Circle of Competence Issue #58
QUOTE OF THE WEEK
"Many people have a wrong idea of what constitutes true happiness. It is not attained through self-gratification but through fidelity to a worthy purpose." - Hellen Keller
FOOD FOR THOUGHT
This week, I wanted to share two books that I have been reading on commercial real estate investing. Going forward, I am going to tone down the weekly commentary sections to allow myself time to write longer, more in depth posts that I will post to my Thoughts page.
Raising Private Capital by Matt Faircloth, founder of the DeRosa Group.
This book is a great introduction to the apartment syndication business model. Matt Faircloth is an experienced deal syndicator and teaches the moderately experienced real estate investor how to properly go about building an investment/fund management business focused on acquiring apartment complexes using other people's money (OPM). While this is a solid introductory book for those looking to start an asset management and syndication business, I would say it is the start of an educational journey, not the end. It hits the high points of finding investors, the ins and outs of accessing available capital (self directed IRAs, cash, equity in property, etc.), and structuring private loans and equity syndications.
Crushing It in Apartment and Commercial Real Estate: How Small Investors Can Make It Big by Brian H. Murray, founder of Washington Street Properties.
Brian Murray's book, in contrast to Faircloth's, focuses on building your commercial real estate business from start to finish without taking outside capital (besides bank financing). He gives you the bare knuckled truth about what it takes to bootstrap a commercial real estate firm from a dead stand still. I enjoyed the story of the Solar Building that he weaves throughout the book - a great story of turning around an absolute dump of a property with good bones into a wonderful apartment community through sheer determination and grit. He offers some great resources in the appendix on various considerations for different types of commercial properties from self storage and retail to office and multifamily. This book ranks up there for me in the commercial real estate category.
Finally, it wouldn't be fit for me to pass by Easter without sharing one of my favorite pieces of writing ever penned by a Christian thinker, C.S. Lewis, titled 'The Weight of Glory.' This sermon was preached originally in 1942, in the midst of World War II. Lewis' literary prowess is on prominent display and fully illuminates the Christian virtue of Love. Enjoy and have a Happy Easter!
TOP READ: Status as a services (Eugene Wei)
NOTE: VERY LONG, BUT WORTH IT. We are, at our core, status seeking monkeys, and the business model of social media is stroking ego at scale. Eugene Wei goes deep into how these business models developed, the inherent fragility of social networks as a business model (e.g. MySpace, Vine), and a framework for thinking about the utility of social networks based on the concept of social capital.
While deeply unprofitable, Uber seems to be trending in the right direction, with gross profits as a percentage of revenues steadily declining while revenues are growing at an impressive clip. While I don't invest in IPOs, I think following the competitive dynamics in the duopoly ride sharing market will be highly instructive given the notable forces at play - network effects, pricing of a commodity service, consumer preferences, and potential for fully autonomous transportation.
Investing false positives (Vishal Khandelwal)
Highly instructive as to why investing can give false confidence to 'investors' over the short term, but underscores that over the long run (10+ years), the markets will separate the wheat from the chaff. Reminds me of the Buffett quote that goes something like "there's never just one cockroach in the kitchen."
Disney and the future of TV (Stratechery)
Pairs well with Milone's interview below and provides great context on how the direct-to-consumer media strategic choices are playing out for Disney and the rest of the media industry. The key takeaway is that there seems to be little head on competition except for the sense that people only have 24 hours in a day - most of the companies he discusses are differentiated in their approaches to content delivery and selection.
The moral peril of meritocracy (David Brooks, New York Times)
Thought provoking - ask yourself which mountain are you climbing? One of success and self gratification or one of meaning?
Jeff Bezos' 2018 letter to shareholders
Brent Beshore hit the nail on the head on when he noted this sounded like a love letter written to regulators. The thesis summed up is simply always making it a priority as a company to explore customer demand by making small bets that could potentially pay off a hundred fold (such as AWS, Prime, and Alexa but also like the flopped Fire phone).
Askeladden Capital Q1 letter to investors
Long read, but there is a great mental model on a hard asset 'land bank company' that has little in the way of free cash flow (think a deep value play like Sears' real estate values - sound familiar?) vs. an ongoing concern with reinvestable cashflow. This part of the discussion starts on page 10 under the heading "What The Dividend Growth Investors Should Have Been Doing."
TOP LISTEN: Shane Parrish interviews Daniel Gross on success, luck, struggle, and company culture
Daniel Gross makes a very novel insight into the culture of Google vs. Apple - data driven vs. instinctively driven, cultures which persist to the day. Having worked at Apple, he remembers distinct times when Apple made decisions that would harm their data collection efforts because they wouldn't cross the consumer privacy threshold. This decision was made based on the company culture. Over the long run, Gross believes that a company's product choices are driven by company culture which has a very clear correlation with how the company develops.
Kara Swisher interviews Ken Washington, CTO of Ford on autonomous vehicles
Washington makes the case that without mapping software for autonomous vehicles, it is impossible to build a fully functioning level 4 autonomous vehicle. This means that sensors and cameras alone will not be enough to operate a vehicle in snow, dirty roads, and dim lighting.
John Malone interview with CNBC
Old interview with John Milone, but poignant details on the current competitive dynamics of the media environment.
BiggerPockets on health, wealth, and total accountability
David Osborn, Pat Hiben, and Tim Rhode on the GoBundance movement and living life to the fullest. Funny episode, but at a deeper level, it's always good to ponder the question "what do I want out of my life?"
Stig Brodersen and Preston Pysh talk with Sanjay Bakshi on value investing
Worth the listen entirely for the nugget on identifying 'emerging competitive advantages' in nascent businesses.