What You Don't Know

Self Examination

Recently, I was introduced to a consumer products company. I have no idea how to run, market, or strategize around consumer products. I have made investments in consumer products, and two of those turned out exceedingly well, but it wasn’t due to any of my input. It was due to the pluck, insight, and ability of the person leading the company. I was commodity money in those deals.

Too often today, people are afraid to say, “I don’t know, " or “That’s just something I don’t have expertise on.” This is seen or perceived as a sign of weakness.

It’s the same if you admit you made a mistake. The vultures descend and you are hung up in the public square for ridicule.

As an investor, you have to understand where your blind spots are and be honest with yourself about them. Once you know where you are weak or blind, you also understand what’s in your wheelhouse. Only then can you wait for what Warren Buffett calls the “fat pitch in your strike zone” you can hit out of the park.

I have hit some pitches out of the park and I have struck out on others. When walking back to the dugout, I always analyze what went wrong. I don’t look at the entrepreneur first, I look at my process first. I look at what I did wrong that caused me to strike out.

One of the good things we did when we were investing out of our venture capital firm was to have a disciplined process. We did the same thing on every deal as far as approach even though the underlying data was different. That way, if things went poorly we could analyze our process, not personalities. We could adjust the process if we found points of failure. If things went well, same. So far, the fund has been a successful pre-seed fund. Out of eight companies, we have one company we have internally marked to zero even though it is in business, and the rest of the companies were acquired for 1x or better. Three are operating on all cylinders and shooting for the stars.

Our process was rigorous. But, it also came out of the values we wanted to exhibit as a fund. The process was second nature and we didn’t have to think about it much because it aligned with our values and the probability math we did before deploying money as to how we wanted to deploy that money. The process and strategy were aligned.

Funny thing. You do most of the work on your losers to try and get a return. The winners tend to require less work. Our 1x companies took the bulk of our time but getting our money back was better than losing it.

Recently, I looked at our statistics compared to other funds on Carta. They have a tool where you can sift and look at similar funds to compare. Our fund was in the top quartile.

The hard thing with helping companies is when you don’t know the answers. You have to be honest and tell them you have zip for them. Hopefully, someone in your network you can introduce them to has an answer and will help. Otherwise, the company has to dig deep to figure it out or find another avenue.

I recently had a deal go to zero. There was a confluence of things that caused it to go to zero. They were ahead of the market. The market came to them and they failed to execute. Then, the market passed them by. But, when I look at how I entered into that deal, I should never have entered. I wrote the check for the wrong reasons. So, the total loss was my fault, not anything else.

I think we see this quite a bit in politics. Politicians have a hot take on everything. If you follow sports talk radio, hosts have a hot take on every sport even if they don’t know much about it.

No one can be an expert on everything.

I was thinking about reading John Kass's excellent column today. If you don’t subscribe, you should like I do. John is an expert on politics so he is a fun read. He’s had quite a few health problems over the past few years, and his writing style has changed a bit. He takes no prisoners now. I like Kass unchained.

People like Illinois governor JB Pritzker aren’t self-aware. They have no real understanding of how they got to where they are. In JBs case, he is all about “ethics” today yet forgets about his toilet property tax scam that John talks about in his column.

If JB wasn’t born with money, he wouldn’t be where he is. The only reason he has pals is his bank account. They want a piece of it.

States like Illinois, California, New York, and Michigan are political cesspools. Yet, they contribute quite a bit to the gross domestic product of the United States. Imagine what the US GDP would be if those states weren’t corrupt cesspools and were trying to empower businesses.

It would be better for all Americans if those states got their acts together and admitted that the path they have taken is a mistake. The alternative is that businesses could choose to flee those states and set up shop in other states. But, that can be exceedingly difficult in some industries where supply chains and the network effects that come with them are hard to move. Farmers can’t move their fields and the businesses that supply and process their products won’t be able to move either. But, entire counties could secede and join neighboring states.

With the electrification of finance, movement is easy. Illinois, California, and New York might want to pay attention to that.

We are seeing calls for “DOGE” like efforts in a lot of other states. I welcome them. There is so much waste at all levels of government. I am wondering why we even pay taxes. My prediction is that real estate values are going to take a hit across the country. I also see interest rates dropping, along with inflation dropping.

But it is going to take some time. The folks planting the “I did that” Trump stickers at the grocery store are stupid and dishonest. He’s only been in office three weeks. Right now, Trump is killing the patronage system that the Uniparty put in place.

Why do I see a drop in inflation coming?

The first reason is the price of oil is going to fall. Trump is opening up the chance for exploration and production. He is easing regulation and as DOGE works its way through the Department of Energy you will see oil prices fall. That has huge effects on the economy.

The second reason is inflation is primarily a function of increased government spending. If the government spends far less and entire departments are shuttered eliminating the size and scope of the government, inflation should drop.

Will it be a boon for the stock market? It’s hard to say. There will be a lot of people from NGOs and government looking for work. Surely, state governments that rely on the largesse of the federal government for money will have to lay off employees as well. The alternative is they go into debt to keep them.

I do think we are at a time in technology that is truly amazing. Robots, AI, crypto, and advances in medicine are going to create a new renaissance. I think the leaps forward in our standards of living will be larger than the ones created by the Industrial Revolution over a century ago.

That is, if we let it. There are plenty of forces rallying against this sort of progress. All they spew is fear, and hate. They don’t see the blind spots. There is no time for self-reflection for them because they are trying to hold what they thought was true together. Their world was only held together by the grift of our taxpayer dollars and their power of patronage to redistribute it. They only see their irrelevance on the horizon. JB is one of those people.