Running a business is consuming work. That’s why we do it full time. What about owning multiple businesses? Lots of people do this passively (see my blog post “Implosion of the Index.”) But how many, do it well? Have you read all the 10-k’s in all the ETFs in all of your retirement accounts? Would you enjoy that?
A noteworthy difference we take from many is owning fewer and larger portions of great, but small companies. We study 100x more than we own in case they become available. We are able to do this because we employ great people and trust them to run operations. We are comfortable as the emergency backstop if they (or our capital) need us. But, the business needs to be able to operate without us, otherwise we are artificially propping it up. We remain close at hand if needed. And, sure, we have ideas at times about growth, enabling technologies, and more… but fundamentally, we aim to lower our risk by not over-paying at the beginning and then simply not screwing things up… perhaps with the right people, we might even see some sustainable and cashflow driven growth.
Perhaps you could liken us to a crocodile. Although fierce when active, the crocodile spends most of his time laying around waiting for the easy catch. When attacking, he goes big, and gets a belly full, sometimes eating up to 23% of his body weight in one meal. Then, it’s back to laying around, digesting.
We are sometimes asked how we do it all. I’ll stay on the cheesy metaphor.
- We say no to a lot. This can be accomplished with a peak of the eye… “nope, not close enough.” Sometimes we are full, sometimes we are simply not convinced we can be successful. For LEV, this means quick looks at four or more companies per day.
- We read a ton about a lot of subjects. The act of laying around reading and digesting is an appealing part of the process. This means reading three books a week for me, and several more industry case studies. Mikel and Neil have different but occasionally overlapping areas of interest, each with a lot of time allocated to learning.
- If we feel the urge to stretch our legs and be active, we’ll change scenery and seek out new areas of study. With investing, this often means a harsh subject change, interviewing new people or under taking an internal project that we may or may not resource immediately. We talk a lot when in the office simultaneously. Most of this is to quickly learn cliff notes of what the others have been learning. We debate various approaches, make a few decisions and then get back to our studies.
- When actively hunting we keep a low profile. No sense scaring away the game! We are sneaky small, maybe even as inviting as a log. We can hold a bird on our nose and not flinch. (metaphor overkill?) In all seriousness however, there is no benefit whatsoever to flaunting our highfalutin fund. We basically have some friends and family that trust us.
- We are often covered in sun baked mud from our last romp. As a result of “going operational” we have a unique history of experiences in small business that cloak us in humiliating experiences. We’ve made mistakes of varying magnitude. Some got away and some provided us with indigestion. The only benefit of this shame is a wisdom from experience that cannot be earned in a cage. Hopefully we can save someone the same heartache.
Thank you for enduring this metaphor. I probably took it a bit far. The reality is, it is really hard to sit on your hands when you want to “do deals.” However, we are charged with being compensated well for the risk we decide to bear. If we are forced to move on a schedule or on someone else’s recommendation we cannot think clearly and become jittery and ineffective. The worst possible thing is to spend unruly effort attempting to catch something that we are incapable of catching or worse, we regret after having been “successful.”
So, as reminder, I practice writing as a means to codify my own logic. This makes sense to me. The only problem is I don’t view companies we buy as prey. I’ll have to work on crafting a warm and fuzzy, toothless alligator that improves the voluntary catch after helping realize vision and promoting leadership… but that just doesn’t roll off the tongue.