#242: Learning from Yen Liow, The Powerlifting Journal, Seneca, Canadian Airports...
“It is not that we have a short time to live, but that we waste a lot of it.” - Seneca
Hello! This week starts with some notes on Yen Liow’s presentation at the Microcap Club Investing Conference. I’m a big fan of how Liow looks at investing and had many takeaways from this presentation to help me think about my own game of investing.
The next section is a lengthy one describing the evolution of the premium newsletter into OMD’s Journal. More exhaustive detail will come on the OMD Ventures website but I wanted to share the core message here. This has been an exciting development that I’ve been planning for some time and I’m happy to go on this evolution with you.
Then it’s some thoughts from Seneca and a lingering question I wanted answers on regarding Canadian airports. The final section is the usual note on gratitude and confessions on a work-in-progress. The gratitude part is on the practical side where it might be useful to a few of you reading today.
As always, feel free to pick and choose from the categories below and I hope one of the things I wrote is of some value to you.
Business & Investing
Culture & Systems
Introspection & Habits
Business & Investing
Yen Liow’s Game Within the Game.
Here are a few ideas I took away from this wonderful presentation by Liow. I would recommend it for all to take a listen.
Business Stages
Liow breaks up the lifecycle of companies into Proof of Concept (POC), Replication, and Maturation. POCs are determined as the venture-type investing where the business model is being proven out. Replication is after the company has won its niche and is scaling the monopoly (i.e. growth equity).
Though POCs are often considered to be micro-cap companies or small private start-ups, there are large public companies that are still in that stage. The reverse is true for companies in the replication stage. Not all companies that are scaling a monopoly are large-cap public companies. This replication stage can last 10+ years for some companies. What companies you invest in, find interesting, want to understand, etc. should influence how you invest. The question is: What game will you play?
Game Selection
It’s a combination of your skillset, time horizon, capital, liquidity constraints, psychology, and a whole lot of factors that require introspection that should inform the kind of game you want to play as an investor.
Large companies have more eyeballs on them. The inefficiency in large markets will come from temporal while small markets will come from structural. Most funds can’t invest in low-volume companies (i.e. most of the small caps). Consider your advantage as an investor in such an environment.
I have small amounts of capital and the ability to size up large positions easily is an advantage I have that funds don’t. My structure as an independent investor with small sums gives me an advantage in the market of small companies. But most in those markets are POC so finding the rare ones that are in the replication stage would work well for my investing strategy.
Something else Liow points out is a strategy going for 100x or 10x investments. Those seeking 100-baggers will need to invest in POCs for the most part since they need to get in at a low price. But a business that goes 10x can be found when it’s in the replication stage.
Let’s assume you have a 50 stock portfolio using a POC strategy. Let’s say each investment is equally weighted 2% each. Companies that return 100x are extremely rare–despite how everyone today thinks they are the next Amazon, there still is only one Amazon. The same result can be achieved with a 20% position that 10x. It’s a different game, both are easier said than done. It’s about selecting the game you want to play, while assessing the realities of your situation.
Liow’s Moat Checklist
The three things that show the existence of a moat.
High competitive win rates (i.e. unfair fights). Remember that competition is good for the customers but not so for the capitalist. Liow looks for the business’s ability to win and retain (continue winning) customers.
Persistence in gross margins over time. It shows pricing power.
High return in incremental invested capital (ROIIC). Ability to deploy capital at continued high ROIC. Can’t have competitors erode the opportunity.
If the three are observable for a long period of time, there’s an indication of a great business that may be an oligopoly or monopoly. Just doesn’t tell you the source/root of it. But it presents the business as something worth looking into.
Base rates
...of Volatility
You are going to have to face high volatility. Know what to expect:
…of businesses
If you are investing in companies that are supposed to provide outlier results, they need to defy the base rates. They are fighting to be the exception, not the norm.
…of management
Elite management teams will find a way to win and poor management isn’t priced into the business. You need to invest in people who you like, trust and admire because when you experience the volatility, you will be tested.
There is upside optionality from elite management team. Looking for aligned, capable, hungry and ethical management team. Remember that a great business that achieved proof of concept will need a great management team for it to be able to scale the monopoly after winning their niche (What Liow calls the replication phase).
Price
How much you pay for the investment is an indicator of how much you could hope to make. Price volatility is the friend of those investing in highly predictable businesses.
From OMD’s Journal
You should’ve received the inaugural article titled the Powerlifting Journal in your email this past Sunday. This is part of the next evolution of the premium newsletter.
First, I decided on a name. It’s called OMD’s Journal. It’s a literal look at how I have a training journal for my investing, powerlifting, and life. I would even say my blogging in 2018 started because I had been journaling every day since 2016, not to mention all my powerlifting journals since 2008.
When I started the premium newsletter, I called it Ironvesting to marry my Loe for powerlifting and investing. Instead, I decided to focus on investing and explore my curiosity for people and cultures in companies. But I couldn’t separate powerlifting from it. It wasn’t just powerlifting. I wanted to find a way to combine my journey of building OMD Ventures and a writing career into one as well.
OMD’s Journal will still send out a newsletter every Sunday (with a minor exception):
Investing: 35 Articles exploring owner-operators and cultures of public companies (what it was)
Powerlifting: 12 Powerlifting Journals reflecting on the month’s training
OMD Ventures (i.e. Writing + Investing): 1 Annual Report reflecting on building OMD Ventures and my investment performance.
It comes out to 48 articles a year (4 per month). This will introduce slack into my writing system for periods when life smashes me in the face (like when I lost three days of writing from getting the COVID vaccine). It also gives me opportunities to spend more time on some articles. A break once in a while is good to recharge for better articles too.
I don’t have any desire to be the world’s best investor, powerlifter or writer. Instead, I would like to be the best version of each that I can be. OMD’s Journal will be a reflection of this aspiration and the 48 articles will be tailored to that approach. Training as an investor, in my opinion, requires studying more companies. Powerlifting…well that’s straightforward. Writing…well that too is writing a ton. This newsletter will be a reflection of that.
To put it matter of factly, the newsletter is about an individual investor trying to build wealth by investing in owner-operators with the philosophy that culture is the main competitive advantage in companies while trying to become the strongest person he can be after having competed in powerlifting for 10+ years and trying to build a writing career after having been an accountant, management consultant and investor. I think I’m the only person writing about this weirdly specific niche. I actually think that was the tone with the free Tuesday newsletter as well. It’s just the premium newsletter will go deeper into what I’m doing about this curiosity and desire of mine. If it interests you, try out a trial or tell a friend who likes this weird thing I do.
Powerlifting Journal: October 2021 - Back to Repping 405s
Oh, I should add the main OMD Ventures site will update this evolution shortly. I just suck at making web pages so be patient with me.
Culture & Systems
A Stoic’s Timeline on Life
The following is an excerpt from On The Shortness of Life by Seneca:
“It is not that we have a short space of time, but that we waste much of it. Life is long enough, and it has been given in sufficiently generous measure to allow the accomplishment of the very greatest things if the whole of it is well invested. But when it is squandered in luxury and carelessness, when it is devoted to no good end, forced at last by the ultimate necessity we perceive that it has passed away before we were aware that it was passing. So it is—the life we receive is not short, but we make it so, nor do we have any lack of it, but are wasteful of it.”
Life is long for the person who knows how to use it. It is life who asks us to give it meaning when we ask it what the meaning of life is. A life we choose to give meaning to is one that won’t feel short because of how fully we try to live it. It’s a life that isn’t obsessed with mere accumulation of experiences but those that have a quality far outweighing others.
Why Canadian Airport Codes Don’t Make Sense
Have you ever wondered why Canada’s airport codes all start with Y? In case you didn’t notice:
Toronto - YYZ
Montreal - YUL
Calgary - YYC
Vancouver - YVR
Out of the four major cities, I can see Vancouver making the most sense. Take out the Y in front and I get VR, which looks like an abbreviation for Vancouver.
Other airports have three-letter codes that make more sense:
New York’s John K Kennedy - JFK
Paris’s Charles De Gaulle - CDG
London’s Heathrow - LHR
Amsterdam’s Schipol - AMS
Tokyo’s Narita - NRT
Seoul’s Incheon - ICN
Shanghai - SHA
Hong Kong - HKG
Singapore’s Changi - SIN
Bangkok - BKK
Johannesburg - JNB
Sydney - SYD
You get the picture. Most airports have codes that make sense. I can look at it and go “Oh yeah, I think I know what city this plane is going to.” I look at YYZ or YUL and think…. “Is this going to Antarctica?”
Turns out, Canada’s airports were based on weather station codes used in the 1930s. Toronto’s Pearson Airport is located in Malton Ontario, which had a station code of YZ.
After World War 2, the airports decided to adopt three-letter codes because of greater combinations. Two-letter codes allowed for 676 combinations while three-letter codes allowed for 17,576. Today, there are 1,579 airports. No airport has the code: TOR or VCR or MTL or CGY (all codes I would’ve given to the Canadian cities listed above).
Apparently, the reason Canadian cities decided to just stick a “Y” in front of the two-letter station codes is because “Y” meant “yes” when identifying if an airport had a weather/radio station on its premises. Most Canadian airports had the “Y” prefix on them when the three-letter code was introduced so they just added it on. Talk about bandage solutions.
Introspection & Habits
An Ode to Gratitude.
This week is recognizing some amazing practical channels on Youtube. I’m really grateful to Youtube and the people who make such valuable videos.
First is the Quantified Scientist. This channel actually tests the sleep, heart rate and step count accuracy of all the fitness tracker/watches out there. I watched a dozen different review videos and this was the most valuable. It’s what helped me decide on getting the Fitbit Charge 5 after my Fitbit Versa 2 broke.
Second is the channel Not Just Bikes. Finally. A Canadian who looks at cities with a similar lens. A lens of preferring cities that are designed for people, not cars. Whenever I visit cities I make notes on their public transit, walkability, density, etc. All to assess livability. I hate driving and consider most North American cities flawed because of their car-centric design and awful public transit. This is all to say….I’m grateful I found someone who thinks like me.
Confessions of a WIP
On Reading.
I think it’s fair to say most people read with the goal of learning something new. Some people will even go out of their way to read books with different—even conflicting—views from themselves. I consider such an intellectually prudent approach as a natural evolution for those who read a lot.
I thought I read to learn something new as well. But upon reflection, that wasn’t true. I noticed my enjoyment—measured by how much I wanted to drop everything else and just read—came whilst reading books that confirmed my beliefs.
See, I already decided what to believe. I had an idea of what I considered to be right and true and I sought out books that helped me keep the belief. Books and their authors became the friends I needed to maintain hope for a world I wished to be true.
I read books that supported my beliefs. Those who didn’t received a barrage of marginalia notes screaming “How would you know?! How are you so certain?!” Then, like with relationships with people, I put the book down and ended the relationship because life was too short—Seneca would say I just wasn’t using it well.
I had a hard time maintaining my fragile convictions and books gave me all the help I needed. Maybe I shouldn’t have had such convictions in the first place. But I knew them to be right. I merely needed to protect them from the mistaken wisdom of the crowd.
Turns out. That’s why I read. Of course, there are other reasons like curiosity with topics I have no opinions on. But, I daresay, let the virtuous and humble seek out conflicting and contradicting opinions.
I’m only spiteful because I am still maturing. I hope to be wise enough to seek conflicting opinions in my books. All part of the journey I suppose.