Time Arbitrage as a Competitive Advantage

In the 1950s, the average holding period for stocks was over seven years. Not surprisingly, that number has been falling ever since—current estimates put the holding period at around 4-8 months.


The vast majority of investors are focused on the next quarter or the next year, which is mostly just noise in terms of what really matters to a company’s value. It’s not uncommon that a company’s terminal value is 70-80% of what it’s worth today. If how a company will perform 10-20+ years from now makes up most of its value, then the most important factor when choosing companies to invest in is how durable their competitive position is over the long-term, which often has very little to do with near-term results. Even so, it’s not a surprise that so much of Wall Street focuses on the short-term.
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Lessons from Bill and Melinda Gates

If I had to sum up history in one sentence it would be: Life gets better—not for everyone all the time, but for most people most of the time.” – Bill Gates

It’s easy to look at the news on a daily basis and think the world is getting worse, but that couldn’t be further from the truth. Unfortunately, the news only reports on what gets the most viewership, and reporting “US murder rates down 1.6% this year” or “worldwide childhood mortality fell this year like it always does” aren’t nearly as visceral and impactful as the KKK, drug overdoses, Middle Eastern wars, or even our president’s tweets.

Not that the world is perfect—far from it—but I think it’s important to be reminded once in a while how good we have it compared to everyone else in human history. Similar to my blog post, Is the world getting better or worse?, reading through the annual letters of the Bill and Melinda Gates Foundation was a healthy reminder of the amazing progress this world continues to make, despite the non-stop negative headlines.
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Lessons from Larry Page and Sergey Brin

Reading through all of Jeff Bezos’ annual letters inspired me to read through other letters from very smart people—and Larry Page and Sergey Brin from Google were the first choice. Besides using a bunch of Google services on a daily basis, I’ve never followed them as a public company so I learned a lot reading the letters. The main thing I came away with is an appreciation of how Google has evolved from just a search engine to a smorgasbord of many products and services that all ultimately feed into the search funnel.

If you invested in Google in 1998 (as a private company), you almost certainly would have been betting on their ability to build a search engine. In fact, you can read Larry and Sergey’s original paper from 1998 describing their Google prototype and, not surprisingly, there is no mention of Gmail, Analytics, Chrome, YouTube, Maps, or Android. It’s interesting that, in my opinion, Google’s expansion into so many products would have been impossible to predict, but looking back from today it all seems rather obvious.
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How to Better Align Money Managers With Their Clients

I believe my skills as an investor (along with most investors) will improve over time. Each year I learn about more companies, more industries, and a wide variety of topics that aren’t directly related to investing. That knowledge compounds over time. I am a far better investor than I was three years ago and I expect to be able to say that same thing at any point in time going forward. Thus, the below chart gives an idea of what my investing skills should look like over time.


If I somehow managed a fixed amount of money over my entire life (say $1 million), I would expect my returns to slowly increase over time, maybe plateauing around 20% or something like that. But managing a stable amount of money isn’t realistic. The amount of money I manage will slowly increase over time (either by getting new clients or by growing my own net worth and current assets under management). Managing lots of money acts as an anchor on returns because the opportunity set becomes smaller when managing more money. An equally skilled investor will earn higher returns managing $1 million than another managing $10 billion. Thus, below is the chart showing return potential as AUM increases over time.
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Is holding cash a good idea?

Over long enough time periods, the stock market has always performed well. There are plenty of bumps and bruises along the way, but the overall trend has always been up and to the right. In fact, the worst total return in history over a 20-year period was +54%. The worst 30-year return was +854%. We’ve all seen images like the one below that show this never-ending march up.


Even when markets are high, as many people believe them to be now, the future expected returns from the stock market are still positive. I think this is an important distinction because I’ve talked to many people who think that because the market is high a crash must be inevitable and thus future returns will be negative. If the market is in fact too high right now (which we won’t know for another 5-10 years when we can look back), that means that future returns will be lower than historical averages—but not negative. Though I don’t put much value in people’s opinions who try to estimate future stock market returns, almost all of the estimates I’ve seen are in the low to mid-single digits—call it 4%. 4% isn’t great, but it’s a hell of a lot better than earning 0% in cash.
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2017 Annual Shareholder Letter

My 2017 annual letter is linked below. If you’re interested in the below topics you should probably check it out 🙂

  • Why I think Issuer Direct has a durable competitive advantage and can grow for many years
  • How undervalued Parks! America is
  • What I learned about myself as an investor through investing in New York REIT
  • Setting short-term goals that don’t hinder long-term goals
  • Other general musings and portfolio updates

Wiedower Capital 2017 Annual Shareholder Letter

My Favorite Books of 2017

My biggest goal for 2017 was to read 24 books and so far I’ve finished 30 (and not finished another 15-20). I keep track of all the books I read and give them a rating of 1-5 after finishing. Below are the seven books I rated a five from the past year.

Mistakes Were Made (but not by me)

Probably the most influential book I read this year. I think it’s right up there with Thinking, Fast and Slow as the best books that helped me to understand my own brain and cognitive biases. I love the idea that each of us is ruled by a totalitarian ego “that ruthlessly destroys information it doesn’t want to hear and rewrites history” in our own favor. Our totalitarian ego subconsciously justifies actions that we would demonize others for, fills in gaps in our memories (with a positive spin of course), and ignores evidence that counteracts our own personal story line. This book also has a great analogy using a pyramid to explain how two seemingly normal people can become so diametrically opposed on some issue. The pyramid is something I still think about on a regular basis, mostly when I’m trying to figure out how in the hell our political system became such as mess.
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Lessons from Jeff Bezos

I recently read through all of Jeff Bezos’ annual shareholder letters and wanted to summarize some of my takeaways. I’ve loosely followed Amazon for years just because of how interesting of a company it is (and how much of an effect it has on our economy), but I never went back and read the older shareholder letters until now. I wouldn’t say there was anything too surprising in the letters (everyone knows how obsessed with customer satisfaction Bezos is), but I came away even more impressed with Bezos than I already was. Many people refer to him as one of the best CEOs in the world and I can’t disagree—he has a combination of traits that are very rare.

Business manager + financial expertise

It’s not often you find a CEO who is both a visionary for the business and also understands the financial drivers behind it. This makes sense when you think about it. Most CEOs got to their position by being great marketers, salespeople, or inventors, but none of those roles prepare someone for being the chief capital allocator. A hired CEO may work his way through a company’s corporate ladder, never once needing to really allocate capital on a large scale, and then all of a sudden he’s promoted to CEO and that’s one of his main job roles. Likewise, a founder spends many years just growing their company any way they can—and suddenly one day the company is large and more in-depth capital allocation decisions must be made.
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Position Sizing with the Kelly Criterion

The Kelly Criterion is a mathematical formula to determine the optimal dollar amount to bet in a given wager or investment. Say you’re offered a bet where you are a 60% favorite to win and it pays 2:1 in your favor—Kelly suggests betting 40% of your net worth. If you were offered this exact bet a million times, betting 40% of your net worth each attempt (adjusting as you go) would net you the most amount of money in the end. Thus, 40% is the optimal bet size given those odds and payouts.

I’m betting no one (myself included) would actually bet 40% of their net worth in the above scenario—even if they knew the odds and payouts were legit. Most of you probably read that previous paragraph and thought 40% was insanity. I think one of the more interesting takeaways from the Kelly Criterion is how few people live their life in a way that optimizes their net worth over the long-term (again, myself included). And most of us aren’t a little off the mark, we’re not even in the ballpark of what’s optimal. If the above offer was made to all Americans, the average bet size would probably be less than 1% of each person’s net worth (with many doing a nominal amount like $10 per bet).
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