It’s a beautiful morning: clear sky, a full moon glowing, stars everywhere, and much to be thankful for. Not all can say there’s beauty, let alone peace, above their heads.
Markets have been… boring, for me. Not that markets have been boring for all, but for me, they have been. There’s not much to do. A lot of trees have been harvested in the portfolio over 2021 and 2022, and new seedlings planted. It takes time to see how they grow, don’t grow, or die off.
In light of this boredom, perhaps the only thing I have found somewhat interesting is the force with which those who make investments based primarily on historical results have been affected of late. Primarily, in this vein, I think of Compounder-ism. The idea that mega-star management teams that primarily utilize repeat M&A, leverage, and buybacks as the drivers of future value creation. When investing in these sorts of businesses, the typical pitch I see is summarized as: what happened in the past will happen in the future, and if it happens less well, it’s still fine because I’m buying a short-term dip in the stock price.
John Malone is a legend in the business world, immortalized to investors in the book “Cable Cowboy.” It’s a really fun read but tugs at the flaws of human tendency. That is, it creates tribalism around that story of the past. There are scores of Liberty (Malone) investors that have picked at the various securities Malone offered to investors in an effort to recreate the wealth creation of Malone’s past. The focus on the past persisting into the future has unfortunately produced unsatisfactory results from the perspective of returns.
Thinking forward to the future is really, really hard. Furthermore, if buying into a future sentiment shared and reinforced by a tribe, the odds one is already paying for certainty of that future outcome are elevated. But thinking hard about the future is table stakes work. At its core, good investing is very simple: you want to own businesses that will earn materially more money and be owned by substantially more constituents in the future.
VCs are in a difficult position. Coming off the massive run-up post Covid, general sentiment is there is too much money chasing too few deals, with too little talent deploying the said money. But at its core, I think VC investing does encapsulate the simplicity of good investing across the spectrum, well. Invest in a collection of companies with the hope that a few become far larger businesses that many more people are interested in owning. Other forms of investing can easily become complicated and muddied by shorter time horizons, financial engineering-based returns, or a lack of respect for the terminal value of a business.
So what of it? Nothing more than a reminder to myself to think hard about the future but don’t bet on any single outcome. Think hard about the future but form unique opinions that aren’t shared by a tribe. Think hard about the future and consider how many more people may “agree with me, but later.”