OMD's Journal—June '22 Investing: Danish leaders, Hurdle Rates, Searching Customers, My Businesses Executing...
Hello!
Recapping another month of investing for most of June 2022. What happened in the month? The portfolio went up and down in price. I chose to do nothing. Nothing was bought nor sold.
I started reading through the Constellation Software (CSU) 2022 annual meeting and I’m nearly done. But I noticed there might be a problem after highlighting large sections nonstop. I stopped on a few occasions and asked myself if I was in a cult. The question held the answer. Nevertheless, deeper thoughts on the notes from there will come in the July newsletter (I hope!).
This month’s investing delves into a few ideas I thought were worth sharing from the journal. The first is an extension of my book review on Hygge and thoughts around Danish leaders. The second is about an update to my investing process and setting up hurdle rates to create a band for risk assessment and optimism. The third essay delves into companies that delight customers, something I’m adding to my checklist. Finally, the last essay is a journal entry I had a week ago on trying to grasp the importance of patience and really trying to understand that my businesses are executing day in and day out even if I’m just sitting here miles away typing away at a screen.
Danish Leaders
In a previous newsletter, I shared my book review on Hygge, the Danish word for well-being and the source of the nation’s happiness. I’ve long had a fascination for Scandinavian culture and companies within the ecosystem of these nordic countries for quite some time.
One reason has been geography. The markets in these countries are often far too small for multinational conglomerates to enter so many SMBs can thrive within the countries. The countries themselves, although heavy on social welfare programs, are quite supportive of entrepreneurism and capitalism to allow many businesses to thrive.
But what often got me excited were the management teams and the natural feeling I got from the culture of the countries themselves. It might be fitting to share with you that I’ve had a Google alert for one CEO for about five years. He’s a Danish CEO I’ve been impressed with in the past and whatever he touches, I want to know.
Still. Aside from that one CEO, I’ve found myself biased towards giving a level of trust to Danish CEOs I wouldn’t with North Americans. It’s not that Danes can’t lie. But after reading Hygge, I’ve come to gain a greater appreciation for the Danish culture and a genuine belief that transparency isn’t just HR-PR talk like it is in most Western companies.
I’ve long had the opinion that there can be serious cultural advantages to geographies. It could be mere vicinity of companies to a particular state like how Costco, Amazon, Microsoft, Trupanion, Boeing, and Starbucks are all HQ’d in Washington and around the city of Seattle. It could also be a group of companies situated in a country like Switzerland or Denmark. I think the latter presents an opportunity to assess companies by looking at the foundation that every employee of the company might be ingrained with.
Let’s speak of Denmark now. I think it’s possible to believe that the average employee in a Danish company will act in honesty, transparency, and accountability than an average American employee. It’s apparent to me that Denmark has social protocols to uphold these values whereas the US does not.
However, I also am not sure the average Danish employee will be so entrepreneurial as to make something that will disrupt an entire industry. But then again, the Danish employee who seeks to create something like that might be further inclined to do this within the paradigms of the company itself rather than leave to start her own thing like an American employee might be inclined to do.
All of this is hypothetical and based on anecdotal evidence from my observation as an outsider to both countries. But I see it as a trade-off between looking at Danish leaders as choosing those that might not make a globally game-changing company yet also won’t be robbing shareholders through malice or negligence. It’s just the kind of base rate I would like as a public investor without any knowledge into the daily operations.
Hurdle Rates
I’ve continued to wrestle with the idea of hurdle rates for my investments. When I started, I had chosen a 15% annual return hurdle rate for my investments. It was just an arbitrary benchmark and I wanted to make sure I had enough margin of safety over 10% returns by doing so.