How much do we really know about our investments?

I’m a big space nerd. To the point that for my birthday two years ago my girlfriend flew us down to Houston to tour the Johnson Space Center (spoiler alert: it was awesome). Some of my favorite books the past few years have either been about the Apollo missions or how we’re going to get to Mars. So you can imagine how excited I was last year when we were out getting drinks with friends and one of the friends-of-a-friend was a woman who works at NASA. I basically bombarded her with questions the entire night.

One of the main things I was asking her about was what obstacles they still need to overcome to be able to get to Mars. She was giving me some pushback on what I thought I knew about space radiation and I remember starting the next sentence “I know [random blurb about space radiation].”As soon as I was done blabbering I thought to myself “why the hell did I just start that sentence with ‘I know’? I’m talking to a freaking NASA scientist about space travel and all I’ve done is read some books and online articles about the topic. That hardly counts as knowing.”
Continue reading

Advertisements

Is the world getting better or worse?

“Tell me something that’s true that nobody agrees with.” That’s Peter Thiel’s favorite question to ask entrepreneurs. With it, he’s trying to find people with contrarian mindsets who have no problem believing in things that are not popular. When I first read that quote, I sat for a few minutes thinking of beliefs I have that might fit the bill. Sadly, one of the things I came up with is my optimistic view of the world (including American politics!). Even before Trump, it seems like I rarely run across someone who is optimistic about the overall direction of the world, but especially politics. Everyone thinks people are more racist, politicians are more corrupt, and the world was a better place a few decades ago. My response to that has generally been:

  1. Nostalgia bias.
  2. We’re only human. Don’t expect perfection.
  3. Not that I was alive pre-1987 to know for sure, but when I think about life expectancy, women’s rights, slavery, and the rise of democracy, it certainly seems like the world today is the best it ever has been. And 20 years from now, it will probably be better. And so on and so on.

Continue reading

A Better Way to Understand What You Read

“If you go home with somebody, and they don’t have books, don’t fuck em!”
— John Waters

Have you ever read a book and a week later you can barely recall any details of what you read? A couple months go by and I’m lucky if I remember the one or two main ideas. I can’t tell you how many hours I’ve wasted trying to find something that I know was in a certain book I read six months ago, only to give up and wonder why I read the book in the first place if this is what I have to show for it. There must be a better way. Earlier this year I completely changed the way I read books and the results have been very pleasing. I think there are a few different ways to read a book.
Continue reading

How Should I Be Paid?

Over the past couple months I have written and talked about management compensation quite a bit. This has led to me thinking about my own compensation recently, and just like with CEOs, I’m not sure if any fee structure is perfect. Non-qualified investors can’t legally be charged performance-based fees so those clients are easy—2% of assets under management (AUM) is what I charge which is pretty standard. More discrepancies come into play with qualified investors ($2 million net worth excluding primary residence) who can legally be charged a percentage of profits that the money manager earns.

The industry standard for hedge funds is 2 & 20. That is, the money manager earns 2% of AUM (the management fee) plus 20% of net profits (the performance-based fee). Thus, if a manager returns 32% one year, the client pays him 2% of assets plus 20% of the net profits, which is 20% of 30%, or 6%. Altogether the money manager gets paid 8% of that client’s AUM that year, and most people would say it was well deserved for such large returns. But what if the overall market gained 35%—does the manager still deserve to be paid so well even though they underperformed the broader market?
Continue reading

Check Out My Interview on the Micro Cap Investing Podcast

Fred Rockwell, founder of Tarsier Capital Management, and Nate Tobik, founder of Complete Bank Data, run an investing podcast that I was fortunate enough to be featured on. During the episode I discuss the recent volatility in the market, management compensation, how poker has affected my investing career and the stock I’ve been buying most recently: Consolidated-Tomoka. You can listen to the episode by clicking here or by searching iTunes for the Micro Cap Investing podcast and choosing episode 21.

In addition to the podcast, Fred and Nate are organizing a microcap conference in Philadelphia in November which I’ll be attending. Should be a great opportunity to have 1 on 1s with small companies and meet some other like-minded investors. If interested, you can click here to learn more and register for the event. If you plan on attending, do let me know. I always enjoy meeting other passionate investors.