4/25/23- Munger, Jensen, Navy SEALs,🚀🌌, Claude Shannon

"We don't have to have an opinion on every DAMN THING."

Welcome back. In a busy world we can be distracted with the trivial many things or we can focus on The Vital Few.

Something that I am thinking about

I am mulling over a couple of Charlie Munger's insights on how to think.

I will assume that everyone reading this already knows who Charlie is, if not start with YouTube 👍🏼. Munger (net worth estimated at ~ $2.4B) often talks about understanding a business or an investment through a set of mental models that can be collected, organized and used. When asked for a list of these models he gives a variety of answers, but the response that is one of my favorite goes something like this:

Munger- We get these questions a lot from enterprising young. It's a very intelligent question: You look at some old guy who's rich and you ask, "How can I become RICH, like you…. EXCEPT FASTER?"🏃🏽‍♀️ It isn’t that easy to be a great investor.

😆😂

Nevertheless, from time to time, Munger actually provides some specific guidance. Years back when reading Poor Charlie's Almanack¹, Munger describes:

Five general notions that are helpful in solving problems (including understanding businesses/investments.) Eureka!💡

1. The 1st helpful notion is that it is usually best to simplify problems by deciding big "no-brainer" questions first.

2. The 2nd is, do the math, understand the math. Analyze the drivers, reduce it to math and understand it.

3. The 3rd is to think the problem forward and then INVERT, and think the problem from the end to the beginning. Think backwards.

4. The 4th helpful notion is that the best and most practical wisdom is elementary academic wisdom. You must routinely use all of the easy-to-learn concepts from the freshman course in every basic subject. Study and think about the situation. Ben Franklin "If you want it done, go. If not, send." Go look at it for yourself, or send a professional trusted advisor if you are not able or if it is above your knowledge, experience, etc.

5. The 5th helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors.

I wanted to illustrate the notions with a couple real investing examples in hopes that seeing them in the wild🐵🐯🐻🐊 of real life, might be better than reading some boring description. The below are jumping off points🏊🏽‍♀️🤿 to get us in motion.. not the final destination.

1. Simplify problems by deciding big "no-brainer" questions first. Write down✍🏽📝 good & bad no-brainers that you encounter while researching to focus your attention.

   1. Is this a business that you really understand. DIS 0.00%↑ v XOM 0.00%↑ v KO 0.00%↑ Your time is valuable, don’t waste it chasing butterflies.

   2. Is this a dominant business with good future prospects or just one of many competitors in an industry (also-ran). MSFT 0.00%↑ v GM 0.00%↑ v GME 0.00%↑ v IBM 0.00%↑ v CAT 0.00%↑ v BBBY 0.00%↑ (BBBY is now Bed, Bath and Bankrupt. 😯)

2. Do the math, understand the math. (The majority of me is a fundamental investor.) Analyze the financials for recent quarters and multiple years. Understand the unit economics of the business, fixed & variable cost, margins, op. leverage, use of FCF, competitors. Financial models vary- SHOP 0.00%↑ v BAC 0.00%↑ v AAL 0.00%↑

3. INVERT, and think the problem from the end to the beginning. A couple of ways that I think about this is “What does failure look like in the future and how do we avoid it?” The second way is, “we have reached our successful goal, now walk backward step by step from the goal and how does the future meet the present?”

   1. Berkshire Hathaway has purchased a majority position in the Pilot Flying J for $11B. Pilot is a travel center network with over 750 locations offering truck stops, truck parking, and gas and diesel fuel. With the rise of electric vehicle transport (like TSLA 0.00%↑ ), what does BRK assume about 20 years in the future with Pilot?

   2. Regardless if you agree with META 0.00%↑ or not, they believe that the future will use more AR/VR technology. From the imagined future, META has inverted how to invest some of their resources in the present toward that potential.

4. You must routinely use all of the easy-to-learn concepts from the freshman course in every basic subject. Engineering, Psychology, Math, History, Geography, Law, Econ, Arts, Science, etc. Think about your investment prospect with each and all of these in mind. If you are wondering if there is an easier way, some tips, or a trick, there is not. 😐 “Easy” is not an option, do the hard work.

   

   Rely on your hard work, expect the world to be unfair.

5. Really big effects, lollapalooza effects, will often come only from large combinations of factors. This isn’t just getting 1 product right, or catching a trend. It is getting lots of things right, catching lots of trends, getting lucky and having the wind to your back. Think of TSM 0.00%↑ , NVDA 0.00%↑ , JPM 0.00%↑ , AAPL 0.00%↑ . When these companies see a parade opportunity happening, they don't just stand on the sidelines and watch. They get out in front and lead the way. 🥳💃🏽🕺🏽🪩

Munger should have the last words on this section-

One of the most important things in life is to learn how to think for yourself. You don't have to have an opinion on every DAMN THING. It's okay to say, 'I don't know.' But if you do have an opinion, make sure it's a well-informed opinion.

Do we understand the business? Does the business have an intrinsic value or a durable competitive advantage? Does management have high integrity? Does the stock come at a reasonable price?

🫡🙏🏽

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Investing, Companies, Market Past/Future

(I invest in Companies, not in stocks.)

Interesting companies that hosted earnings results or information session since my last edition that I reviewed-

• Technology- LRCX 0.00%↑ , TSM 0.00%↑

  • ASML 0.00%↑ , graph below from ASML Annual Report. Mama Mia. 😮

    

• Housing & Banking - KMX 0.00%↑ , JPM 0.00%↑ , WFC 0.00%↑ , BAC 0.00%↑ , FRC 0.00%↑

  • DHI 0.00%↑ DR Horton sells ~14% of all New Single-Family Homes in the USA.🤔😳

  

• Others- CSX 0.00%↑ & UNP 0.00%↑ (Yes, I like Trains 🚂 too), NFLX 0.00%↑ , TSLA 0.00%↑ (Cyber Truck production line is tooling.)

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SpaceX- had a partially successful mission of Starship and Super Heavy rocket from Starbase in Texas on 4/20/23. The launch and flight was amazing and then there was a RUD (Rapid unscheduled disassembly)😉. Video Here. I am confident that SpaceX gained valuable information and will be successful in the future with Starship.

The SpaceX workhorse 🐴🚀🐴 Falcon 9 rocket (pictured below) has had ~220 fully successful missions. [Look at the cost per kg comparison.🤯]

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Podcasts

🎧Jensen Huang Founder and CEO of Nvidia Podcast: In Good Company with Nicolai Tangen

NVDA 0.00%↑ Jensen said “my will to survive exceeds almost everybody else's will to kill me.” 🥷🏽

Jensen’s comment reminded me…. A few years ago, I had the unique privilege to attend a meeting where Rob O’Neill was a speaker. Rob served with Navy SEAL Team Six, the elite unit that killed Osama bin Laden. He illustrated the quality of not quitting by telling how the SEALs would have to perform difficult thing after difficult thing, day after week after month.😩😫🥴 A day might be very difficult, but it was possible to complete that day. Often we quit when we imagine months of difficulty continuing into the future. Instead, Rob said to focus on overcoming the challenges of TODAY, focus on the NOW. We will deal with tomorrow when it comes. 🙏🏽

The Salty Spittoon (Surf Drill Training Coronado, CA)

Jensen continues:

[..]the attitude of an entrepreneur and attitude of somebody who does something new is, how hard can it be? You know, and my attitude has always been how hard can it be to learn PC, how hard can it be to build a company, how hard can it be to hire people, how hard could it be to create an organization. Turns out all of those things were super hard. All of those things were super it turned out, it was super, super hard, but I think you want to go into it with the attitude. How hard can it be, you know? [..] If it is a solvable problem, how hard can it be. We reasoned about everything from 1st principles and if anyone can do it, I am sure we could, and we will just learn as fast as we can.

Jensen is one of the absolute best, he is brilliant and the whole interview is excellent. (H/T to my great friend to the north 🍁

Liberty

🥃 for this podcast link in his post.)

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Videos

3 Minute video below. The MARS Ingenuity helicopter was supposed to be a 30-day technology demo of 5 flights, total. 2 years, and ~50 flights later, she is still curious and investigating the surface of MARS 🌌.

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Books and Articles since my last edition

(I am usually reading 2 at a time, and if I get bored of a book I quit and move on.)

• The Lincoln Highway by Amor Towles Fiction. I expected to embark on an epic journey in the book across the country on the Lincoln Highway (map below), but instead I found myself on a more personal journey with these characters, all of whom were searching for new beginnings. Each of them was trying to figure out who they were and how they fit into the world.⭐👍🏽 Amor Towles

  ..in your time you shall do wrong unto others and others shall do wrong unto you. And these opposing wrongs will become your chains.🔗⛓️ The wrongs you have done unto others will be bound to you in the form of guilt, and the wrongs that others have done unto you in the form of indignation. [..] Only once you have freed yourself from both of these chains may you begin to live your life with love in your heart💖 and serenity in your step😊

• Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance- Biography. (I have a couple Elon references in this post, and it got me thinking….) If you have any interest, I would recommend this book.

Here is a link to many of the books I have read and my 1-5 star rating- Goodreads Books Read

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Wild Card🃏

Claude Shannon’s 6 Strategies for Creative Thinking-

I don’t know about you, but Shannon’s 6 strategies below👇🏽 and Munger’s 5 notions ☝🏽above have significant overlap.🤔 Claude Shannon was an American mathematician and electrical engineer who is considered to be the father of information theory. Shannon's work had a profound impact on the development of modern computing, telecommunications, and cryptography. Below is my summarization of Shannon’s strategies:

If you would like to see the specific speech that Shannon gave to Bell Labs at which these 6 strategies were described or learn a bit more about him, Jimmy Soni wrote a short article here and a great book here. Also, below is an 8 minute Shannon video. Enjoy!

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Disclaimer: All of my posts are for informational purposes only. I might own some of the companies discussed in these posts. This is NOT a recommendation to buy or sell securities discussed. Please do your own work before investing your money.

1. Poor Charlie's Almanack Pg 279-281, Chapter titled “Practical Thought About Practical Though, 1996”