TomB16 investing blog

Let's talk intellect. This should ruffle a few feathers.


I speculate the smartest person on this site has an IQ in the range of 135. Perhaps the dumbest person here has an IQ of maybe 110. The dumbest of us are not dumb.

For value investing, 110 is well sufficient. Every person here is intelligent enough to value invest well.

Not only is 135 not much of an advantage, the ego that often comes with that level of intellect causes a lot more problems than the extra ability to think brings advantages.

The smartest people I know in my local peer group are the ones who have had their asses handed to them in the stock market. More humble people, who are also smart but have not demonstrated an ability of heightened thought, have tended to do pretty well with consistency.

 

We are doing very well. The way I arrive at that assessment is the following:

> 10% return = very well
7% < return < 10% = good
< 7% return = underperform

That's as far as you have to read but here is a long winded back-story on re-calibrating how I assess our performance.

Ten years ago, I purchased a used, diesel, pickup truck. I had a job that needed a 1 ton truck. The job was to last several months. It was going to be cheaper to buy a used truck and sell when done than to rent for such a long period. Loads of reading on the diesel-truck.com forum later, it was clear diesel was the way to go. From there, a truck was purchased.

The truck was great and did the job but it had a problem. I was getting between 10.5 and 13 mpg. The most I've ever seen, by far, is 16.5 mpg on a leg that required I drive 40 mph for 850 miles. Guys on diesel-truck.com were all getting 20mpg on the highway at 70 mph with the odd guy getting up to 25mpg. The truck was taken to a diesel specialist to correct this issue.

The shop did a bunch of work and returned the truck in excellent working order; which is to say, it was exactly the same.

Fast forward two years and I had occasion to speak with someone who manages a fleet of 3500 trucks for a major oil company. This man told me there is no diesel truck of any brand with any engine that gets 20 mpg. Keep in mind, this was at a time when the lightest truck available with a diesel in the US was a 3/4 ton. He said his fleet was averaging about 11 mpg until they installed GPS tracking and implemented a 55mph policy which brought the economy up to about 14.

He asked me if I tow and I told him about my 24' gooseneck trailer with triple axles. Suffice to say, between the dual rear wheels which apparently cost about 1 mpg and the towing profile, I ended up recalibrating my expectations.

A few years later I went to work at a very large company that also had a big diesel fleet. Our fleet manager confirmed everything the other fleet manager had told me.

Who is getting 20 mpg with a 1 ton diesel truck? Nobody

Who is claiming to get 20 mpg with a 1 ton diesel truck? Everybody

I ended up disregarding all diesel-truck forum economy claims, adopting the large fleet metrics, and realizing I'm doing fine. Group dynamics make objectivity impossible.

 

In case there is any question what I'm doing: Nothing. Long term investing is agony for compulsive people.


Status

We are at record net worth and have been for a bit.

Our DRIPs have been off for 16 months.

We are just over 20% cash, right now. We were in the mid 30% range in early march, before the market implosion. During the implosion, our cash was far higher due to low valuations.

The WBI is at 156.25.

With the market high and the economic and political situation this bad, I have a strategy to purchase SH when certain metrics have been met. I don't currently own any SH but likely will convert a portion of our cash to SH in the near future.

The strategy with SH is to reduce the amount of cash needed during times like this. It isn't an all-in strategy. Actually, it's the opposite. We can maintain more exposure to the companies we like by using SH to mitigate risk during down cycles.

Think about how a couch potato uses bonds, how they don't work for the purposes of a couch potato because they crash with markets, and how SH would work well.

 

On Venus, maybe.

 

The WBI is currently at 159%.

 

This post is relevant to investing and life choices.

Recently, an old friend lost his battle with depression. He was my best friend in high school. For a few years, we did a ton of stuff together. It was the time of my life. From there, we drifted apart. He didn’t go to university so our time together became increasingly scarce. He married a girl and moved to a larger city. I didn’t see him for 15 years.

One day, I was dealing with the manager of a department store to order a product and a light came on. It was him. “Hey! It’s great to see you!”

From there, we met for coffee. He wasn’t as warm or interested as I was. He told me a bit about his life, wife, and daughters but he was a bit distant. At the end of the coffee, he told me he was surprised I was driving a four year old Jetta, mentioned he thought I would really make something of myself one day, was surprised to see that I hadn’t, said he didn’t have a lot of time for old friendships, and got in his 25 year old Oldsmobile and drove off.

That coffee was the start of two days of pretty dark introspection. I recall thinking, "I guess you can't go back."

Three years later, he reached out and stopped by my house. A bald man showed up at my door. He was struggling with cancer, needed money, and we had an awkward 20 minute chat. Again, he mentioned that my house was nicer than his and in a nicer area but not by as much as he expected. I helped him out a little bit over the next several months. We saw each other occasionally and it was OK.

At one point, he suggested a business partnership. I declined and never saw him again. That was 15 years ago.

There was never a point I felt like revealing my net worth or apologizing for my modest lifestyle. If he had been less judgemental, his family would have been invited to my lake house and perhaps he would have warmed but I don't regret him not knowing about the depth of my life. He had already passed his judgement and I'm not one to buy anyone's friendship.

Even when I was young, I didn’t have a desire to flash money to impress people. Many people seem to have that urge and it’s quite toxic. I consider it a human failing.

The Jetta I was driving 15 years ago was replaced with another Jetta but the replacement is now 9 years old. Thinking about it just now, I haven’t considered the idea of replacing it. In fact, I think it may be the last car I ever own. Our plan is to exit our current life in the next few years, buy a condo with an ocean view, and spend 99% of our lives travelling.

I came from poverty. When I was young, I worked hard and always had a car but they weren’t nice until I got into my 30s. In my late 20s, I was driving a 1972 Valiant with a vinyl seat and slant 6 engine. It was the early 1990s. My Grandmother gave it to me when she lost her license. My realtor was pretty weird, when I pulled up to make an offer on my first apartment block in that old bomb.

For me, it’s always been: invest first, lifestyle later

I didn’t have a nice lifestyle until I was in my 40s when I met my current wife. She changed my life view. With her, I have been spending a bit of money on travel and having more fun but I’m still mostly a saver/investor.

I absolutely don’t wish I had spent more money when I was young. On the other hand, I’m glad I spent a bit of money on a speedboat in my 30s. I had lots of great weekends but felt guilty about spending the money, back in the day. Things were getting good and it was my second indulgence, after buying a nice house. BTW, I also felt guilty about buying the house.

This long term lifestyle of sacrifice today for a better tomorrow is a mindset that seems to be genetically programmed. It’s also a philosophy that will filter certain people from your life. Not only are most people “Spend today. Troubleshoot tomorrow.”, they want everyone in their lives to operate that way.

This is a different angle into the trader/investor philosophy. My friend took some financial risks, it didn’t pay off, and he took his own life. I believe this was the only path he could take. I believe he would literally rather be dead, having lived as large as he possibly could, than take the path I have taken which involves living small and valuing money. He did good in this world and had a nice family. His life was no less successful than mine has been.

Whatever your philosophy, please accept my heart felt best wishes in life.

 

I'm just going over quarter end numbers. The numbers are clear but there are political unknowns.

Consumer confidence is returning, to an extent.

If Cathie Wood's analysis is correct, brace for inflation.

 

With the most recent BEA update to the GDP estimate for Q2, the WBI currently sits at 177%.

 

I suspect I have a unique perspective on IPOs, but it's exactly what anyone reading this blog would expect.

I have engaged two IPOs in my life. In both cases, I knew the management team and I knew the industry. One was a REIT and it was spawned from another REIT I owned. The new CEO was the CFO of the REIT I owned and it was someone I had respect for. The other was similar.

In both cases, I had full confidence the ventures would be well run and would do well over time. What I didn't know is how the stocks would perform in the few days following LD 1. Both had a positive result. Neither made me rich, although the REIT IP turned out to be about a 40% discount, so that was nice.

The point is, my goal is to own well run businesses, in industries I have a reasonable understanding of, at a good value. If an IPO is the way to do that, it's a good opportunity.

What I would never consider doing is submit an expression of interest in an IPO for a company I don't know and am not familiar with the management team, simply for the idea of an initial equity gain that sometimes happens on IPO. Even an IPO, for me, is a long term investment.

 

I've long wanted to go into an Asian massage parlor, rubbing my neck and shoulder, and explain to the receiving person I have a sore neck and shoulder that could use some therapy.

I wonder if they would call me an idiot and chase me out?