Feb 2023
“Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.”
– Morgan Housel, Psychology of Money
“Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.”
– Morgan Housel, Psychology of Money
I listened to a podcast by Morgan Housel where he talked about how people are just playing different games in life. His point was this: “The market is rational but investors play different games and those games look irrational to people playing a different game.”
When you look at someone else’s business decisions and they make no sense, it isn’t because they’re wrong necessarily, but because they’re playing a different game than you are. They have different time horizons and risk profiles and incentives and goals and trauma.
He advocates that it is a helpful exercise to figure out exactly what you care about and what game you’re playing and what the rules are. So this is the game I’m playing and it’s rules:
The Game
I’m an activist investor and real estate is my preferred asset class because it is a) capital intensive so has high barriers to entry and less competition, b) unintuitive and counter cyclical so you have to be against the popular opinion but correct, c) concentrates capital into a handful of deals so you can’t make unforced errors, d) property is bricks and mortar so anti fragile with low volatility so you’re unlikely to lose a ton of money quickly.
I believe that it’s asset selection that produces all the returns. So it’s not working hard that makes the money but making high quality decisions. So all the money is made by being right when everyone thinks you’re wrong every time you do a deal. Because you choose when you swing, you only swing at the ball when it’s in your sweet spot therefore you can manufacture luck by only swinging at potential home runs.
I try to buy undervalued assets that I can then create value through development and timing. My holding period is forever and because I’m prepared to hold forever, am comfortable utilising large amounts of leverage to own the best quality assets that will pay off the debt over time. The asset then grows while the cash flow pays off the debt while inflation also eats away at the debt. Over time, those levers create enough equity to repeat the process and work to create a snowball.
I hedge this leverage by running capital light tech businesses to develop premium domain names to create consumer brands. These have the potential to be high cash flow snowballs and run and grow forever but don’t have much equity. Low probability but high impact wins where if they don’t work may not amount to much but could possibly IPO if they do. These are largely automated by having a team that runs them without my direct day to day oversight. I only make the big calls.
I’m obsessed with downside risk and preventing catastrophic failure. But because I’m young, I believe in taking more risk and trying to get as big as possible and balancing those two things. In real estate you move slow and have to be right each time. Mistakes are expensive. In tech you move fast, experiment and get a lot wrong. Mistakes are cheap. One grows slowly and compounds over time. The other is boom / bust.
I’m also obsessed with owning my own time and being able to do what I want with it. Sometimes that’s nothing but work. Sometimes that’s nothing but TV and books and movies. Time is something I care more about than money or success and being able to spend it freely. I believe controlling your time is the key to happiness.
I’m also trying to make every member of my family independently rich to try to make generational wealth. And the way I can do that is by pooling all the money together to buy the best quality assets. The reason is because I grew up in a lower middle class family that had little money most of my life and want to break generational cycles of poverty from seeing family make bad decisions over and over again.
In life, I believe that money is for spending and not for saving and family is the most important thing. Because the bulk of capital is tied up in assets which are self sustaining and grow independently, all the savings a person has are for spending on family and experiences. I don’t believe in savings because they represent uninvested capital, underutilised experiences or stuff you could derive happiness or utility from.
This means going big and over the top in everything you do but doing so slow and steady. To try to build something large, meaningful and lasting.