"There's your dad's next newsletter.”

That’s what my wife said after our kids beat me at Connect 4. I’d been so focused on how many potential connect 4s I was creating i.e., variance that I lost sight of the very obvious connect 4 that my kids played that defeated me. This is why we have Occam’s razor and the KISS principle. Because sometimes it is that straightforward. 

My kids have not a care in the world for variance but they do care about beating their dad and while the former is often a precondition of the latter, it’s not always and if you lose sight of the goal in front of you, well, that’s a false good to paraphrase Plato, and that can bite you as it did me.

We tell people that Permanent Equity’s competitive advantage is that we show up and do what we said we would do when we said we would do it. And I’ll add to that if we don’t or we can’t, we will explain why and show our work.

For this to be a competitive advantage it means that others aren’t doing it. If you agree with my premise, then the question is why is something so simple and straightforward so rare.

I think it comes down to what people consider ends and what they consider means. For us doing what we say we are going to do is an end and it’s made possible by the fact that we have an investing track record. For others, and if this is a strawman argument I apologize, I believe that generating an investing track record is an end and so sometimes you won’t do what you said you were going to do because doing so might hurt your returns. 

There’s always, as we say in our office, a “next best step.” But if you’re always taking the next best step, you might end up far afield from where you wanted to go. That was me creating loads of variance and thinking I was winning at Connect 4 up until the moment I lost at Connect 4. Because it wasn’t the point of the game.

This is a lighthearted example of where losing felt like winning and it’s because in trying to create the conditions for success, I set the stage for failure. We had this happen with one of our construction companies where we helped it get a bigger line of credit and better bonding so it could take on bigger projects and substantially increase profits. The problem was it took its eye off the ball and didn’t execute those projects well, creating substantial losses that were enabled by those same conditions for success.

This is what makes things complicated. Keep your eye on the ball but also keep a lot of balls in the air. It’s not the most helpful/actionable advice, but it is how I am finding the world works. 

Have a great weekend.

– By Tim Hanson

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