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Mostly Borrowed Ideas

15 Dec, 9 tweets, 2 min read

1/9 Thread: Long-term return expectation

I ran a poll yesterday here asking the following question:

"What level of IRR would you be happy/satisfied with 10 years from now for your portfolio?"

~3k people responded, and ~54% of them said >10%.

2/9 I thought it was surprising that people are still expecting >10% IRR when ~$20 trillion bonds are trading at negative yield.

I understand people might have interpreted the question differently. Some might be "okay" with 7-8%, but would require >10% to be "happy".

3/9 At one hand, permabulls might be just extrapolating the recent equity returns. The narrative of roaring 20s has perhaps been permanently imprinted in their minds.

4/9 On the other hand, permabears might find it completely unacceptable to invest in stocks with <10% IRR potential no matter what the interest rate is.

They would hold large cash position and wait for the crash to capitalize on the opportunity and generate >10% IRR over LT.

5/9 I find both of these groups' assumptions perplexing.

If you model companies (whatte boomer, right?), especially tech businesses and discount FCFs at >10%, I think you would be hard pressed to find more than a handful of stocks (at best) that seem undervalued.

6/9 Personally, I don't quite understand why we even need to generate this 12/15/20% IRRs.

Such high expectation is typically a recipe for disaster as it requires you to chase the riskiest stocks or force you to take big macro calls on a frequent basis.

7/9 I am under no delusion that I am the next Buffett. Of course, I want to beat the market, but I think most people don't realize how much they get ahead even if they beat the market by 2% over long-term, and not some eye popping 5-10%.

8/9 If the index generates 7% in the next 40 years, and I beat the market by just 1%, I will be ahead of the market by 45%. If alpha is 2%, I will be ahead by 110% on a cumulative basis.

9/9 The most important thing is NOT to generate alpha this year or next, but to stay alive in the playing field, get incrementally better in this great game of investing every year, and try to beat the beast in the long-term.

It isn't easy. It never was, and never will be.

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More from @borrowed_ideas

Mostly Borrowed Ideas

@borrowed_ideas

17 Dec

1/5 Thread $ETSY valuation

I've received a couple of DMs on how I'm thinking about $ETSY valuation after the recent strong rally.

Since my guess is as good as yours, I'm sharing my model publicly. You can play with the assumptions as you see fit and come to your own conclusion

2/5 I would like to mention some caveats before sharing my model.

This model was shared with the subscribers of "MBI Deep Dives" when I wrote the deep dive on $ETSY.

To keep it consistent with the writeup, I'm uploading the same model but some things have changed since then.

3/5 For example, my GMS estimates* was $8.6B in 2020, but as per the Q4 GMS mid-point management guidance, it's likely to be $9.6B

So you'll have to make these adjustments in the model based on recent numbers/guidance

*I try to build reverse DCF, so not necessarily my views

Read 5 tweets

Mostly Borrowed Ideas

@borrowed_ideas

16 Dec

@InvestLikeBest

1/8 I was listening to Sam Hinkie episode today at @InvestLikeBest, and paused here for a while.

Writing is not only one of the best leverage tools in the age of internet, it is also a great way to talk to yourself across time without the biases of selective memories.

2/8 One of the things that excites me most about building "MBI Deep Dives" is the trail of deep dives I will hopefully be writing in the next 5-10 years.

Will I be able to spot some of the big winners? Can I identify the long-term losers?

3/8 I will most certainly miss some of the big winners. I would love to figure out if there is a particular pattern among the companies I miss.

Will there be anything that I can do to reduce my errors of omission?

Read 8 tweets

Mostly Borrowed Ideas

@borrowed_ideas

13 Dec

@dhmeyer

1/7 Notes from @dhmeyer episode at @InvestLikeBest

Danny Meyer is the founder and CEO of Union Square Hospitality Group as well as the founder and Chairman of $SHAK.

Here are my notes.

2/7 How do you make a restaurant a favorite one?

"We had to make you feel like we were on your side, which is hospitality, but then to take it a step further, we had to really make you feel like you belonged."

3/7 ABCD =Always Be Collecting Dots.

The desire to belong really resonates.

I found out fintwit last year. I used to lurk around here a lot, and thought this is SO cool. I wished I could be part of fintwit community. And I just started writing, and never stopped.

Read 7 tweets

Mostly Borrowed Ideas

@borrowed_ideas

7 Dec

@danielgross

1/ Notes from @danielgross episode at @InvestLikeBest

This one is packed with meaty insights. I wish it were a longer episode. At the very least, I hope @patrick_oshag invites Dan again.

Here are my notes.

2/ Asking people about their opinions on certain movies can reveal a lot about them. It's a fun, relaxing way to get to the answer you want to know, but much more difficult to ask in a direct manner.

3/ This is a simple point, but I have been surprised before how few people get it.

In creative pursuits, the delta between median and the peak is astonishingly large. It also means if you are slightly better than others in these pursuits, the convexity leads you to win big.

Read 16 tweets

Mostly Borrowed Ideas

@borrowed_ideas

5 Dec

1/5 Thread: Simple but incomplete narrative

"Can you imagine a better way to destroy social mobility than by telling poor kids that the way to get rich is by exploiting people, while the rich kids know, from having watched the preceding generation do it, how it's really done?"

2/5 In PG's recent piece, that sentence made me think: paulgraham.com/ace.html

I know many people would take issue with such assertion, but it is one of those narratives that even if you think it is false, you are more likely to be benefited by believing in it than otherwise.

3/5 Having brought up in a family with all sorts of simplistic teachings e.g. "just be good in your academics, and you'll shine in life", I have come to appreciate the power of simple narratives.

Read 5 tweets

Mostly Borrowed Ideas

@borrowed_ideas

28 Nov

1/ Thread: Investing vs Political Truths

I vividly remember on my 20th birthday I promised myself by the time I am 30, I will have a very clear view on my political philosophy.

In two months, I will be 30.

2/ Not only am I infinitely less certain, I have given up on my hope altogether that I will have any definite and static view ever.

Last year, I came up with a project for myself. I would pick a deeply divisive political topic and approach the topic like I approach a stock.

3/ I would study the topic from both parties' perspective, read widely and deeply (when necessary), and then write an essay on my pov.

I even let some friends and acquaintances know about this project. Some of them seemed really curious, and told me they would love to read it.

Read 11 tweets

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