Tue. Oct 26th, 2021

Ed: Sorry if you got the double submission. Feedburner is not predictable, but it should be the last time (I have now explicitly disabled Feedburner email).

Hey, folks! It’s great to talk to all of you again; I hope you had a great weekend.

First thing: Google Feedburner closed this month. We moved the newsletter to FeedBlitz for a test. (Quick links: privacy policy, terms of service.)

Can you please drag this email to the appropriate inbox and, if it arrived in spam, can you mark it as “No spam”?

Thank you for your support: FeedBlitz seems like an excellent service, so I look forward to continuing to send emails at a low cost (and at no cost to you, of course!).

FinTwit and Compounders

Go back if you are only a passive investor, haha. We will talk a little about individual actions.

I may not have been paying enough attention, but lately FinTwit – this is a nice term for Twitter financier – seems to have passed to the concept of composting companies or composters. It’s not that it hasn’t been below the surface for the last 3-8 years, but it is it exploded in popularity during the most recent accumulation phase. A complex discussion even drowns people of pure growth, haha.

If you’re unfamiliar, composers are companies with consistent, high returns on capital (or invested capital, or employed capital, or incremental capital … it’s a debate) that can also reinvest their profits. This last point is crucial; investing in compounds is the next evolution of Peter Lynch’s “reasonably priced growth,” or “Charlie Munger’s big business at fair prices,” or even “Motley Fool winners keep winning.”

These companies are not the classic castle of sky growth companies, although they have to grow for this to work. They too they are not reproductions of high value assets, special situations or changes with a catalyst and a time limit. Instead, they are companies you can, in theory, stay with for more than ten years and let the company do all the hard work to reinvest and make up your money.

I’m not skeptical; in fact, I am intrigued; this would work if you choose the right companies. Growth investors have destroyed value investors (or at least value investors factor investors, that’s a whole other message …) out of the water for over ten years in the United States.

Focusing on composition is one way to combine a baggage of value with growing quality companies, pushing the realization of their value for years. If you shy away from the need for an institutional investor to reach the quarterly numbers of track years, yes, you could make it work.

It makes sense, in theory. Practice, though?

Some composite companies: Monster Beverage, Amazon, Domino’s Pizza and Walmart (Yahoo!)

We are still human; if your investment thesis wants to maintain quality, you can’t impose it on the rest of the market. The next time the market falls (I mean beyond that in March and April 2020), it will be a check for everyone who ostensibly follows the composter’s strategy. It also fails on the “good” side: how many people are left behind with crutches like “selling half your investment and playing with house money”?

Could you reinvest more in a company that has doubled, tripled, or even ten times as much?

This link takes you to the FinTwit Twitter portfolio updates for Q2, where you will find more complex ideas than you can handle.

Cans of coffee and illiquidity

Traditionally, illiquidity is considered negative. People without a doubt value the ability to exit a position or generate cash at short notice. But is it appropriate?

Investors Meb Faber and Cliff Asness have spoken of the opposite: what if illiquidity is, in many situations, something better for our human impulses?

Think about it: how many people do you know who endured a “hundred wrap” (100 times their initial investment). How about a ten bagger? Heck, a three-bagger? (I have a pack of 14 people, so you know me, haha)

Still, we all know people who composed their money for decades in their home.

Chris Mayer of Woodlock House Family Capital, who has done many things to help people reason about composition and avoid prejudice, likes to present the “Coffee Tin Portfolio.” In it, asset manager Robert Kirby talks about how one of the most successful investors he saw in his career took all of his buying recommendations … and ignored all of his selling recommendations.

Yes, of course, I had one manat of losses. There are no surprises. But some of these stocks, most notably Haloid, later Xerox, outperformed almost every portfolio of its other customers.

Liquidity is not just “not selling,” although it does cause it not to sell. So, maybe there is something to block some of your money, if you can save it. – in illiquid investments, such as VC, PE or hedge funds or real estate?

Never sell and index fund

One of the first proponents of the composition was Chuck Akre, of Akre Capital Management; read his philosophy here. Chris Cerrone of Akre spoke of his ideas on selling “never,” or at least, exceptionally rarely and for non-investment reasons.

And Akre has receipts; this is not just creation of theories – He mounted on the American tower more than a hundred sacks within its background.

So if you can combine “don’t sell” with public investments like Akre or Fundsmith, you might have something amazing here. Well, if you can ignore the daily highs and lows and market volatility, of course.

I have recently been in one avoid bias pay and I’m experimenting with this model at M1 Finance Broker (note: affiliate link).

M1 allows you to create “cakes” where you divide incoming money into many companies as a percentage. Put lower barriers to see how individual the names are making inside the cakes. Of course, be careful: M1 buys in a window and has an agnostic price, so illiquid names can get terribly filled … but, for most companies, 500 millions of dollars in market capitalization or more, you’re likely to be in good shape (but check it out first).

Think of it as an index fund: When you spend an average dollar on an index fund, do you care about the price of individual names?

Anyway, maybe I’ll update you in a couple of quarters and years and decades? – on the operation of this strategy (we also have some style investments that combine with Fidelity and E * Trade, already. They can be the control). It may not be perfect (if you want to stop buying a company, you have to play with cake percentages, which means you have to look at it), but it looks promising. These additional steps to deepen the company’s performance, in addition to delayed business windows, could be a good barrier to human nature.

Here are more resources on composition:

* Affiliate links

DQYDJ updates

I’ve already told you about the email list – the change is pretty annoying, but it’s been a while since we’ve run it for free outside of Feedburner, haha.

Deep down, I’ve been creating traffic calculators, too boring to bother you for the most part … but they pay the bills. Here are some asset allocation publications, and I may examine some of the long-term wish lists … such as the famous mutual fund return calculator or a stock option tool. company. And thank you for all the accessories of the ESPP tool. As some of you guessed, I built it to think things through on my own, haha.

From September to October, we will return to entry mode once the CPS goes down again. Let me know if there are any new revenue posts you’d like to see; just reply to this email. (See the revenue files here.)

Also note that I will be a little scarce in the middle of next week. Don’t worry, everything is fine, just don’t expect quick responses (or tons of posts).

I hope you have a great summer and stay healthy!



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