Supported by Greenhaven Road Capital, finding value off the beaten path.
Marc Cohodes @AlderLaneEggs is ornery. He spoke with George Pearkes on Bespokecast and it was great. Here are my notes.
1/ “Don’t let school get in the way of your education.”
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2/ When Cohodes looked at an early investment in high-fructose corn syrup he noticed something interesting. This was in the days before HFCS was ubiquitous and Cohodes wondered, what if it was. What if it replaced sugar?
Cohodes found asymmetrical payoffs in a simple system. Heads I win, tails I don’t lose, on a fair coin. ‘APs’ are a simple model to use for our decision making. Gary Taubes believes cutting out sugar is an AP. Jocko Willink said that jokes in Powerpoint presentations have AP – to the downside. Bill Gurley said that after he missed investing in Google this idea became more clear.
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3/ KISS “If you can’t explain your investment thesis to a tenth grader in a paragraph or less you probably shouldn’t be involved. Convoluted stories are loser stories. I try to keep things simple and try to find numerous ways I can win.”
Years ago I read Michael Pollan’s books and heard his (simple) advice on what to eat: If it’s made in a plant, don’t eat it. If it’s made by a plant do.
Of course, that didn’t stick.
Somehow we don’t trust that simple is best. Ben Carlson said, “People assume they have to make it complex to succeed, to change strategies with every macro environment.”
Jim O’Shaughnessy said much the same, “Investing is like dieting. There are a million diet books on the market today. Most of them have simple, easy to execute plans and it is remarkable difficult to get anyone to use that simple system. It’s all emotion.”
I remember writing papers as a graduate student and using lots of big words. A student of such advanced standing ahem, a graduate should converse in the correct lexicon. I was full of fecal matter. I wrote complicated sentences because I didn’t understand the basics.
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4/ Be there, ask questions Another of Cohodes early investments, this time on the short side, was against pinball machine manufacturers. He saw video games and wondered if they would take business away from the silver ball game. So he watched people play and counted the quarters at the end of the night.
We see this kind of curiosity over and over. Someone observes something – like when Haralabob Voulgaris heard Phil Jackson say corner threes are bad shots – and they start digging.
Brian Grazer wrote that curiosity has to be supported by two other parts:
- Attention to the answers to your questions.
- A willingness to act on what you learn.
To combine the advice of Peter Thiel and Marc Andreessen; the future is somewhere already, be curious and start looking.
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5/ Rapid fire. The interview was full of good quotes.
- “The rule of thumb I have is; if this company went out of business tomorrow who would miss them?”
- “If you’re not a tough mother fucker you shouldn’t do this.” Temperament matters.
- “Everyone wants everyone to perform on a daily basis. You can only be long stocks that go up and you’re only supposed to be short stocks that go down. You’re not allowed to deviate and if you have too much of a drawdown people get upset.” The right stakeholders are like a balanced boat.
- “I don’t think you can have rules in a market like this…In shorting stocks it’s very hard to have these hard and fast rules.” Rules and checklists are helpful early in the decision-making process but later flexibility becomes more important.
- “Where there’s smoke there’s fire and I will throw fifty-five gallons of kerosene on the fire and I will burn the fucking house down.” Once you find a good idea, pounce.
Thanks for reading,
Mike
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