STICK WITH THE WINNERS

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People often ask me if I get writer’s block. The answer is no, I don’t get writer’s block. But that’s not entirely true--on very rare occasions, I will get writer’s block. Like today. Actually I had something to talk about today--Abenomics--but it’s boring, and I don’t feel like it.

But I do have a cure for writer’s block. Are you ready for the cure?

1. Turn on the computer
2. Open Microsoft Word
3. Start typing.

I did 1) and 2) but got stuck on three, which almost never happens.

Had a bad South Carolina morning yesterday (and stay with me, a point is forthcoming). Had to take Otto to the vet, and what should be a 25-minute trip turns into a 35-minute trip because people do not drive the speed limit. Along the way, I got stuck behind people going a 35 in a 45, a 25 in a 35, and a 40 in a 55. These are two-lane roads, with no passing, so you’re stuck. I’ve lived here for almost four years, so it’s not like I’m not used to it--and quite frankly, when I first moved here, I welcomed it, after spending 9 years dealing with NY/NJ maniac drivers--but sometimes it just gets to be too much.

Then, I got to my office building, and I was talking to one of my clients on my cell phone, and a guy was nice enough to hold the door for me--had the phone in my ear, and was carrying something in my other hand--and I gave him the thanks, man head nod, because I couldn’t actually say “thanks,” because I was on the phone, but wouldn’t you know, as I walked past him, he yells YOU’RE WELCOME in my other ear, because, you know, I didn’t actually say “thank you.” And I have a dark complexion and pomaded hair and a black leather jacket and I am obviously from the North, so he is going to teach me a lesson about manners.

Let me tell you something about manners in the South. The kid that I was in physical therapy with--the middle schooler one who had never heard of Boston or Massachusetts--used to take off his shoes and pick his toejam and flick it across the room and yell at people and do all kinds of gross stuff, but he called people “sir” and “ma’am” so that made him polite. And that pretty much sums up Southern hospitality--people are quote unquote “nice” and observe certain social customs, but the social customs are superficial. They are not genuine, because they will talk about your business and stab you in the back as soon as you are out of earshot. A New Yorker will call you a jackass to your face. This makes him rude. But New Yorkers take pains to be considerate, like in a crowded subway, they don’t lean on the pole, and will freely yield a seat to a pregnant woman. But they swear a lot, so they are rude. It has been my experience that when tourists from the supposedly nice, polite places like the South or the Midwest visit New York, they always report back how surprised they are how considerate everyone was, much to their surprise.

Some of this is naked New York nostalgia but really, what interests me as I travel around the country/world, you notice that people are different, that they have different customs, but this is not trivial, because the customs are based on different values. People down here value different things than people up there. What a society/culture values can determine its economic success, or lack of it.

I don’t want to do two more pages of analysis as to why New York has all these skyscrapers and South Carolina has none, but it is worth asking the question. Now, there is a lot of history involved, here--New York has always been a banking and financial center, but why? Why why why? Was it because New Amsterdam was settled by the risk-taking Dutch, and much of the Carolinas were settled by the dissolute Scots? And even if that were true, why did the cultural differences persist for three hundred years?

It’s not like there aren’t any rich people in South Carolina. There are, particularly to the south of here, in Georgetown County, and down to Charleston. There are rich people everywhere. But how did they get their money? As best as I can tell, it was through land, passed down from generation to generation, and agriculture (the farmers are killing it). But--in all honesty--at least here, in Horry County, there seems to be no collective knowledge on how to open and run a business. They fail, over and over and over again. Around here it is mostly hospitality and restaurants. One will open. Grand opening! Two months later, out of business. Time passes, and another one moves in, like a hermit crab. Grand opening! Then, smell you later. Businesses certainly fail in New York, in fact, they do so spectacularly, sometimes (especially nightclubs), but it is understood that people are smart and the competition is fierce, so there is nothing to feel bad about.

In Houston, they get rich trading oil. In Chicago, they get rich trading meat (or the derivatives thereof). In Los Angeles, they get rich making movies. In Minneapolis, they get rich healing people. In Hartford, they get rich insuring you. In Boston, they get rich managing your assets. But there are pockets of the country where people don’t get rich. Like the space between San Francisco and Portland. Like much of Idaho and Montana. Like New Mexico, wow, New Mexico. Like Arkansas (except WMT). Like South Carolina. And, going back to Boomerang and the PIGS, why are Portugal, Italy, Greece, etc. bad credits and why is Northern Europe a good credit? Why did China go from zero to hero? Why is Japan going from hero to zero? And most of all, why is Africa the numero uno place to invest over the next twenty years?

What does it mean to be an investor? I’m being serious. When people talk about being an investor, what image comes to mind? Someone crunching numbers in Microsoft Excel? That is not what investing is about. Investing is about judging character. Investing is about investing in a person (like Elon Musk) or a group of people. If I were to boil all of successful investing down to one sentence, down to four words, it would be:

STICK WITH THE WINNERS.

Whether you’re using Gann angles or some arcane form of technical analysis, or whether you’re the guy crunching numbers in Excel, or if you’re the adventure capitalist, traveling around, or if you just give money to someone you trust, you are sticking with the winners. One of my good friends is contemplating a business (I will not tell you what it is, it is a secret. But it is very mundane, unfancy). When he starts, I will give him money. I think there are a range of outcomes. I think if everything goes right, I will make 100x. I think if some things go right, I will make 10x. I might not get my money back. That is life. I think his idea is brilliant and I think he is going to knock it out of the park. But I might give him money even if I didn’t think his idea was brilliant. He is a winner.

First of all, I want to invest with people who want money. People who don’t want money tend not to be very good investments.

Second of all, I want to invest with people who are honest. I have seen just about every scam and con artist in the book during my four years in South Carolina. These people are not the real deal. I want to invest with the real deal.

Third of all, I want to invest with someone who understands P&L. This only describes about two percent of the population.

Fourth of all, I want to invest with someone smart and hard working. But this is much less important, and not sufficient.

But most of all, I want to invest with someone who is a winner.

All of this--everything that we do in this business, is all about searching for winners. And how do you do that?

No idea.

Are you one of those people who is just a really good judge of character? Who just gets somebody right on a first impression? Ask my wife--I do this all the time. She had a friend who was a former model who lived in Soho in a solid gold apartment with her venture capitalist husband. I went over to their place one time, met the guy. I told my wife on our way out the door, that guy really gives me the creeps. Like, really gives me the creeps. Six months later the dude absconds to some Latin American country with all of the money and files for divorce, takes his wife to zero. This sort of precognition happens to me all the time.

So I do much better in my investing if I can meet the person on the other side of the trade or at least see him or her on video. This is a people business. It is not all bidding and offering, gamma and vega, mathematical abstractions. Some traders understand this, and play poker. That is helpful. There are all kinds of funny and unfunny stories about my client meetings when I was an ETF trader, but when I met a client, my loss ratio went down considerably, and not just because we became friends and stopped trying to impale each other all the time. Bush was wrong about Putin, but was right to look in his soul.

One more thing. After years and years and years of reading “past performance is no guarantee of future results,” I have come to disagree with it, at least, partially. No, it is not a guarantee. But we are not a bunch of random free freaking electrons. Winners win and losers lose. I do not want to invest with a guy that opens up a hermit crab restaurant on Highway 501 that is going to go BK in a couple of months. I don’t think hermit crab restaurant 2.0 is going to do any better. Now, if Rene Redzepi decides to open another Noma, I will crawl through a half mile of broken glass just to hand him a $500 check. I stick with the winners, and by implication, I ditch the losers. Lay down with dogs and get fleas, that’s what my swampy family used to say.