🫂 Frens R Gud

Warren Buffett is the investing GOAT. Yeah, there may be a few who made higher percentage returns for a bit, but none that have consistently crushed for seven decades straight and in such a transparent simplistic manner.

How did he become the 🐐? I see three reasons:

1. He’s a literal genius

2. He basically reads every report from every public company ever, especially in the early days.

3. His friends

The first two are well known, but the third one isn’t really talked about as much. What do friends have to do with it? Are you suggesting inside information Travis?

Nope

Friends can offer a fantastic way to learn. I consider myself pretty good at what I do, but I can honestly say that I would be nothing if it weren’t for the people I’ve met along the way.

Buffett frequently spent hours on the phone with friends each day, simply talking about what they saw and thought. He was constantly on a plane to New York or California to just meet and hang out with people. He openly admitted that he probably had more friends in those places than in Omaha (similar to me and Austin, TX 👋).

During those calls, they would discuss ideas, challenge each other's thoughts, and share things they had learned. No one person can gather all the insights that exist, not even Buffett. We learn from one another, and grow together as a group, and even as a species.

I can’t recommend enough investing in these relationships, both for professional improvement and, more importantly, for life fulfillment. And to be clear, it is an investment. Sometimes you have to put in the work of being a good friend before you can reap the rewards of having good friends.

I start with this preamble because my week just happened to be jam-packed with takeaways from a few people I'm lucky enough to know. I'm reaping the rewards of friendship.

Takeaways from my smart friends this week

Survival is all that matters in a bear market

Late last week, I had the pleasure of Sweaty Startup’s Nick Huber and his business partner Dan Hagberg coming through town.

They planned to go hiking with some of their buddies on Asheville's world-class trails, but when the weather changed, they hit me up, and we went out to a pub instead. I destroyed them at darts 😀

Of course, the conversations eventually shifted to our businesses and investments and all that jazz.

​The story of their self-storage business is nuts. They’d been growing like crazy in 2021, buying 32 new properties for over $59 million and growing their staff from 4 to 34 employees. I'm an investor in one of their funds and can attest that they do this in intelligent ways. They don't overreach just for the sake of growth like a lot of startups.

But now the economy has shifted, and things have turned super quiet. For example, they only did ONE deal in the past few months (valued at $1.85m).

As we chatted about this, it became clear we looked at this situation the same way:

In a bear market, you don’t necessarily have to focus on making a big play or turning a big profit with your business.

All you have to do is SURVIVE

If you survive, the rest will usually take care of itself

There are two sides to the survival-first mentality.

1. In downturns, if you just make it to the other side, you win. If you come out intact, you can take advantage of the upswing, while those who didn’t make it are out of the game (maybe permanently).

2. If you’re frugal and savvy and stacked cash, then down-markets can be a great time to find amazing deals.​

This applies to all markets, but let's dig into their storage unit biz as an example.

With interest rates rising, the math for doing a lot of deals no longer makes sense. I talked about this last week with my personal ecom example, but the gist is that as debt payments go up from higher interest, then the profitability of many deals goes down. The math changes.

A new deal that would have been profitable a year ago would now lose money today, or at the very least, not offer enough profit to make the risk/reward worth it.

Stack higher debt payments on top of a cooling storage unit market (fewer people are moving homes, thus less need for storage units), and it creates a double-whammy of slowing growth.

But, the odd thing is, that this is not really a bad thing.

Nick and Dan have been smart. They built in buffers for downturns, they fixed the rates on all of their debt when rates started going up, and they built a lean low-cost team.

So now... they can just wait. Wait for the markets to change, or maybe even better, for poorly run competitors to throw in the towel. They're excited about what is to come.

When money is cheap and plentiful, it's easy to keep things afloat. People are loose with cash and spend freely. Startups can raise infinite capital, refinance debt for pennies, and know that they can always buy time.

But things change. When poorly run competitors give up, it is a fantastic opportunity for skilled operators to buy assets on the cheap. Capital is more scarce, there will be fewer bids, and the prices of assets will be markedly cheaper.

This is how many value investors have outperformed their growth counterparts over time. They may underperform a little during market-mania, but they are still around when the house of cards collapses.

They survived, so they won.

What do the very best stock investors do?

Scammy headline, I know, but it's a legit question.

This week my big-brained friend Simon Stock (real name) came and hung out at my house for a couple of days. This is a guy that I've learned soooo much from over the years.

Simon is an entrepreneur turned investor who focuses most of his "energy" on buying public equities. I put "energy" in quotes on purpose.

Take a look at this tweet I shared:

Many people claim to do what Simon does, but few walk the walk.

One of the hardest parts of being a successful investor is playing the waiting game. NOT doing stuff just to be active. NOT giving into FOMO when prices are high. Not speculating, investing.

It's similar to being a good poker player. In general, good players don't play shit hands against other good players; they wait for good cards to come and then join the pot. It's a waiting game; the most challenging part is boredom.

So after my tweet, someone asked me, "so what does Simon actually do then?".

i.e., if he's not watching the stock prices all day, what does he do?

Over the years, he identified around 80ish companies that fit his criteria of being the right type of company.

This means that they have to:

1. earn a high internal rate of return on capital ( ROIC > 20%)

2. be run by capable management

3. and not be easily susceptible to disruption.​​i.e., he likes to say every day some genius kid wakes up and tries to disrupt Google, but no one wakes up and says, "I want to disrupt chocolate."

I'm probably simplifying a bit here, but after spending years with the guy, this is what he actually does:

1. He reads the annual reports of all the companies he's interested in when they come out, as well as the Fed reports.

2. He sets price alerts for those companies based on when they are statistically cheap (based on their earnings and growth rate).

3. That's it.

That's it. He just waits for them to get cheap based on his fundamental analysis of the business. NOT the news of the company, not the sentiment of the market. Just logical, thoughtful analysis and patience.

And in case you're wondering, he is one of those rare unicorns who actually beats the market by a sizable margin WHILE taking far less speculative risk IMO. Oh and he's also getting good cash-flow (dividends) along the way.

You hear of these people from time to time, and everyone says that they want to do this, but few do.

THIS is why he can easily go a month without checking the market prices and still sleep well at night. He knows in detail the underlying businesses of the stocks he owns, he has his price targets, and he just waits for those alerts.

No speculation needed. No watching CNBC needed.

​Here is an old podcast if you'd like to learn more about his style.

Everything about buying businesses with SBA loans

If you’ve ever thought about buying a small- or medium-sized business, this great podcast episode is worth a watch.

My buddy Bill D’Alessandro is one of the single best business minds I know, and in that episode, he interviews a well-versed SBA lender who goes through all of the ins and outs, many of which I wasn't aware of.

Some topics they discuss:

1. How to structure your loans

2. How to protect your downside as a buyer

3. What lenders are looking for in a buyer

4. Seller notes: how they work (this part was great)

5. What to look for when acquiring a business

6. Current market & loan conditions

7. What default looks like if it happens

I found it fascinating to learn more about these deals, how to structure them intelligently, and how the overall SBA game works.

SBA loans are not a great option for everyone. Over-extending yourself with a business that can crash has its risks. Concentration risk is big here, as your other assets could be up for grabs (but not necessarily for everyone as I recently learned).

I enjoyed this episode more than I thought I would. I thought I'd poke through for 3 minutes and then move on, but it was super solid even for those not interested in SBA (just to understand structuring options).

The Bonus Round

SBF tries to explain himself via Twitter DM’s (while his lawyers shit themselves). The post-collapse FTX hack might have been at the request of the Bahamian government. FTX gets a theme song. A great thread on different types of SEO content algos. Amazon joins the other big tech firms adjusting to the new normal by cutting 10,000 corporate employees. Musk warns employees to “prepare for difficult times”, tells staff to start paying for their own lunch, and ends remote work except for “exceptional” employees (all of which seems normal, no?). Finally experience a nuclear explosion with VR.

Until next week,

– Travis

Huge Disclaimer in Smaller Font

This content is being provided for information and discussion purposes only and should not be seen as a recommendation to do anything at all, especially not to buy or sell a security. Opinions expressed are that of the author, who is NOT a registered investment adviser, or a financial professional, or can barely even tie his shoes half the time. Do not try and copy the author or you’ll probably lose all of your money and have a rather bad day.