Sunday Finds + 3 Thoughts From Last Week

Marqeta + Uber

Aug 07, 2022

Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.

1. Zooming in on quarterly earnings vs. taking the long view.

One deficiency I have as an investor — and share with most of you — is being biased toward what has happened recently. In common stock investing, this most readily shows up when looking at recent quarterly reports.

It’s amazing how we all take financial results for a random three-month period and extrapolate whatever trends we think we find into the future. Last year, if you said Netflix was on its way to 400 million subscribers globally this decade, a lot of investors would have nodded in agreement. But if you said the same thing right now many people would laugh in your face (depending on how the ad-supported tier is priced, subscriber count may be the wrong analogy here, but you get my point).

Has Netflix’s business changed in the last year? Sure, maybe a little. But not as much as our perception of it has because of the recent quarterly reports. Stock price movements 100% have an impact here too, which is something we all should try to be aware of.

Perhaps to solve this, we all should try to constantly remind ourselves about focusing on the long-term, no matter how redundant it may sound. Because our instinct is to focus on what is happening right now.

2. The positives and negatives of sharing your portfolio in public.

We are very public with our investment holdings. The podcast is basically just our research process presented for anyone to listen to.

There are a few benefits to this:

Investing in public brings in other interested investors who are more willing to share information with us. This can help us build a thesis on a stock or keep us away from a company, among other things.
It helps us market our fund for free. With our portfolio updated monthly and all our research/quarterly updates available to anyone on our website, we hope it can attract like-minded limited partners as our track record gets established over the next five years.

However, there are some downsides to sharing your portfolio publicly. The most detrimental is the bias that can creep in when publicly announcing your stance on a stock (which is essentially what we do from time to time). For example, I think it has hurt us with Spotify, although I still believe our thesis on the business is playing out generally how we thought.

Publicly stating an opinion makes it more difficult to change your mind. To try and counteract this (because I still believe building in public has a net positive benefit) I want to work on the mindset of having “strong opinions, weakly held” as Marc Andreessen put it. Stanley Druckenmiller is also a good role model here.

Which leads me to my last topic…

3. Is conviction overrated?

Yes, I think so. And I actually think it is quite dangerous. This is the definition of conviction:

a firmly held belief or opinion.

Isn’t this something you want to avoid as an investor? I mean, you definitely want to understand your portfolio companies well, but I think it is foolish to attach yourself to a stock or an asset and make it a part of your identity, which so many of us do.

If you develop conviction on a stock, it will be harder to change your mind if information presents itself indicating you are wrong. And that can be detrimental to your returns over the long term.

When thinking about conviction, I always come back to this all-time quote by John Maynard Keynes:

When the facts change, I change my mind - what do you do, sir?

See you next week,

Brett

***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***

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Catch up on Our Shows From Last Week

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3 Good Reads

Reflecting on Large Mistakes - Forward Fixed

One of my key mistakes has been to overestimate the value purely digital networks. While I won’t spend too much time illustrating the differences in each of their competitive positionings, it is extremely important to try to figure out which of them built a toll bridge, and which ones have got themselves into a forever war, fighting existential crisis after existential crisis.

Like a Pro - Lewis Enterprises

The irony today is that fewer and fewer participants are making an effort to beat the market. Happy with average, a greater share of investment flows to quantitative, albeit primitive, strategies that buy equities in a perfunctory manner, trusting that someone, somewhere has checked the scales.

How the Algorithmic Money Faucet Drives the Economy - Kyla Scanlon

The algorithmic money faucet does not like detail, but that is what this economy *requires*. Things are bad, things are good, and it’s important to understand where and why both are happening versus saying that Everything is Actually Hell.

1 Good Listen

LVMH: the Wolf in Cashmere’s Conglomerate - Business Breakdowns

Today we’re breaking down the world’s largest luxury business, LVMH. The LVMH story is deeply reflective of the vision of its 73 year-old founder and architect, Bernard Arnault. Today, the business generates €75 billion in sales across its 75 brands and 3 sector focuses. With a market cap of €350 billion, LVMH is not only the largest luxury business in the world but one of the largest businesses in the entire world.