Welcome to issue #13. As always, sharing what I’ve been reading, learning, and compressing. But first, a quick quote from David Lee Roth:
I choose to sail the seas of consequence
Here’s the format of today’s email:
Part 1: Investor Mistakes
Part 2: 1980's Japan
Part 3: Under the Spotlight: Michael Kim
Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen.
Just hoping to highlight some lessons learned from investors who made mistakes. I don’t want to cover the actual mistakes themselves too much. Plenty of others have covered that much more in-depth already. Trying to emphasise what they learnt from their mistakes.
As I said at the beginning, experience is making mistakes, and learning from mistakes. Unfortunately as students you haven’t made many mistakes yet. If you’ve gotten to Oxford at this point in your career the biggest risk is you probably haven’t screwed up a lot.
The risk of that is when data comes across your desk that’s inconsistent with your being successful you’re less likely to pay attention to it than if you’ve made a few mistakes. So I encourage you to make some mistakes.
Old mate Wazza’s thoughts are more life-oriented than investing. But it doesn’t make them any less valid.
You’re going to make mistakes in life, there’s no question about it. You don’t want to make them on the big decisions, who you marry and things like that. So there’s no way I’m going to make a lot of business and investment decisions without making some mistakes. I may try to minimize them. I don’t dwell on them at all. I don’t look back.
The biggest mistakes are the ones that actually don't show up. They're the mistakes of omission rather than commission. We've never lost that much money on any one investment but it's the things that I knew enough to do that I didn't do. You know those don't show up, there's no place where it shows missed opportunities but I've I missed some big ones.
The triumphs in life are partly triumphs because you know that everything ins’t going to be a triumph. I would never get too hung up on mistakes. I know a lot of people that really agonize over and it it just isn't worth it.
I mean tomorrow's another day do it look forward just go on to the next thing.
This quote and Howard Marks’ further down both come The Graham and Dodd Luncheon Symposium 2008 (h/t Novel Investor). Find it super interesting Klarman’s first thought is about bad people.
Stay away from bad people. When you’re with bad people if you fight them you end up wasting a huge amount of time, you’re not going to change them, and so there are a lot of cheap stocks that should be cheap because they think that your money is their money and they’re not going to change. So we’ve learned the hard way in a few situations many years ago, when it’s a really bad person just let it be somebody else’s problem.
The second is beware of leverage, not in your portfolio but in the underlying companies. The biggest mistakes we’ve made have been where we thought our value was covered easily but where we were not in the senior-most position and there was a lot of debt in front of us. Then, a relatively small change in the value greatly impacts those securities. […]
Stock can look incredibly cheap but the leverage that they have won’t be leverage that they’ll be able to roll when it comes due. That’s become an obvious lesson now but it’s something, luckily we learned for small dollars a long time ago. And you can never imagine how little amount of actual debt can seem really large just when you have a big problem. That leverage is really an enemy of being able to take a long term perspective because you can drown in a pond that is only one foot deep on average.
I wrote out a list of what I thought were the lessons of ’07 and I thought that the most important one, the best one, was that investment survival has to be achieved in the short run, not on average in the long run. And that leads to your point about drowning in shallow water. But the upshot of that is that investors have to make it through the low points and because ensuring the ability to do so under adverse circumstances is incompatible with maximizing returns in good times, investors must choose between the two. And that’s really key to survival. And you know, incredible as it sounds, and we tend to lose track of this, survival is an essential component in success.
The other thing I’ll just mention in terms of a mistake we made, probably the biggest percentage loss we ever had in an investment was where we ignored the dictum of lasting assets. And we bought the debt of a technology company which had a very good technological position in the market but, you know, one of the cornerstones of distressed debt investing is for the most part not putting in more money. And we learned the hard way that if you have a technological advantage and you don’t feed it for a year then you don’t have it anymore. So you know, this is a very important kind of lesson to learn and hopefully with small dollars.
“Blessed are the forgetful: for they get over their stupidities…” [Link]
Including this as I think it raised some super interesting points. Specifically, how our goal is long term performance yet we try to learn from mistakes based on recent decisions. Blasphemy!
My friend likes to point out, wisely, that you can’t know anything about a money manager’s ability after 3-5 years. There is simply too much noise in the short-term results. You need at least a decade, he says.
If so, then why not give your buy/sell decisions the same kind of timeframe? If that’s right, then you can’t know anything about the stocks you’ve sold until a decade passes. Then let’s see.
Food for thought: Being too focused on “learning from your mistakes” by evaluating recent buy/sell decisions can be bad for you. You can learn the wrong lessons.
I couldn’t talk about investors learning from mistakes without including the GOAT response:
You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again. But I already knew that.
- Source: Lost Tree Club in 2015 when asked about what he learned after losing $3b during the dot-com bubble
I swear I’m not a weeb but been in a bit of a Japan rabbit hole of late. And given the Nikkei was recently above 30,000 for the first time since 1989, I think this could be an interesting section. What was life like back then?
How 1980s Japan Became History's Wildest Party
The video talks about what Japan was like at the time through the context of Netflix’s movie Earthquake Bird. I haven’t seen the movie, and I don’t think the video spoiled anything.
This stat shows just how much the ’80s were a party in Japan.
Young Money Cash Money
Now I’m always worried about being a contrarian for the sake of it, rather than for the right reasons. And I don’t want to suggest too much on a topic I barely know. But I’m a massive believer in “If you behave the same as everyone else, you’ll achieve the same as everyone else”. So maybe there is value to be extracted if you a Japanese youth today prepared to take some risks? It’s just crazy to me how much the narrative has changed since 1980.
A 2017 survey by Dai-ichi Life Research Institute, a research group affiliated with a life insurance company, found that a majority of young people shy away from spending because they are concerned about the future. About four-fifths of people in their 20s said they wanted a stable life with a predictable future, something that has become harder to find in a country where wages are not growing and large numbers of people work under temporary contracts.
Weird, Wacky, Bankruptcy
Check out the absolute balls on this bloke trying to sue Japan’s central bank after everything went ass-up.
Japan's bubble produced a cast of colorful characters, as well. These included Kichinosuke Sasaki, who went from being on the Forbes list of the world's wealthiest men to being roughly $2.4 billion in debt. Then he sued the central bank for popping the bubble -- and the value of his landholdings -- by raising interest rates. He lost.
- Source: WSJ | Been There? The Euphoric '80s In Japan Ended in a Long Slide
I can only imagine his face after finding out he lost:
Did he try to avoid bankruptcy like this?
Bank of Japan: Kichinosuke, are you having money problems?
Kichinosuke: Monkey problems? No, I'm not having monkey problems. Why would I have monkey problems?
Bank of Japan: I know you heard me correctly.
Kichinosuke: Ohhhh, I hate monkeys.
- Source if you think I’m off the deep end (justified)
Under the Spotlight: Michael Kim
Short one this week. Each week I provide a little spotlight on an investor or operator I admire. Michael Kim is this weeks focus, in a nutshell:
Born in Korea to an affluent and academically-oriented family. Kim spent his childhood in South Korea before his father, a scholar turned insurance executive, sent him to the U.S. when he was 12.
Studied English literature at Haverford College before getting his MBA from Harvard.
Cofounded MBK Partners, the Seoul-based private equity firm that manages more than $22 billion in assets.
He built the firm [MBK] with the idea of fusing Western buyout tactics with the intricacies of Asian business, an approach that convinced his network of institutional investors to write big checks—and re-up for the next fund. Shunning hostile takeovers, he forged partnerships with management and hired local CEOs for his portfolio companies.
Fun fact: Kim has published a novel! Called Offerings, which traces the life of an investment banker amid the Asian Financial Crisis.
Even though it’s fiction, he mentions a key chaebol strategy:
As Chairman says, we’ll outlast him [the incoming president]. One five-year term for president, by constitution; our time horizon is over generations. We always outlast them.
And again, even though it’s a novel, I’m willing to bet this reflects Kim’s true thoughts:
Can't think of a worse use of my time than following the daily fluctuations of stock prices or trying to guess this month's unemployment numbers. I'm not interested in information; I'm after wisdom. Not data, but truths.
He’s a super private guy, so not too much material. But I’ll leave you with this quote I like:
I always thought the success I’ve had is due to some talent, yes, hard work, yes, but it’s also due to luck. Recognition of that is critical to giving you a sense of reality, and it’s from that recognition that you get humility.
Bonus Quirky Content
Something to read: The Running Novelist - Learning how to go the distance [Link]
So much to take away here. Either way, it’s a super cool read. With the bonus that there’s some great lessons within.
Now I dunno if this theory is necessarily true, but I want to believe:
When I think about it, having the kind of body that easily puts on weight is perhaps a blessing in disguise. In other words, if I don’t want to gain weight I have to work out hard every day, watch what I eat, and cut down on indulgences. People who naturally keep the weight off don’t need to exercise or watch their diet. Which is why, in many cases, their physical strength deteriorates as they age. Those of us who have a tendency to gain weight should consider ourselves lucky that the red light is so clearly visible. Of course, it’s not always easy to see things this way.
I think this viewpoint applies as well to the job of the novelist. Writers who are blessed with inborn talent can write easily, no matter what they do—or don’t do. Like water from a natural spring, the sentences just well up, and with little or no effort these writers can complete a work. Unfortunately, I don’t fall into that category. I have to pound away at a rock with a chisel and dig out a deep hole before I can locate the source of my creativity. Every time I begin a new novel, I have to dredge out another hole. But, as I’ve sustained this kind of life over many years, I’ve become quite efficient, both technically and physically, at opening those holes in the rock and locating new water veins. As soon as I notice one source drying up, I move on to another. If people who rely on a natural spring of talent suddenly find they’ve exhausted their source, they’re in trouble.
Something to watch: Documenting America's Underbelly - ALL GAS NO BRAKES [23 mins]
AGNB is pure absurdity. Sad to see that Andrew is no longer associated. So this mini doco is a good wrap up. Andrew is great at getting interesting (depending on your definition) answers. His explanation of how is equally great:
I just play up the naiveness. That's the only element in which, like, the All Gas guy is a character, because it really is just me. But I play up the naiveness. Obviously, I've seen a lot of shit, and I know the answer to a lot of the questions that I'm asking.
But it's a thing that Louis Theroux did a lot. It's kind of like when Louis Theroux would go to, like, megachurches, like Westboro Baptist Church. He would say, you know, "Are you in support of gay marriage?" You know the answer, but you want to have that dialog so the audience can consume it firsthand, because not everybody knows certain things.
I’ve pulled quotes from this episode a few times in this newsletter. So if you haven’t listened to it by now, get onto it!
After the Gotham Partners debacle, he had this to say:
I was excited to rebuild and go forward. My business plan was to just to make a little progress every day, if you do that, the compounded progress will eventually get you out of the hole. But it is daunting being in the hole.
Not many people would get back on the bandwagon after such a tough fall. I admire that.
Final thought for the week:
Until next week, have a good one!
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