Investing

Timeless Reflection from Seth Klarman Interview

This is a guest article for Capital Allocators’ China Chapter (to be published in Chinese in August), we first published it on lionsassociates.com, an asset management firm I co-founded with a fellow Columbia Business School alum.

Many well-known investors have been hailed as the “next Buffett,” and among them is a low-profile veteran who has achieved a 20% annualized return over a career spanning more than 40 years – Seth Klarman, the CEO and fund manager of Baupost Group.

Let’s go back to April 23, 2015, at the “Value Investing with Legends” class at Columbia Business School. Professor Bruce Greenwald opened with, “Today, we are fortunate to have a very special guest, the connecting tissue in the world of value investing. His boss, Max Heine, the founder of Mutual Shares, was Benjamin Graham’s stockbroker, and many of his students have become outstanding value investors of our generation, including one that you all should know, Seth Klarman. Ladies and gentlemen, please welcome Michael Price!”

(The late Michael Price)

Over the next 20 minutes, Mr. Price opened that day’s Wall Street Journal, vividly demonstrating how he reads the newspaper: from filtering the headlines (which ones to read now and which to save for later or the weekend) to focusing on useful news for analysis and making quick judgments on their impact on the investment portfolio, and finally arranging the next steps. The topics covered short-term financial reports, acquisition events, the healthcare and energy industries, and the presidential election, among others. It was as if we were there with him, attending a morning meeting, experiencing firsthand Price’s breadth and depth of knowledge, judgment, and decisiveness. Throughout the process, the underlying theme was to focus on extracting actionable insights. This lesson, eight years later, remains profoundly insightful for how we can stay focused, filter out noise, and effectively absorb information in today’s era of information overload. Additionally, during this class, through his teacher, we gained a glimpse into Seth Klarman’s early experiences, which he rarely shares in interviews.

This interview with Capital Allocators provides a rare opportunity to directly listen to Seth Klarman’s personal story and investment philosophy. Here are some interpretations and reflections on this interview:

Continue reading “Timeless Reflection from Seth Klarman Interview” →
Start-ups

Axiomatic Thoughts on the AI Hype

AI is all the “rage” lately and the noise ratio is extremely high out there. A cool head is needed. Here I would like to ZOOM OUT and lay out some high-level thoughts/questions, hoping they may serve as “axioms” to further think through the practical actions and directions for start-ups and investing.

  • AI hype is over-rated in the near term and under-rated in the long term. At least we can all agree that this time is more tangible and value-adding than the hype around Crypto, Web3, and Clubhouse. Get-shit-done-ethos and continuous creative tinkering will see the AI experience improve from good enough/a toy to irreplaceable workflow tools for knowledge workers.
Continue reading “Axiomatic Thoughts on the AI Hype” →
Investing

ZoomInfo: a SaaS Company that Actually Makes Money

This post is translated from Chinese to English using ChatGPT 3.0 as an experiment without my editing. Does it pass the Turing Test?

1.0 One Paragraph Thesis: 

A data SaaS company with a long growth runway, high revenue growth, high gross margin, high profitability, and cash flow production capability. The more data assets accumulate, the more valuable they are, with short sales and delivery cycles, perceived quick-time-to-money, high user stickiness, and operating leverage. The company has further established data-driven marketing tools through R&D and acquisitions to increase the value and usage habits of terminal users. The market mistakenly categorizes ZI with other high-growth but unprofitable SaaS companies and YTD stock price has fallen with the Federal Reserve’s interest rate hikes and the SaaS sector. As macro pressures ease, the company’s large concentration in software client vertical, longer sales cycles, and insufficient sales team bandwidth may improve. In the medium to long term, operating margins and ROIC will continue to improve as revenue scale and growth reach a steady state. Annual returns of over 20% are expected.

Continue reading “ZoomInfo: a SaaS Company that Actually Makes Money” →
Reading

32 Books I Read in 2017, and the Book of the Year Goes to…

For me, 2017 marked another year of exponential personal and professional growth, both through running a fast-growing start-up and through keeping up the habit of voracious reading. I shall do a separate post to reflect on my lessons learned as a CEO, but this one is about books.

At the beginning of 2017, I set the intention of cutting down the number of books vs 2016 (28 books), with the goal to be more selective and to allow ample time for knowledge digestion. Despite the intention and a much busier schedule than 2016, and to my surprise, I finished the year at 32 books (one important caveat, with much help from audile books from Audible). First, I think reading has been ingrained in my brain as a habit, once I finish a book, my mind naturally hungers for the next great one. Second, I used reading/listening to fill up most of my fragmented idle time, such as in transportation or in the gym. As long as I have a good book in hand, I feel that I am productive and getting better mentally.

Similar to 2016, my reading list encompassed a wide range of topics in English and Chinese, but one category that dropped out completely is finance & investments books. I don’t think this is a one-year anomaly but a natural cognitive progression for me, where behavior economics/psychology and philosophy are more additive to my mental models at this time. Some books, such as those on consumer internet operations, design, and big data, were essential for my current industry and trade.

One category that popped on to my list and will remain there going forward is fiction & literature, and this gets to my book of the year recommendation…my book of the year for 2016 went to Yuval Noah Harari’s “Sapiens: A Brief History of Human Kind”, with Ray Dalio’s “Principles” up there as a very close second. The crown of 2017 goes to: Continue reading “32 Books I Read in 2017, and the Book of the Year Goes to…” →

Journeys, Uncategorized

28-Day Solo Motorbike Trip across Vietnam

“When life gives you a unique time window, take advantage of it to forge new life experiences,  learn and grow, or just mint some beautiful memories ”

For me, such an opportunity arose again in the second half of 2016, the last time being in 2015, when I spent two months in Fiji Islands, Australia, and New Zealand. Having since acquired the soul of a wandering backpacker, it took me no time to embark on a serendipitous adventure that I had fantasized about for some time – a solo motorbike trip across Vietnam. Starting in Saigon (Ho Chi Minh City) and ending in Hanoi, after 28 days and more than 2000 kilometers on the road, that fantasy became a reality.

Continue reading “28-Day Solo Motorbike Trip across Vietnam” →

Reading

Book Review: Hard Things vs. Leading

Good books come in pairs or bundles to enhance understanding of one or more interdisciplinary domains.

“The Hard Thing about Hard Things” (HTAHT) by Ben Horowitz (Co-Founder of VC Firm a16z) was the first book that I read in 2016. A week ago, I finished “Leading” by Sir. Alex Ferguson and Michael Moritz, former Manager of Manchester United and Chairman of Sequoia Capital respectively. Both books are about leadership/management and written by manager/investors, but their perspective and context to the topic are different. As a result, one gets different takeaways from reading both. If “HTAHT” is about growing a company from scratch that is constantly tittering on the brink of extinction, “Leading” is about inheriting a club and building a high-performance organization competing at the very upper echelon of professional soccer – the entrepreneur vs. professional manager perspective, though there are common threads. Continue reading “Book Review: Hard Things vs. Leading” →

Reading

Select Readings (Week 7/2017)

Just another article illuminating the slow-moving train wreck that is the Retirement Crisis in the U.S.: Two-Thirds of Americans Aren’t Putting Money in Their 401(k) (Putting this at the top of the reading list to call attention to the crisis. The U.S. 401K savings scheme is a classic example of good policy intentions meet a complex system – financial and societal – that changes over time and cause unintended consequences years down the road. Many FinTech start-ups are working on the savings and retirement problems from different angles, but we need both industrial and policy solutions to succeed)

2016 Berkshire Hathaway Annual Shareholder Letter is finally here (Again Warren tore into the hedge fund industry for its collective under-performance and fee structure, and praised Jack Bogle as his business hero for bringing ultra-low-cost index fund products to the average Americans and in the process amassed only a tiny fraction of wealth vs. a typical money manager. In the end, Warren did offer an olive branch to Wall Street, Berkshire loves to pay fees as long as it is commensurate with the value it gets)

Continue reading “Select Readings (Week 7/2017)” →

Reading

Select Readings (week 6/2017)

Becoming Warren Buffet HBO Documentary (Focus, principle, persistence. Simple but not easy)

Charlie Munger  – Full Notes from Daily Journal Co. Annual Meeting and Full Video here (As always many quotables and nuggets of wisdom)

Charlie Munger said during the DJCO meeting that “India has taken the worst aspects of democracy.” Popular narrative likes saying India is the next China, here is a factual argument for Why India is not the Next China. (As an honorary brown person, I love my Indian friends will certainly re-visit the country)

John Hempton at Bronte Capital admits that He does not Understand the Indian Outsourcing Company Syntel (Saying I don’t know is a virtue, saying why I don’t know, and here is how unsure I am requires thinking)

While India was grappling with its rupee bill debacle, here is a fast and furious tour to The Lastest Tech Trends and Fads in China (Went back to China from Nov – Dec last year, met many start-up and VC friends. China is truly a parallel universe and counter-factual to the U.S.)

Y Combinator’s 2017 Annual Letter (Since 2005, has funded 1,470 companies with total valuation of $100B, less than half of Apple’s cash balance if that puts it into perspective. Letter touched upon the era of hyper-scale tech companies powered by network-effect like the FANG, where their advantages are still underappreciated by founders and investors alike, and they will get more powerful without antitrust actions, I will be a happy shareholder for now)

Speaking of FANG, rumor has it that Amazon is looking to buy Capital One, and how have they fared in financial services? (I think the author’s analysis need to be more rigorous. Using Tencent and Alibaba’s success in China to speculate or extrapolate U.S. Tech firm’s ambition and achievable scale in finance to me is naive. No, it’s unlikely they will play an important role in the financial ecosystem anytime soon in the same way that Alibaba has done in China. The fundamental market structures, regulations, and consumer behaviors are miles apart.) 

Micah Rosenbloom of Founder Collective chats with Harry Stebbings of Atomico about why $100 million is a good exit and why capital efficiency is key to returns and investment success in “20 VC: Micah Rosenbloom”

Last mention of Snap before its IPO: Mark Suster on Why He did not Invest in Snap and How He Feels Now, Professor Damodaran Valuing Snap before its IPO, Evan Benedict at A16Z and Ben Thompson at Stratechery each trying to frame Snap’s strategy (Mark did it with good grace and showed how hard it is to get out of your own narrative. While not a fan of DCF, it did provide a quick-and-dirty yardstick to judge value against. No, I am not buying Snap on the IPO, though funds in my 401K may)

Growth Hacker Andrew Chen on The Bad Product Fallacy

Principles

Back to Basics: Reality, Uncertainty, and Human Stupidity

What causes human misjudgment? Why do supposedly well-informed and intelligent people get things so massively wrong and repeat the same mistakes? 2016 delivered two painful slaps in the face (Brexit and Trump) to political pundits and pop media, and the financial markets served more to those who turned pessimistic on the stock market immediately before or after. From the grandest stage of the political and financial arena to the mundane aspects of everyday life, uncertainty and mistakes are what we have to live with. After all, nobody bats a thousand. As human beings, we are prone to making mistakes in our decisions – or human stupidity as I’d like to ascribe to myself. Even the all-wise Charlie Munger says “my life is a litany of mistakes.” In the very long run, our results in life would be the result of our effort + luck minus the sum of our misjudgments, as at the poker table where “your winning will approach all your opponents’ mistakes, less the sum of your mistakes” (though life is certainly not a zero-sum game).

Continue reading “Back to Basics: Reality, Uncertainty, and Human Stupidity” →

Reading

Select Readings (week 5/2017)

Baupost’s 2016 Year-End Letter – (Disclaimer: linking and may be unavailable soon)

Sequoia Fund’s 2016 Year-End Letter – (The famed fund fathered by Warren Buffett leaving the Valeant Saga behind, swapped Walmart with Amazon in the fall)

Bronte Capital’s 2016 Year-End Letter  – (John Hempton is long Bayer, so is David Einhorn, and thinks U.S. stock market is expensive but not so pricey to imply imminent permanent capital loss)

The must-read semi-annual Graham & Doddsville Newsletter Winter 2017 from students at Columbia Business School

A good introduction to the NYC FinTech Community, with suggested newsletters to stay abreast of the continuously evolving landscape

Cliff Asness’s thoughts on the DOL Fiduciary Rule and unintended consequences – (The Trump administration now wants to roll it back, many robo-advisor and robo-401K start-ups predicated their businesses on the fiduciary model and will make a stand, hear both sides. 40 years from now, we may see the robo-movement in the same light as the one John Bogle at Vanguard started 40 years ago )

An excellent overview of the Ocean Freight Shipping Industry from a VC perspective by Brian Laung Aoaeh at KCE Ventures, with great additional reference readings – (Publicly traded shipping stocks have been crushed in the past two years, time to look for contrarian bets?)

Start-ups, Wall Street wants your data! As always, a well-articulated post on alternative data business by Matt Turck at First Mark Capital

Helpful guide to SaaS entrepreneurs thinking of raising money in today’s environment SaaS Funding Napkin, the 2017 edition by Christoph Janz at Point Nine Capital

Snapchat IPO: Too Soon? – (Future Facebook or Twitter? Let the market be the judge)