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🔑 Key Takeaways

  1. Adopt a flexible operating plan, use simple napkin math and sales capacity modeling to predict sales, customer numbers, and hiring needs. These strategies can help businesses stay on track despite market changes.
  2. Understand the relationship between growth and value investing and prioritize cash flow maintenance while strategizing reinvestment for sustained success. Vanta's approach emphasizes efficiency and predictability, even while prioritizing engineering and design talent.
  3. Investing in high-return sales and talented teams, even if it means taking on risks, can lead to better returns than hoarding cash. Understanding businesses deeply, their fundamentals and management teams, is crucial in achieving profitability. Be open-minded and flexible in your investment approach.
  4. Despite the risks, investing in low rated or high yield bonds can still be profitable by focusing on realized total return. Life insurance companies utilize risk management to make money, while realistic prices and long-term potential should always be considered when choosing investments.
  5. While investing, understand the potential of a company and its ability to sustain in a rapidly changing market. A competitive advantage may not be a permanent moat, so always evaluate the company's future potential against the selling price.
  6. To thrive in the ever-changing business landscape, companies must remain agile, forward-thinking, and constantly explore adjacent markets. Success today does not guarantee success tomorrow, but the potential for growth has never been greater.
  7. When investing in private markets like venture capital, finding your advantage through qualitative assessment and imagining future prospects is crucial. Pursue what suits your skill set to make successful, probabilistic decisions.
  8. When considering investments, it's important to envision a company's potential future by examining market trends, financials, and potential moats. Finding the right investment philosophy, whether it's distressed debt or small internet businesses, is crucial for success.
  9. To build a successful investment firm, it's important to have shared values and complementary skills among partners. While being competitive is important, focusing on being the best version of oneself is key. For those in need of management help, companies like Tiny can be a game-changer.
  10. Successful investing requires a balance between confidence in your abilities and open-mindedness to learning and evolving. Qualitative judgments about the future are crucial, and leveraging your unique strengths and abilities can lead to competitive advantages.
  11. When building a winning team, look for individuals with exceptional problem-solving skills, emotional control, intellectual humility, and the ability to exchange ideas. Evaluate backgrounds and decision-making processes, rather than just qualifications on paper.
  12. To build a successful startup, founders must possess exceptional qualities like judgment, idiosyncrasy, and passion. Unconventional thinking is necessary, and conventional skills alone are not enough. It's essential to hire individuals based on their past decisions and ability to make independent judgments. Exceptional individuals can attract and retain other exceptional people, and success lies in being different and following one's unique convictions.
  13. Brex's spend management software streamlines global expenses, eliminates expense reports, and prevents fraud. Oaktree's acquisition by Brookfield met all criteria to maintain independence. Knowing when to sell is half the equation in securities investment.
  14. Before deciding to sell an investment, understand why you made the investment, how it's evolved, and what you could be potentially giving up. Rare, compounding certificates are valuable and should be regarded as the decision to "unbuy" rather than sell.
  15. Holding onto generational company investments for as long as possible can lead to massive returns. Avoid taking profits prematurely when there is potential for more returns. Howard Marks' memos offer valuable investment strategy insights.
  16. Raising less money and having market foresight can be a better strategy to limit fund sizes in certain periods, while avoiding social media and working with family can lead to exciting experiences.

📝 Podcast Summary

Collaboration of Investment Styles and Tactics for Market Stability and Business Growth

Value investing and growth-oriented tech investing are two different investment styles represented by Howard Marks and Andrew Marks respectively. Their collaborative memo on Covid and its impact on the markets became Howard's most popular memo ever. Vanta, the leader in automated security and compliance, operates using a two-and-a-half-year operating plan that is revisited weekly and updated monthly. They use napkin math for different roles to determine whether or not to hire in the current environment, considering attainment and pipeline numbers. They also do sales capacity modeling to predict revenue, customer numbers, and hiring needs. These tactics help ensure Vanta has the runway it expects despite changes that may occur.

Vanta's Efficient Go-To Market Strategy and Navigating the Growth vs. Value Investment Spectrum

Vanta operates in a predictable and machine-like way on the go-to market side, despite hiring as much as they can for engineering, product, and design. Howard Marks and Andrew Marks wrote an incredible memo together during the pandemic, which examined the evolution of investing from value to growth. Andrew shares that his trajectory was across the value end of the spectrum to the growth end of the spectrum, and to understand how the two relate. He was sort of able to talk to his dad and his language. He mentions that maintenance of cash flow is important, and one should think about where to reinvest that.

The Importance of Open-Minded Investing: Going Beyond the Surface

Investing in high return sales, talented engineering teams, and R&D can be a better investment than hoarding cash. Amazon is a great example of putting faith in a management team and recognizing optionality, but it's important to understand businesses deeply, especially when a knee-jerk view is superficial. Profitability is not always maximized by a value investing approach, and growth should not be assumed to be good or bad. Instead, open-mindedness and evolving thinking are crucial for successful investing. Optional profitability and investments that are not typically pursued can lead to higher returns, but rigidity is an enemy of profitability. Understanding and investing in businesses requires a deep understanding of their fundamentals, economics, and management team.

High Yield Bonds, Life Insurance Analysis, and Use of Realistic Prices

Investing in low rated or high yield bonds can be profitable by focusing on realized total return despite the risk of credit losses, as exemplified by the interest found in a book on bonds by Michael Milken. Life insurance companies can make money knowing everyone will die because they manage the risk, analyze it, diversify it, and earn a well-paid price to take it. The Nifty 50 companies were priced too high to make sense as investments, and some of them were illusory. The lesson learned is that no company or investment is invincible, and it's important to focus on realistic prices and long-term potential for profit.

Disruption and Future Potential: Factors to Consider While Investing

The concept of disruption should be considered while investing. Moats are not permanent and can be disrupted which may affect companies' future cash flows. The technological adoption is speeding up and it is harder to predict the future of a business. Companies with competitive advantages can still create value by leveraging their advantages to enter new markets and launch new products. The internet has made it possible to address global markets. Investors should think about future potential of the company and compare it with the selling price while investing.

Staying Competitive in the New World of Business.

The new world of business has brought about distribution models such as the internet, leading to the continued growth of companies like Apple, Amazon, Google, and Microsoft. However, to avoid negative effects of success, companies need to stay lean, flexible, unbureaucratic, and future-looking. Markets evolve and games evolve, meaning that the winning strategy today could become the losing strategy tomorrow. Unlike in the past, readily available quantitative information about the present makes it harder to find hidden value in stocks. Companies must continuously step out into strategically adjacent markets, dominating more and more of various markets to continue expanding. The future may be less certain than ever, but the opportunity for any given business is the largest it's ever been.

Finding Your Advantage in Venture Investing

In order to be successful in investing, it's essential to have an advantage, whether it be a knowledge or skill advantage. Public markets are highly efficient and it's challenging to find an information edge. Private markets, such as venture capital, are less liquid and offer more opportunities for advantage. When making investment decisions, it's crucial to make qualitative judgments about future prospects of a company and consider whether or not the current price reflects that potential. Venture investing requires imagining the future and making probabilistic decisions. It's important to pursue what suits your skill set to avoid putting a square peg in a round hole. Applying traditional investing lenses to venture is interesting and involves visualizing the potential future of a business.

Qualitative Judgments and Envisioning the Future: Crucial for Investment Strategy

Qualitative judgments about the future are of utmost importance when considering an investment. To envision what a company could be in the future is crucial, especially when dealing with nascent businesses. Investors should think about the potential future moats, evolution of the market, and the company's financials before investing. Massaging current data is challenging, and so is predicting future outcomes, but it is important to find the right investment philosophy that suits you. Some investors buy into distressed debt, while others invest in small businesses on the internet that have amazing cash flow and 30%-40% operating margins. With the bull market of the past decade, VC-backed companies can no longer get to an exit, and Tiny's acquisition of these businesses benefits everyone involved.

Building a Strong Investment Firm Requires More Than Just Good Investing Skills

Building a great investment firm is a different challenge, and it's rare for people to be great at both investing and management. Shared values and complementary skills among partners are key, producing mutual respect and great partnerships. Being competitive is important in the investment business, but it's not just about competition with others; it's about competition with oneself to be the best. For some, like the father and son mentioned in the text, a smaller, more focused firm with a specific approach suits them better than broadening the firm's strategies. But for those who need help with management, the function provided by companies like Tiny can be a total win for everybody, especially in today's business landscape.

Balancing Confidence and Open-mindedness in Investing

It's important to do what suits you and plays to your strengths while avoiding your weaknesses. However, it's also essential to be open-minded and willing to learn and evolve to expand your competencies. This conundrum applies to investing as well, where you need to be confident enough to back iffy ideas but not so confident that you keep throwing bad money after good. Ultimately, investing cannot be reduced to an algorithm and requires qualitative judgments about the future. Our humanity pays off in this field and we should make the most of our abilities to find success and competitive advantages.

The Art of Superior Decision Making: Judgment and Attributes to Look for in a Winning Team

Superior decision making comes down to judgment, which is intangible and difficult to teach. This judgment is developed through a combination of deep knowledge and understanding, rational thinking, emotional control, intellectual humility, and knowing what you don't know. When recruiting for a team, it's important to look for people with 'smart eyes' or exceptional problem-solving skills, who understand what matters and can look beyond quantitative information. Additionally, team players who can exchange ideas and incorporate feedback from others are highly valued. In evaluating founders or potential employees, it's important to spend time understanding their backgrounds and decision-making processes, rather than just their qualifications on paper.

The Importance of Exceptional Judgment, Idiosyncrasy, and Passion in Founders

Exceptional judgment, idiosyncrasy, and passion are key attributes of successful founders. Startups have no clear method or algorithm for success, so unconventional thinking is required. In evaluating potential hires, it's essential to consider an individual's past decisions based on first principles and their ability to make independent judgments. Simply being the best at conventional things is not enough for success. To achieve exceptional outcomes, founders must be willing to do uncomfortable and idiosyncratic things. Building a successful startup requires exceptional individuals who can attract and retain other exceptional people. The key to success is being different and doing things the right way, according to one's unique view and convictions.

Brex Software and Oaktree Acquisition

Brex's spend management software helps big companies manage expenses globally and maintain compliance while allowing employees to easily direct spending from the outset. The proactive approach of creating budgets beforehand saves time and eliminates the need for expense reports. Brex's AI-driven detection flags suspicious transactions, and its connection to exclusive merchants means no more chasing receipts. The acquisition of Oaktree by Brookfield provided a dream transaction that met all of their criteria, allowing Oaktree to continue to operate independently with Brookfield not interfering with clients. Howard's view on selling and taking money off the table changed after observing that half the equation of securities investment is knowing when to sell.

The Importance of Understanding the Fundamentals and Opportunity Costs when Selling Investments

When it comes to selling investments, most people focus on price action rather than fundamentals and opportunity costs. Understanding why you made the investment, how it's evolved, and what you could be playing for is crucial. Rare, compounding certificates like companies that can compound cash flows for decades are extremely valuable and hard to price in the near term. If you really believe you have found one, something crazy has to happen for you to sell it. Sitting idle on something for decades is hard, but it's important to recognize what you have and be sure it's one of those rare things. The decision to sell should be rebranded as the decision to unbuy and should be the opposite thought process of the buying decision.

The Importance of Consistency in Venture Investments

Consistency is key when it comes to investments. Venture investments in generational companies should be held onto as long as possible because they have the potential for massive returns. It is important to avoid taking profits prematurely when the upside is high and the potential for more returns is feasible. The concept of buying a dollar for $0.50 and selling it once it hits $1 is a good strategy but it is limited and does not apply to all investments. Howard Marks' memos, available online, are a great resource for those interested in investment strategy and his success is the result of consistently following his own principles for over 30 years.

Strategic Methods for Successful Fund Performance

Successful fund performance is synonymous with appreciation, making subsequent funds in the same area more expensive. Therefore, raising less money rather than more can be a better strategy. It is important to have foresight about the market and invest strategically.Some of the biggest funds are raised when there is a crisis as it is the best time to put money to work. It is better to limit fund sizes in certain periods and then raise them significantly in others. Also, avoiding social media and doing what makes sense for oneself is crucial. Finally, working with one's family on a project can be an exciting and fulfilling experience.