Pause to Think: Using Mental Models to Learn and Decide

Columbia Business School Publishing recently sent me two books to review. Thank you, Columbia. This is the first review. The second book review will follow later.

Pause to Think: Using Mental Models to Learn and Decide by Jaime Lester (Columbia) (Amazon). Who is Jaime Lester? According to the Columbia Business School, Jaime Lester is an adjunct professor at Columbia Business School. He is a hedge fund industry veteran who has worked at firms including Steinhardt Partners, SAC Capital, and Greenlight Capital, and managed his own investment fund for nine years.

I didn’t hesitate when Columbia Business School asked if I wanted an early copy for review. If you have studied the great Charlie Munger, or you are on some kind of life-learning journey, you know that mental models play a central role in how to navigate the world. For the uninitiated, what are mental models? 

The definition of “mental models” is somewhat vague and depends on the context. I will let Lester define it. Any model simplifies reality to make a reasonable judgment, so it is helpful to further separate these ideas into concepts and frameworks. “Concepts” are ideas that are significant enough to have broad application among various intellectual disciplines. Lester covers thirty-two in the first part of the book (that’s just the beginning, there are hundreds). “Frameworks” reflect the synthesis of these concepts with other ideas into actionable systems that will improve the efficiency and effectiveness of your thinking. 

Concepts are ideas like cognitive bias, incentives, game theory, network effects, economies of scale, and decision vs outcomes. Concepts come from a wide range of disciplines. finance, biology, chemistry, physics, psychology, medicine, religion, engineering, etc… Knowing them will greatly increase your understanding of many different fields. The second part of the book uses these thirty-two concepts as the foundation for improving your intellectual interactions. A decision can draw on many concepts.

Think of mental models as an intellectual toolkit on tackling the world. It’s a multi-disciplinary approach to solving problems and decision making. (I really think that’s how we should approach university level teaching, instead of teaching in silos. That’s my two cents.)

If you are familiar with mental models, add this book to your collection. If you are new to mental models, it’s a good place to start. If you have no clue what I’m talking about, buy the book anyway. I guarantee you will be smarter.

Pause to Think fills a gap in the “mental model” offering. It’s a practical book. Lester talks about this in his intro as a source of motivation for writing the book. There are a lot of books and resources on mental models. But most of them approach it from a scholarly point of view (e.g. here’s the study on confirmation bias). While there’s nothing wrong with that approach, Lester takes it to the next level: He takes a concept for a test run. He shows you the upside, the downside, and how certain concepts can work for you and against you.

The practical. The how-to. The tried and tested. From the textbook to real life. That’s the book’s strength. If there’s one overarching principle that you should take away from reading this book, it is that it is highly worthwhile to take the time to pause to think before making an important decision to implement a structured framework around it.

Jaime points out the challenges in getting rid of your biases. They are rooted in who we are. Humans are flawed. We are not machines. A lot of the biases exist for a reason (mostly survival). It’s one thing to understand a concept, like confirmation bias. Recognizing and combating biases is another thing. That’s the trick. Recognizing when a bias makes its way into our actions and decisions. That’s why you “Pause to think”.

You can read about a concept and understand it in principle. A lot of concepts are somewhat abstract. But when you try to apply it, it’s not always clear cut. You can run into pitfalls.

For example, take the Golden Rule. We all know the golden rule. It’s universal and part of all major religions. The Golden Rule states that one should treat others as one would like to be treated. Simple right? Nothing controversial and universally accepted. I teach it to my kids. We all get it. By large and far the world would be a better place if we all follow the Golden Rule.

But what if my concept of what is “fine” comes in conflict with yours? Lester brings up the example of killing animals. For instance, many believe that it is fine to kill animals if it aids human survival (food, pharmaceutical trials), while others disagree. There are things that are universally accepted and straightforward such as “Do not kill”. But start sprinkling religion, psychology, and philosophy and it doesn’t take long to encounter cultural differences with different values (e.g., variation in individual vs group prioritization, individual rights vs maximizing overall social benefits, single deity vs none or many). The flaw in the Golden Rule is that it rests upon an assumption that everybody has the same desires as to how they would like to be treated, and they don’t.

Back to the book. This is a simple book. Don’t get fooled by how thin the book is (just under 200 pages of content). It packs a punch. Quality > quantity. The book is divided into two parts. Concepts (ideas) and frameworks (actionable systems). As Lester puts in his preface, “There is not an ounce of fat in this book – it is 100 percent lean muscle designed to help you improve your intellectual and emotional lives.“

This is a book you read slowly, reflect, absorb, and try to put to work (pause to think…).

While reading the book, I couldn’t help thinking about how to apply these concepts to my own life. And how they expose some of my flaws. A big one for me is sunk cost. A sunk cost is a resource (money, time, health) that has already been spent that is unrecoverable. Sometimes you have to cut your losses.

Another of my flaws is “anchoring”. Anchors can be good in a relationship (emotional) and can be helpful during a bad storm. But an anchor can also drag you down to the bottom of the ocean. When it comes to investment, I get anchored to “price”. Just as of last week, two stocks that I didn’t buy went up 10 times. I was anchored to the original price and every time I saw it going up I couldn’t pull the trigger. I had an opportunity to buy Terravesk at $6. It’s now trading at $73. When I looked at my notes from back then, I still can’t tell you why I didn’t buy it, other than I could have bought it for 6 bucks. The other stock, well known today but under the radar back back then, is Constellation Software. I remember “kicking the tire” when it was around $300 waiting for it to dip before buying some. It’s now trading at $3758. I’m still waiting for that dip.

My only critic is that Lester should have written that book years ago. I would have been wealthier.

In the last sentence of the book, Lester writes that if you hated the book, he’ll refund his dollar of royalties (Nice play. If you hated the book, you wouldn’t have made it that far). To conclude, Lester can keep his dollar of royalties.

15th Ben Graham Fairfax Financial Shareholders Dinner

I will be in Toronto for Fairfax week (FFH AGM + various events).

The 15th Annual Fairfax Financial Shareholder Dinner (renamed The Ben Graham Fairfax Financial Shareholders Dinner as to not cause confusion with the Fairfax manager’s dinner in the next room), organized by Intellectual Village, will be on Wednesday April 10 at the Fairmont in Toronto. There are a few tickets left. Profits from the dinner will be donated to the Crohn’s and Colitis Canada. Here’s the link: https://www.eventbrite.com/e/15th-annual-fairfax-financial-shareholder-dinner-tickets-861830707847

As for a list of the events, here’s updated list by Norman Rothery (Stingy Investor/Globe and Mail):

https://www.stingyinvestor.com/FairfaxWeek2024.html

Copied from the Stingy Investor website (Thanks Norm for the great work!):

Fairfax Week 2024 Let me know about any additional events, changes, or cancellations. April 9 (Tuesday) The Ben Graham Centre’s International MBA Stock Picking Competition Time: 8:20 AM to 12.15 PM Location: Ivey Donald K. Johnson Centre, 130 King St W, Toronto, Ontario, Canada Info: Details The Early Bird Time: 5 PM start. We’ll probably order dinner around 6 PM and be there until 10:30 PM or so. Restaurant: C’est What Location: 67 Front St E, Toronto, ON M5E 1B5 (a 10 minute walk east from the Royal York Hotel) Google Map: Walking along Front Street is the easiest Reservations are not needed. So, drop by, ask for Norm, and say hi. April 10 (Wednesday) The Ben Graham Centre’s 2024 Value Investing Conference Time: 7:45 AM to 4:45 PM Location: Ritz Carlton, Main Ballroom, 181 Wellington St. W., Toronto, Ontario, Canada Info: Details The FFH India AGM Time: 9:30 AM Location: The Ritz-Carlton Hotel in the Wellington Room, 181 Wellington Street W, Toronto, Ontario, Canada YYX Toronto Value Symposium Time: 12:00 PM to 4:00 PM Info: RSVP Required Helios Fairfax Partners Presentation Time: 2:30 PM Location: The Ritz-Carlton Hotel, 181 Wellington Street West, Toronto, Ontario, M5V 3G7 15th Annual Fairfax Financial Shareholder Dinner Time: 6:00 PM to 11:00 PM Location: Fairmont Royal York, 100 Front Street West Toronto, ON M5J 1E3 Info: Details April 11 (Thursday) The FFH AGM Time: 9:30 AM Location: Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada

Economy & Forecasts

Happy Holidays to you and yours!

Here’s a small post before the holiday festivities.

Enjoy!

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I care about the economy, as most people do. I want the economy to grow. A growing economy means more jobs and higher salaries. More money in people’s pockets means more people can afford a home. Profitable businesses can re-invest in their growth and hire more people. Higher tax receipts mean the government can spend more on education, healthcare, and infrastructure. A good economy brings prosperity and raises the standard of living for everyone. That’s the wealth creation process. Or to put it plainly, “growing the pie” so you can have a bigger slice.

However, when it comes to investing, people are fixated on the economy. They tend to rely on forecasts to make investment decisions. This is extremely difficult. You have to get a couple of things right. You have to 1) Correctly predict an event, 2) Correctly structure the investment, 3) Correctly time the market, and 4) Correctly understand its implications and the chain of events.

Making predictions is the easy part. Calling a recession is easy. Pointing out that high-interest rates will lead to higher defaults is easy. Claiming that a company is overvalued because of the lack of growth is easy. Identifying that large deficit spending leads to inflation is easy. But getting the timing right, and the depth of the outcome, that’s tough.

And if you don’t structure your investment properly, that can be costly. Let’s say you found the perfect short candidate, you then have to find and borrow the shares to short. That can be expensive. Or instead, you buy put options. That comes with a specific target price and expiry dates. Again you have to be great at market timing. Remember, John Maynard Keynes gave us this warning: “The market can stay irrational longer than you can stay solvent.”

Worse, you nailed a prediction but the market went the other way because you misunderstood its implications. Even worse, you made a prescient call on a company’s sluggish fundamentals, and despite the lackluster results you watched the stock rally. It happens all the time. The market doesn’t care about your brilliant analysis. The market doesn’t owe you an explanation.

When you place money on a prediction, what ends up happening is that you become so obsessed with the outcome that you lose sight of what you are supposed to do: buying incredible businesses at a reasonable price and holding them for a long time. Even if it’s a little bit of money, the “bet” consumes your energy and time. It’s a distraction. The opportunity cost can be high because you could be doing something else with that money.

Let me dig deeper. Investing on predictions is a mistake. First, acting on predictions means you are deviating from your financial plan and sound disciplined investing. Second, nobody can accurately answer these questions: What’s the GDP forecast for next year? Will there be a recession? Will the economy have a soft or hard landing? Where will interest rates be next year? Will the central bank cut or raise rates at the next meeting? How many rate cuts are priced in for next year? The unemployment rate? Will inflation be within the central bank’s target? Where will the S&P 500 close? Nobody gets this right or the full extent of the implications. And putting money on the outcome is gambling, not investing.

Forecasters get a lot of attention. Their financial bite sounds good on TV. It drives headlines. But they are wrong, all the time. Nobody knows what the future holds. Matter of fact, where are the experts that correctly predicted the current state of the economy you are in? The strong consensus of the past couple of years was proved entirely wrong. It was a done deal that we were supposed to be in a recession right now. Nope, the economy is still strong. Just look at interest rates. No economists last year called the current level of interest rates. Sure, once in a while an economist will nail a prediction. If you predict 13 of the last 5 recessions, you will eventually be right.

I don’t ignore the economy and macro stuff. I quite enjoyed it. I read the news. I stay informed. I have an idea of the state of the economy. Understanding how an economy works is important and useful. But I’m not obsessed with it. I’m aware that I could be 110% wrong. And more importantly, I don’t make investment decisions based on economic forecasts. I never sold a stock because some economists think the GDP will shrink next quarter.

The economy is like the weather. People always try to predict it. Here’s what you need to understand: Some days it will be cloudy. Some days it will rain. On other days there will be a hurricane. Then it will be sunny. That’s the economy. Earnings will go up and down. Inflation will go up and down. Interest rates will go up and down. The market will gyrate up and down. The economy will grow and retract. Once you understand that, there’s a better approach.

Instead of calling for a direct event, prepare for possibilities and probabilities. Focus on companies that are prepared for everything. Since guessing is unreliable, it’s probably better to invest in a company that can withstand a recession. Or even better, companies that can roar out of a recession stronger.

The position you are in when you enter a recession will largely determine how you come out of it. Why invest in a company that would fall like a house of cards at the first sign of distress? Or a company that constantly needs external capital to stay in operation. What happens when that money source dries up? Would you rather enter a recession holding Berkshire Hathaway, a company in a position to get great deals because certain businesses are desperate for money, or a company that’s vulnerable to an economic contraction? Isn’t it preferable to hold companies that could perform well across all environments?

Nobody wishes for a recession. Recessions are terrible. The economy contracts and people can lose their jobs and their homes. Recessions happen. Does that mean you shouldn’t be invested in a recession? If you invest for the very long term, you will live through many economic cycles. I stayed invested through many cycles and I benefited. It’s not easy. A bear market is a fraught experience. But staying invested is superior to the alternative, which is getting in and out of the market. Long-term investors that stay the course, and can withstand the storm, are eventually able to reap the rewards.

Recessions can offer investment opportunities. It’s during these fearful times that you can buy high-quality companies at reasonable prices. If an asset is out of fashion, it means it’s cheap. What are they? Typical criteria to look for are a solid balance sheet and a steady business. They generate strong cash flows, maybe they pay a dividend, and their business is recession-resilient. Too simple? Well, how does a business go out of business? It dies because it runs out of cash. As a start, make sure your investment doesn’t run out of cash. When researching a particular company, go back in time and find out how it fared in the last recession. That should give you an idea of the character of the business.

A great investment shouldn’t be different during a recession or not. Some might disagree with that statement. Some said that during a downturn, you should seek “safe-haven” or “defensive” investments. And during a bull market, you should invest in growth. I take issue with that reasoning. It’s not necessarily wrong, but it’s flawed. Let’s say the consensus calls for a recession, well it’s probably too late to buy those “defensive” investments because the recession is price-in (e.g. “everybody now is the time to buy gold”). If you overpay for an asset, it loses its defensiveness and you are taking more risk.

Of course, when you invest in a business, you are dealing with the future. And when you deal with the future, you have to make certain assumptions. You have to determine future cash flows and how the business will evolve. You will likely be off. That’s why you should apply a large enough margin of safety. To protect yourself from unforeseen things and misjudgment. Unforeseen circumstances are part of life, aren’t they? A margin of safety can take many forms, like paying a discount to those future cash flows or making sure there are enough assets backing your investment.

At the end of the day, recession or not, the goal is to buy excellent businesses that generate growing free cash flow at a reasonable price and hold them for a long time. That’s the approach I recommend if you want better performance. It’s a better approach than calling direct events and marketing timing. If economists are so great at forecasting, why ain’t they rich?

Gold

“It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head”. – Warren Buffett

Gold deserves its own post because it’s such a unique asset. It’s nice and shiny. We all want more of it. I happened to be in the vault of the Federal Reserve of New York once (the one that gets robbed in the movie Die Hard III) where they stash gold bars from governments from all over the world (my idea of fun in NY). I can’t explain the powerful feeling of having one of these 27.5-lb bars in your hand, but it’s really nice. But no, I’m not writing to reminisce about my past gold exploration. When it comes to investing, gold is a different story. There are many ways to think about gold. 

There’s gold, the physical shiny metal. It makes nice jewelry. Everybody likes gold. It’s beautiful. It’s timeless. It’s universal. It’s inert. It doesn’t chemically react. That natural perpetuity is what gives it permanence. If I could take a time machine and go back two thousand years, my gold would buy me some nice things. It’s safe to say that the lust for gold will be there in the future too. People have pursued gold for centuries. Medieval alchemists tried to turn metals such as lead into gold. People have killed each other for it. Scrooge McDuck has a money vault full of gold where he dives in. It makes people dream. And it makes spouses happy.

There’s gold, the industrial input. Because of its inherent properties, some gold is used in certain industrial processes. Gold conducts electricity and does not tarnish. There’s a little bit of gold inside the iPhone. Gold is used for cosmetic purposes, like in teeth (it doesn’t rust and I’ve seen it in music videos).

There’s gold, the lingos that central banks stash in their vaults. Central banks use gold to diversify their reserves. Central banks hold a lot of the gold ever mined. Gold can back a currency that is subject to swings in value. Gold carries no credit or counterparty risks, it serves as a source of trust in a country.

There’s gold, the money. Money can take many forms. Monetary systems evolve. In ancient times we used cowry shells. In a more recent time paper currency was backed by a reserve of gold and silver. Maybe in the future, we will use some blockchain cryptocurrency thing where you can program money.

There’s gold, the obsession. Some people are nuts about gold. They are called “gold bugs”. They are die-hard believers in gold. They advocate buying gold against an anticipated collapse in the currency or the world. They are all gloom and doom. They have cult-like behavior and none of it is grounded in rational behavior. They have a distorted view of the world and they believe it. That strong belief is what makes them very convincing. Gold bugs say that you should hold gold in case the “world goes to hell”. The parameters of what that means are quite large, but if it’s related to surviving, I lean towards guns, gas, food, and water. With that gold will come your way.

And there’s gold, the investment. Gold is often touted as a “safe haven”. A safe haven is where investors stash their assets when share prices crash, economies collapse, or when inflation wipes out a currency. A safe haven is supposed to preserve its owner’s capital. Safe havens are supposed to hold their value when nothing else is. Other safe-haven assets could be physical things like land, real estate, art, or other precious metals. You can print money, but not gold, or land.

Gold has been prized as a store of value for millennia. But can it be trusted? At the time of writing, the year is 2023, and saying we live in a period of uncertainty is a bit of an understatement. It’s the gold bug dream environment. The one where you park your assets in gold. The ingredients are there. We have a war in Europe. We have nuclear threats from Russia. Iran is getting nukes. China is challenging the world order. The Middle East is blowing up. The economy might fall off a cliff. We have massive environmental problems. We have energy issues. Governments are running massive deficits financed by printing way too much money which leads to inflation and higher national debt which needs to be financed with more borrowed money. I could go on.

I might be overdramatic for effect but according to the gold bug’s doomsday checklist, it sounds like there’s never been a better time to buy gold. If I were a betting man, everything is lining up for gold to skyrocket in price and the dollar to crash. But nope. It’s that easy. Despite the apocalyptic atmosphere gold price is down 22% in 2022 and is barely flat for 2023 so far. And the dollar is up. What else do you need for gold to perform? That’s what I mean by “can it be trusted?”

Yes, gold makes nice jewelry and looks impressive in a vault. But it has its inconveniences. It doesn’t have an income stream. It doesn’t pay interest. It’s hard to value. It’s hard to use for everyday spending (it’s heavy and unsafe to carry around). You need a couple of guards if you are a baller. You need a safe to store it. You need insurance. Gold doesn’t always perform when it’s supposed to (like in moments of high inflation and crisis). Over long periods, gold has been a poor asset to own.

Gold at Work

I’m not dismissing gold, or other precious metals by extension. I have seen gold at work. When I was abroad in emerging countries like Cambodia and Vietnam, many locals kept their assets in gold, other precious metals, or US dollars. There’s also the increased use of crypto-currencies, a gold proxy for some. 

There a several reasons for this. First, the last thing you want is to stash your capital in local currency that is eaten away by high inflation. Or worse, at the risk of being confiscated by the government. That’s fast-tracking yourself to poverty. Second, you risk having your emerging market currency not being recognized. As in nobody wants it. Try showing up at your local bank branch with a bag full of Cambodian Riel notes, you will be welcome with a recycle bin. Or try using rubles outside of Russia. You might say it’s not fair, but turn the table around, do you want somebody to hand you a bag of Cambodian paper or US bills? Do you want to take the counter-party risk? I didn’t think. But gold is universal. You don’t have to explain what it is. Nobody turns down gold. And last, some countries have capital control in place, making it harder to move your money internationally. 

That’s gold at work. I don’t blame them. I would have done the same thing as them if I was in their shoes.

Fiat and the US Dollar

The subject of fiat currencies comes up when you talk about gold. Fiat currencies have major flaws. High inflation can erase a fortune very quickly. Inflation is brutal on purchasing power. We all heard the story of what grandpa could buy with $1 in his youth. Governments constantly renege on their paper promises. Economies are mismanaged. Some default. Some redefaults. Some are invaded. But there’s one currency that’s king: that’s the US dollar. Why?

Because the US dollar is the world’s reserve currency. The US possesses unique strengths. It has the strongest economy and the greatest capital markets giving the US an edge on global capital flow. Everybody loves the greenback. For those who are saying that the US dollar is worthless, I don’t see any of them throwing it in the trash.

Sustaining the achievement of world reserve currency status will be a challenge. One day the dollar’s position as the world’s reserve currency could be lost. It happened to other currencies in the past. I don’t know what form of payment we will use one hundred years from now. But today the US dollar is what makes the world go round. Despite the massive deficits and the money printing, the world relies on the full faith and credit of America’s Treasury Department (so far they pay their debt). Sure, we can trash the US and their “worthless” paper, but I don’t see anybody turning down a US$20 bill.

Inflation is a major issue if you are holding cash. That dollar loses value over time. But despite what you read, stashing all your cash in gold is not a sound strategy. A better solution to inflation is to buy assets that grow and produce income, like companies with pricing power. Companies with pricing power have the competitive advantage of protecting their margins and passing on increased costs to customers. Maybe the company has a great brand, lacks competition, or simply has inelastic demand like gas and cigarettes.

Here’s a story to make my point. You probably never heard of  Ronald Wayne. He’s the little-known third co-founder of Apple, with Steve Wozniak and Steve Jobs. The Steves were kids in their 20s when Apple was founded in 1976 and Ronald, almost twice their age, acted as the “adult” in the room. After twelve days he bailed and sold his 10% stake for $800 and used it to buy gold. In a 2014 Bloomberg article, Wayne said that his savings have been in gold for 40 years and live off of his Social Security checks. At the time of writing, Apple is a $2.4 trillion company. A 10% stake would have made him one of the richest men in the world. As for his gold stake, I’m going to be generous and estimate he doubled his money.

I can see the pushback. Obviously, I cherry-picked the example just to prove my point and hindsight is 20/20. It’s never that easy. I could easily have gone the other where his $800 equity position became a zero. Gold does have shiny moments, like in the 1970s. In 1971 gold traded at US$35. By the end of that decade, gold touched US$850. That’s a 2,300 percent gain in the 1970s.

Gold in your Portfolio

Part of gold’s attraction comes down to personal preference. Some have strong feelings about it, others less so. For some, the gold investment shows up in jewelry, others in mining stocks or royalty companies.

The elevator pitch on gold is “If the financial system collapses, well you still have your physical gold.” First, that’s a crappy elevator ride. Second, if the financial system collapses, we might have larger problems than the price of stocks. But I get the point. You want assets that are not correlated or linked to the financial systems.

Gold has drawbacks:

• No matter what price you forecast, it’s going to be wrong.
• Gold is volatile. You are betting that the price will go up. Gold is shiny and beautiful but it doesn’t guarantee high returns.
• But what’s the intrinsic value of gold? Nobody knows. How do you know it’s not $500/oz or $3000/oz? 
• Part of what drives the price of gold is fear. It tries to play the role of a ‘safe-haven’.
• If you are seeking income from your investments you might find gold less attractive since it doesn’t generate income. 
• Investing in gold means allocating funds away from other potentially lucrative investment opportunities. 
• And gold doesn’t always shine when it’s supposed to.

Gold does have a spot in your portfolio. Gold has been considered a reliable store of value for thousands of years. Gold is intended to serve as a potential hedge against adverse markets. It has a low correlation to the business cycle and other asset classes. It should play a stabilizer role. If you have some gold you can put it to work in very distressed environments and convert it to the ownership of enterprises on very advantageous terms. Gold has survived the test of time. And there’s one gold.

On that, I will you this Charlie Munger quote:

“I don’t have the slightest interest in gold. I like understanding what works and what doesn’t in human systems. To me that’s not optional; that’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. And I don’t see how you become rational hoarding gold. Even if it works you’re a jerk.”

National Business Valuation Challenge

The CBV Institute is having their annual national business case valuation challenge. The CBV Institute will accept 25 teams of undergraduate students from prominent business schools into the competition; a maximum of two teams per university can participate.

The first-place team will be awarded $10,000. Second and third place will receive $5,000 and $2,500, respectively.

BV Challenge 2023 info found here.

Visit BVChallenge.ca for registration and information. Register closes on October 13.

Government Shutdown? Impeachment? Biden Mess

I try to unplug from politics time to time because it’s so toxic. It’s absolute garbage. Too much of it and your brain goes to shit. Feels like irreversible brain damage. But unfortunately in my line of work it’s hard to ignore when you have to know what’s going on. And…I’ve to admit that the entertainment and dramatic value of American politics is on another level (which is not exactly a good thing).

Tough month ahead. Republicans are asking for major concessions as part of any deal to keep the government running, including steeper budget cuts and changes to border and defense policy. And there’s the Kevin McCarthy’s impeachment push. And…are they connected? Sounds like the move is also inextricably tied to McCarthy’s struggle to avoid a government shutdown, keeping the crazies in line, and keeping his job as speaker of the House. And making sure none of this backfires on the Republicans. There’s a lot to juggle here.

Biden

We heard of the Hunter Biden’s mess. Did he go anything illegal? That’s for the justice system to figure out. Aside his drug/gun/tax/personal issues, using his dad’s name for “business” is looks like an ethical issue. But Hunter is a pawn. The real target is his dad, Mr. President.

The key question is: Did President Biden commit high crimes or misdemeanors (did Joe Biden benefit from his son’s business dealings)? Republicans and the FBI have been investigating for months and have yet to unearth any concrete evidence of misconduct by Mr. Biden. They are still looking for the “smoking gun”. So far the House Oversight Committee Chairman James Comer said that Hunter Biden “sold” his father as a “brand” to “reap millions from oligarchs”. The Washington Post provided an analysis of the evidence. Then former Vice-President Biden would go out for dinner with people, like oligarchs, who gave his son money or was put on speaker phone with potential business associates. It smells bad, but it doesn’t mean he is guilty. So far the committee has failed to identify any specific payments made to President Biden or provided evidence that he benefited from them directly. Again, they are still fishing for that smoking gun.

Hunter will have to deal with his legal mess. As for President Biden, so far it seems the impeachment inquiry lacks substance and is more of a political card. In the Washington Post this weekend GOP congressman Ken Buck denounces Biden impeachment inquiry. Buck is no lightweight in the Republican party. He’s a member of the hardline House Freedom Caucus. He’s a conservative, pure and hard.

The claim that then-VP Biden pushed out Ukrainian prosecutor Viktor Shokin has been debunked. Shokin was not “prosecuting” the company where Hunter Biden sat on the board of Burisma making $1 million a year. Shokin was corrupt; the US and its allies had made a coordinated effort to oust him. Was Burisma corrupted? Probably, like everything in Ukraine at that time.

Shutdown

As for the government shutdown, it would be great if the US could get their fiscal house in order. Republicans are playing hardball and the fiscal conservatism card. Unfortunately they are not credible. Where was the Republican hardline on spending when Trump was in power (added $8b+ trillion to the debt in 4 years), or Bush? Did the Tea Party magically disappear?  Every time a Democrat is in the White House Republicans rediscover their faux fiscal conservatism. Deficit hawks? Did you see any drama around the debt ceiling under Trump? They raised the limit three times. But when a Democrat is in power? “Let’s take the credit card away.” I’m not saying Democrats are fiscally responsible. They are not. But they never pretended to be either.

At the moment of this writing, there’s mixed news. Apparently there was a short-term bill to keep the government open but it was shut-down (a little bit of a play on word here). Some Republicans celebrated the bill but it wasn’t passed? If the House GOP can’t pass the bill, one House Republican said McCarthy “may be forced to choose between staying on as speaker or avoiding a shutdown.”

As for politicians, I just can’t buy anything they say. Don’t listen to what they say. Look at their actions.

Sure American politics is dramatic and entertaining. But unfortunately it’s the people that pay the price of their incompetency.

EV Trucks – Work in Progress

My excitement over EV trucks died down a bit. I saw the teaser videos. Of course, I wanted one. It’s the truck of the future! But my excitement was replaced with disappointment. I know it’s early innings with EV trucks. The first batch just came out. Fine, I don’t usually buy anything first-gen. I’m more of a “let them build 1 million first to see if the wheels don’t fall off” kinda guy. Let them wrinkle out the bugs first, then I might buy one.

Anyway the problem is not with the technology or the truck itself. They look awesome. I think you can guess. It’s the range! (And the price too.) It’s a massive bummer. I know you are not supposed to take manufacturer numbers at face value. And you shouldn’t. Especially if you are in Canada where the cold can snap your range 40%.

Let me get to the point. I was reading an article on Driving.ca on EV trucks. They tested the Ford-150 Lightning with the biggest battery pack. According to Ford, you should get 515 km of range driving on the highway (basically perfect conditions, no traffic, great weather, and flat, so not Canada). Driving.ca tested it and got 306 km. Ouch! That’s not much for perfect conditions. Imagine regular everyday driving plus the cold weather. And forget doing truck things, like pulling stuff. Car & Driver got 160km pulling 6,100lbs with the Lightning. And where do you charge if you are traveling with a camper? It’s hard not to block every charging spot.

It was good to hear Ford CEO admitting that there’s a lot of work left to do. He took his family on a road trip with a Ford Lightning. Here’s what he had to say after test driving the F-150 Lightning.

“It was a really good reality check of what challenges our customers are going through.” There’s videos out there where he documents his experience.

It’s WIP (Work-in-Progress). Now we can tackle the problems and improve. Charging will get better. Batteries will get better. 

Another Elon Musk Biography…But

I’m just going to say this regarding biographies in general. Maybe the subject matter doesn’t have to be dead, but can we wait until his career is at least over? I feel the stories are told way too early. For example, when Ashlee Vance’s bio of Musk came out, it just felt like there was a lot left of the story to be told. The Musk story was just starting. Anyway…

Another Elon Musk biography is out. Elon Musk by Walter Isaacson. Musk allowed Isaacson to shadow him for two years, granting access to his family and confidants. Anything Isaacson is the authoritative biography. Isaacson is behind some of the greatest biographies out there. Einstein, Da Vinci, Steve Jobs, Benjamin Franklin, Jennifer Doudna (CRISPR, gene-editing) etc…

I read two Musk biographies, including the one by Ashlee Vance, which was considered “the” biography until now. They were good but felt incomplete. Like I said, the story was just starting. Vance tried to get Musk to collaborate for his biography. Musk wouldn’t at first and it took a lot of convincing. Musk finally agreed to give his version of the story to some of the stuff others said. The other biography was on the Paypal Mafia. It had a lot of early Musk stories that I never heard of. Anyway, you sort of knew that more biographies will come out eventually because the Elon Musk story is not over. 

I read some excerpts of Isaacson’s biography of Musk. That’s the one you want. It’s by far the most intimate. As for the never-ending pile of biographies being published on Musk, it just seems like it’s a bunch of stories shared at the bar across the plant by a guy who got fired.

But I get it. The guy is fascinating. The guy has to be studied. Yes he has issues, he’s not perfect, he can be controversial, but I believe the world needs more Elon Musks. He’s a polarizing figure. There are good things about Elon, and there are bad things about Elon. And sometimes it’s hard to have a clear picture.

I have shared my Elon Musk opinion in the past. The Elon Musk that makes EV cars, that wants to colonize Mars, and push the frontier of technology. Great Elon! The Elon Musk that talks shit on X/Twitter and posts crap emoji. Bad Elon. And what’s going on with that solar roof? Wasn’t it promised 8 years ago?

I wish there wasn’t so much drama around him. But it’s a package deal. The greatness comes with a lot of dumb stuff too. If you are going to assess anybody, or anything, you have to look at both the good and the bad.

That’s it, have a good weekend.

Apple

It’s the time of the year where you can spend more money on a new iPhone! (At least on the iPhone Max, regular iPhone prices stay the same.) Apple just announced the iPhone 15. It feels like a new car commercial: “Same same, but better.” Every year, the improvements are marginal. It’s probably not enough to flip your iPhone 14 for a 15, but compared to let’s say the iPhone 7, there’s that “wow” effect.

The big notable news is Apple embracing the USB-C charger, after EU pressure. I’m not a big regulation guy, but this is a standard that should be adopted universally. How many charging cables do you need?!?! I don’t have horse in the fight (USB vs Lightning). I’m no pro-this cable or that. I’m pro charging. I just want to charge.

But the decision is a blow to Apple. They invested billions in R&D developing their proprietary charging cable, the lighting charger. The charger war is over. This is one of those decisions where the upside trumps the downside by multitudes. Let’s spend time and resources innovating other things.

By the way, it’s just charging. It shouldn’t be complicated. If you have one device and one cable, life is simple. But if you are like me, your phone, speaker, watch, tablet, kids’s stuff…then it becomes an IQ test for monkeys trying to charge stuff.

Imagine if you had to pump gas and each car brand had a different fuel filler inlet. Goddamn nightmare! There are things, certain standards or protocols, that universally we agreed that it should be the way. Like stop signs, traffic lights, air traffic control, seat belt mechanism, the height of a light switch, Internet protocols, most keyboards…it just makes everyone’s life easier and better.

Apple shares are down a bit lately but it’s still up 40% year-to-date. Part of the downslide is market sentiment turning negative. The other part is due to Apple becoming a new parn in the China-US rivalry. China is an important market for Apple. It represents about 20% of Apple’s revenues and income.

Still, even if Huawei and Samsung have superior phones, Apple has a much superior brand. It’s probably the #1 brand in the world. Young people want iPhones. They don’t want to be seen with an Android. The ecosystem is captive. You can’t go anywhere. You are lock-in. People are not trading down.

Sports Entrepreneurship – Beyond The Big Leagues

I’m on a little bit of a roll reading and reviewing books. I will go back to regular posts soon.

Columbia Business School Publishing was kind enough to send me a galley copy of Sports Entrepreneurship – Beyond The Big Leagues (Amazon) by Christopher Mumford. I believe the book comes out on September 26, 2023.

I enjoyed reading the book. It’s a book that speaks to me. As the title suggests, the book lies at the intersection of two interests of mine: Sports and Business. 

Over the years I have juggled with sports business ideas. Since I won’t be making money on the field (BTW I’m still a free agent in all professional leagues if anyone from the NHL, NFL, NBA, MLB is reading), maybe off the field I could turn one of these ideas into something. The ideas are still in my head. I’ll keep the ideas to myself because it’s not the purpose of the post. But my point is I wish I had that book a few years ago.

Who is this book for? First, you must love sports. Second, you have a business idea that you want to develop into a business. Third, you have key ingredients such as teamwork, competition, and effort that’s required on the field.

Getting involved in pro-sports is not accessible for most people. I can’t speak for all sports fans, but I’m probably not wrong when I say at one point we all had a dream of owning a professional sports team. It’s an expensive. That’s why it’s a dream. The price of a big 5 (NFL, NBA, MLB, NHL, MLS) sports franchise is in the hundreds of millions, if not billions. For 99.99% of us, that dream will remain a dream. And if you do have billions burning a hole in your pocket, good luck finding a team available. That’s why they are trophy assets. 

Or maybe you are a gifted athlete and it didn’t work out. Or your career as a pro-athlete is over and you are wondering what you will do with the remaining 50 to 60 years of estimated life. Or maybe you are interested in a career in sports management but positions are scarce. Or you are into youth sports, coaching, eSports, fitness, or other alternative growing fields and you have ideas you want to explore. Or maybe you are just a mega-sports fan with an idea. Or perhaps you have a sports-related hobby or a passion project that you want to take from the side hustle level to a full-time real business.

Mumford makes the case that it’s easier than ever to get involved in sports. Thanks to the cost and barriers of starting a new business are the lowest they have ever been. Lucky you, the first sentence in the introduction is “Now is the greatest time in human history to start a sports business.” But there’s a but. The second sentence and third sentence is “But it’s hard. It’s really, really hard.” The fundamental question of the book that you need to answer is: Is the juice worth the squeeze? Mumford explains that you may not  be able to follow your original (sport) dream, but it can evolve into the dream of creating a sports startup. That’s the “why” of the book.

Sports Entrepreneurships is a how-to book. It’s a practical step-by-step on how to start a sports business. It provides methods for turning an idea into an enterprise. There are many ways you can get involved. The sports industry is a growing field. The first 2/3 of the book is Mumford going over six sectors that are up-and-coming opportunities and high-growth areas for start-ups:

1. Data analytics
2. Sports betting
3. eSports
4. Youth sports
5. Fitness
6. Fan experience

You probably read about some of the sectors on an individual basis. What’s nice is that you have them all in one book and there’s some cross-over between them (e.g. sports betting mixed with esports). Mumford does a good analysis of each sector. He touches on many aspects, the opportunities and the constraints of each sector. There’s no sugar coating: it’s very competitive and hard work is required. I particularly enjoyed the four interviews with “key people” such as the person behind Wyscout, labeled the “Bloomberg platform for soccer”. The other interviews are with a professional sports bettor, a guy behind a couple sports analytics company and another one in youth sports. It’s good to hear from people in the field with boots on ground sharing their insights and experience.

In the last part of the book, Mumford focuses on taking an idea and turning it into an enterprise. This is the how-to, step-by-step part of the book. It’s a couple chapters and it’s very comprehensive. I’m not talking about theory, but a roadmap on how the process works (investor presentation, budget, working prototype, NDA, term sheet, fundraising, conducting a pilot, etc…)

Broadly speaking, the opportunities are in supplemental services, advising, support, and ancillaries. You might not be able to score touchdowns, but might develop a product or service that improves the fan experience, or that helps management and teams. There are tons of experiences. Think of what FanDuel/DraftKings did with daily fantasy football and sports betting.  Or what Strava did for mobile fitness. Look at Peloton and Garmin. Look at YouTube, TikTok, Twitch, and the podcast scene. In the medium term, think of the possibilities surrounding AR/VR.

This is a good book. It explores high-potential growth areas and provides a process for validating those opportunities. As I mentioned earlier, Mumford talks about determining if the juice is worth the squeeze. The answer to the question starts by developing subject matter expertise and owning the process.

To conclude, I’m going to leave you with a bit of advice from the first interview in the book that I found interesting: Just go out there and work. If something makes sense, do more of it…The only way you can form a perspective is to be working in the space every day. A new idea will not just come out of nowhere. You have to be in the middle of it to see it.

You can buy pre-order the book at Columbia University Press and on Amazon.