it’s ALL I saw for weeks!
In a typical household, women still make 80% of purchasing decisions of big-ticket items – furniture, plants etc. And it just so turns out that women between 25-50 love Pinterest. I had never even seen or thought about this website in my life before the 3 weeks where we were furnishing our apartment. Then suddenly for those three weeks I couldn’t get it out of my house. Though we would have bought furniture with or without it, it’s crazy that this website that I had never seen directed so much of my money at once – and I almost didn’t have a say in it!
What’s interesting to me is that management are intent upon building the platform and user lock-in rather than prioritizing monetization through advertising or in-app shopping etc. This is a good sign for me that they’ve organized their stakeholders in a way that they’re able to prioritize the long-term value of the asset rather than harvesting it prematurely.
According to the podcast, MAUs (monthly active users) of Pinterest are more dedicated to the platform than MAUs of Facebook or Instagram – they trust the platform a lot more and think of it as higher quality. Pinterest users surveyed thought of ads shown on the platform as helpful, as opposed to other platform users where ads are perceived to be mostly a nuisance.
The optionality of the platform gets me very excited. As of now, the options to purchase furniture or clothes I see on the website are limited. I imagine a priority of management will be to improve the shopping part of the platform to get sales converted within the site, rather than Google or Amazon - where buyers try to find the companies or goods they saw on Pinterest pictures. The other interesting option is VR/AR. Imagine seeing how a new piece of furniture is placed within their living room through AR/VR glasses. If Pinterest can set themselves up well in the virtual arena this could mean a huge untapped opportunity in the long term for shopper conversion.
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