A Cheap Error is the Best Error

Color Commentary

What Happens Here, Stays Here

Two weeks ago, I was in the Swiss Alps at VALUEx, a multi-day gathering of value investors inspired by the TEDx style of “ideas worth sharing,” and I can’t tell you any details about it. The foundation tenets of VALUEx are confidentiality and non-solicitation.

No one sells each other, and no one sells each other out.

I LOVED IT.

Keeping those tenets elevates the discourse from typical networking “what can I do for you, what can you do for me” towards substantive conversation. Just like at the Berkshire Hathaway shareholder meeting, connecting life values with investing at VALUEx isn’t unusual or odd, it’s normal and, indeed, an important part of how people who follow Buffett-style value investing – or “focus investing” as Charlie Munger calls it – try to live a whole life: open, transparent, honest above all, focused on providing value to investors, and honorable. Those are the types of executives we want to invest in, and those are the people we want to be. Practice makes perfect – but no one’s perfect. The joy is in the striving, the failure, and the striving again; and, most of all, in intertwining our lives and investing. This value investing community is extraordinary because they are generally focused on living a whole life. How many Wall Street-types can you say that about? I was proud to be a part of it.

I came home feeling like I had gotten an investing booster shot: there are people besides me who truly integrate investing as a LIFE practice.

This investing practice of ours is so often inconclusive and frustrating and entirely about developing perspective so I can level-up my knowledge and awareness of potential investments. Spinning my wheels, feeling like I’m wasting time reading news and articles and annual letters that don’t add up to anything in particular, is actually a practice that grounds me in solid investing knowledge and building competence over time. It teaches me my baseline emotions so I can notice when they go off track. It is what I LOVE about value investing. It’s risk averse. Personal as all get out. Each investment is like getting married. It’s about choosing how to live through where we put our money. It’s as far from gambling as we can get while making educated guesses about the future with our money.

Long-term value investors abandon almost all the companies we research for being too expensive, too risky, too unknown, too big, too small, too confusing. Too ANYTHING. So long-term value investors generally don’t talk much about particular companies they’re buying or that they own. It’s somewhat…not done. I think that reticence stems from the rarity of finding a company you like, and because it’s such a big decision to invest—after all, these investors are making a long-term commitment, as opposed to the time-sensitive “check out this hot stock tip” style of traders.

Ironically, here I am, in this newsletter, talking about my investing process, and almost all of my ideas and work will end up concluding “so I don’t like it” or “so I’m not sure” or “so I threw it in the Too Hard pile”. I’m showing you my work because NOT seeing the process is what keeps most of us from starting an investing practice. Typical Financial-Industrial Complex work tells you an opinion presented as fact, and defends it. “Buy Amazon, it’s the future,” or “Sell Amazon, it’s overpriced,” or “Hold Amazon, we’re waiting for the next earnings report.” None of those tell you anything about the process of how I could evaluate their opinions, nor arrive at my own opinion.

The idea here at The Invested Practice is to show the process in real life.

Bezos Came Out

Coming from being immersed in investing and values at that gathering only a few days before, I loved reading the open letter Jeff Bezos, the owner of Amazon and the Washington Post, published on Medium last week because it was entirely about his values. Medium says it takes 9 minutes to read, and I highly recommend it.

The background: It’s been international news that Bezos and his wife separated and he’s now dating a woman who also used to be married and is now separated. Whether they had an affair or not is unclear, and neither of their ex-spouses are talking. The letter concerns naked photos Bezos and his girlfriend sent to each other that somehow the National Enquirer got its hands on, and which the Enquirer’s parent company told Bezos they would not publish IF Bezos put out a public statement that the Enquirer was not politically motivated. Kind an odd thing to ask for, don’t you think? Bezos thought so too. In his letter, he aimed to preempt the Enquirer’s blackmail attempt by exposing the descriptions of those photos. The photos might still get published, but by going public, Bezos has removed their shock value and contextualized their publication. The context is key, because he connects the blackmail attempt to his ownership of the Washington Post.

My favorite line in the letter is this one:

(Even though The Post is a complexifier for me, I do not at all regret my investment. The Post is a critical institution with a critical mission. My stewardship of The Post and my support of its mission, which will remain unswerving, is something I will be most proud of when I’m 90 and reviewing my life, if I’m lucky enough to live that long, regardless of any complexities it creates for me.)

That’s the most reader-highlighted sentence in the whole post, so clearly, I’m not the only one who responded to it. That’s some beacon-on-the-hill stuff right there.

I’ve been wary of Bezos since the girlfriend news came out and have been wondering if it was one more nail in the coffin of my good opinion of him, following my consternation about Amazon’s exploitative employee practices. Ironically, his most recent shareholder letter preached his attention to high standards, just before he got REAL sloppy with his personal life. There’s a constant argument out there that what happens in the bedroom doesn’t have anything to do with the boardroom, but I couldn’t disagree more. If someone is willing to betray their family, why wouldn’t they be willing to betray strangers? Private character IS indicative of public character. If you can lie in the bedroom, you can lie in the boardroom.

So I’ve been mulling over the guy Warren Buffett has called the best CEO in America and feeling pretty wary of him. By not buckling to the (understandable) pressure to put out a public lie to protect private photos, he climbed back up towards, if not restoring, at least mending my good opinion of his character. As I read his letter, I thought about how, if it were me, it would be excruciating to put these descriptions into public, much less the photos themselves. It’s easy to say “Eh, he’s the richest man in the world, he can’t care THAT much.” It’s not only him, though, who will suffer from those photos being released. His girlfriend has photos included in the bundle. His children will see it, and never live it down at school. So will her children, for that matter. It’s embarrassing in front of extended family, friends, social connections, business connections. This letter and those photos would be very hard to release.

Obviously, he should have thought of all that before he took a dick pic and texted it. He was an idiot and didn’t take seriously that durrr, maybe as the richest guy around someone could use those photos for nefarious purposes. However, I appreciate that, by standing up publicly against blackmail, he’s taking the consequences for his stupidity, and I hope his children also appreciate that stand as well, one day. They’ll have enough money for good therapy.

Bezos been someone to watch for years thanks to creating and growing Amazon. I get it, his genius is not news. I don’t own any Amazon shares because I can’t justify the price, but I wish I had bought some many years ago, and I follow the company in case I can buy some when the market downturn arrives. Last week’s letter, and particularly the part about being most proud of protecting the mission of a free press,made me, for the first time, regard him as truly separate from Amazon. This man is someone to watch.

The more I practice investing, the more I believe that investing is about choosing people.

I’m watching.

According to his letter, Bezos seeks to accomplish a lot more than merely creating Amazon. Which, think about that—he wants to do MORE than create the world’s largest internet superstore and digital media company that has become an international household name and a disrupter of established industries. More than THAT. He’s already got the Washington Post. He’s already got Blue Origin, his space company that doesn’t get as much attention as Virgin Galactic or SpaceX.

I sat there, and I thought about all of that, and then I did something so massively different from what I would have done a few years ago. The old pre-investing me would have poked around some more to read about the letter and maybe looked up the legal elements of extortion and been done with it.

Now, I have turned into a crazy person. I spent my entire Saturday NOT skiing in Liechtenstein, even though a friend invited me, so I could research Jeff Bezos’s ownership of the Washington Post.

You guys! The Washington Post! Talk about having a Mission, it’s right there on their masthead: “Democracy Dies in Darkness”. HECK YEAH. Freedom of the press. Standing up to unchecked power. I’m in. That’s a Mission I would happily invest in – with the right, wonderful, checklist-approved company, of course.

Washington Post Pitfalls

I searched online for “washington post company stock” and Graham Holdings Company (stock symbol: GHC) came up. Wait a second, I thought. That’s a publicly traded company. I could get in on this Bezos beacon-on-the-hill “Democracy Dies in Darkness” Mission?

I gushed to my husband on Saturday morning about how excited I was to research Graham Holdings. It owns multiple companies, including the education company Kaplan and the media companies Slate and Panoply. Panoply handles advertising on and publishing my podcast, so I’m particularly familiar with that one. It has several industrial products companies and healthcare companies. In short, it looks like a Berkshire Hathaway-style conglomerate of unrelated companies run according to Buffett’s principles of developing cash and shareholder value above all else.

I recalled reading Lowenstein’s biography of Warren Buffett, in which he and Katherine Graham develop a deep friendship and he helped her steward her paper through tough years. Buffett had been an informal advisor to the company for a very long time. I skimmed over one or two of the letters to shareholders from former CEO Donald Graham. Straightforward, full of candor, acknowledging mistakes, and clearly stating the goals of the company. He said that Buffett was essentially an unstated director of the company. Excited? I was EXCITED.

I did the two things I always do with a new company:

(1) I created a skeleton “Story” outline in my note-taking app and first wrote down the date and how I found the company. I wrote “Jeff Bezos owns Washington Post, and this company seems to be an investing arm of his?”

(2) I pulled its annual reports for roughly the last ten years from its website and starting going through the numbers as quickly as I could, which is not very quickly, because I am SLOW AT NUMBERS. I didn’t care if it was exactly right, I was just trying to get an overall sense of what was going on in the company.

Wow, I thought. Bezos is really turning this company into his investing arm. And it’s kind of a Buffett company. I remembered reading some time ago that Buffett, Bezos, and Jamie Dimon created a private healthcare startup, helmed by none other than Dr. Atul Gawande, with the aim to simplify the US healthcare system. Graham Holdings owns healthcare companies. Had this company just been missed by the investing world because media is an unpopular business?

NOPE. Totally wrong. I was completely wrong about Graham Holdings in the most fundamental of ways.

As I skimmed through the annual reports hunting for the accounting numbers to enter on my spreadsheet, I noticed a sale of the Washington Post kept popping up in the descriptions and the shareholder letters. “Right, the sale of the company to Bezos,” I thought, each time. The eighth or ninth time, it dawned on me: “maybe they spun off the Washington Post and sold it separately to Bezos.”

The EIGHTH OR NINTH TIME. Not the second, not the third. It took me hours before I noticed it properly.

I immediately searched online for “graham holdings company bezos” and Wikipedia was the first result, with, yup, the info I was looking for. According to Wikipedia, Graham Holdings Company sold the Washington Post to Bezos’s private Nash Holdings LLC on October 1, 2013. Next step? Confirm. Wikipedia is a great start but not reliable.

I pulled up the Graham Holdings 2013 annual report and searched for “nash” within the PDF and it came up immediately in a footnote, but didn’t explain much. I scrolled up the document for the letter from the CEO. In it, I found the details I was looking for. CEO Donald Graham described how sad he was to sell his family’s newspaper, but that he couldn’t think of a better steward than Jeff Bezos, who would put his resources into the paper and support it as media suffers through its technology evoluation. As part of the sale, Graham renamed his company Graham Holdings Company and it no longer has anything to do with the Washington Post.

Yikes, I thought, and sat back. Totally different reality from my premise. Bezos has nothing to do with Graham Holdings Company. He privately owns the newspaper. GHC is on their own. Plus, I reviewed again and Buffett seems to have divested! Buffett!

I had spent hours and hours of research, premised on Jeff Bezos owning Graham Holdings and Buffett being involved, before figuring that basic fact out. Totally boneheaded. I could have been skiing!

I lost all my momentum with researching Graham Holdings then, because without the Post and Bezos and Buffett, I’m much less interested. I had been laboring under a misapprehension and it hurt. I wanted to get the heck away from that feeling as quickly as possible, which, most of the time, I do by forgetting about it or blaming it on someone/something else outside myself. But I forced myself to really notice this error and not push it away.

Good investing practice, good life practice. The mindfulness I try out during investing practice is applicable outside of investing – perhaps even more so.

Cheap Mistake

Ruthless investigation of my own mistakes prevents them from happening again, I reminded myself. I thought through how I had gotten there.

First, emotion. I got too excited and it affected my analytical judgment. I read Jeff Bezos’s open letter on Medium and wanted to find any way to be part of what he said he hopes to be proudest of at age 90: the Washington Post.

Second, assumption. I had quickly googled the Washington Post Company and found it’s now called Graham Holdings Company. Ergo, I assumed that Bezos owns the Washington Post Company and it had simply changed its name to Graham Holdings Company, so Bezos owned Graham Holdings Company. There was the mistake. It wasn’t entirely stupid, it had some logic to it, but the logic combined with my emotion led me to skip an investigative step and come to an erroneous conclusion.

Third, rushing. I immediately wanted to know everything about Graham Holdings Company. Instead of starting with the shareholder letters to understand the basics of the company, I thought I already knew enough about it, and went straight to the numbers. By only skimming the letters, and by reading them out of order, I jumbled up the information and skipped – EIGHT OR NINE TIMES – the most important piece of information of all.

In our podcast this week, for our 200th episode (!), my dad and I examined investor Ray Dalio’s five steps to living an inevitably successful life. He says:

  1. Set audacious goals
  2. Notice your mistakes
  3. Understand why you are making those mistakes
  4. Fix your mistakes
  5. Persevere

Applied to this mistake? A reliable review requires trusting the checklist: going point-by-point without making any assumptions or skipping any points. I had to go through all five.

  1. Set audacious goals: Find Jeff Bezos’s secret investing company which is also connected with Buffett? Yeah that’s audacious enough, I think.
  2. Notice your mistakes: Definitely did that, thanks to reading extensively until I saw it.
  3. Understand why you are making those mistakes: The crux of it all. This one required stepping outside myself to observe what led me down the path to a potentially expensive error. I saw emotion, assumption, and rushing.
  4. Fix your mistakes: At a more granular level, read in chronological order instead of reading willy-nilly. On a higher level, notice and acknowledge my assumptions, and take the time to check them out. Don’t expect that I’m smarter than everyone else for figuring out something under the radar, and when I get that feeling, breathe in some humility.
  5. Persevere: Back at it again soon.

I’d add, be grateful for this mistake. I feel so massively grateful for it. I learned without losing money, which is the best kind of education. And I won’t make those mistakes again. Well, I’ll definitely make assumptions again. That’s part of reading and learning, and part of my practice to become more aware of each assumption I make. But I won’t miss the sale of a company and I won’t read shareholder letters as loosely as I did this time.

I had intended to write this issue about the confusing Missions of Amazon and Alphabet. That will come next time instead. Investing practice is usually a pretty windy road. Following the fascinating is what keeps it fun.

Enjoy your practice!

LET’S GET PRACTICAL

Think of a mistake you’ve made. Could be recently or long ago, could be an investing mistake or have nothing to do with investing. Go through Ray Dalio’s five steps with that mistake, and take care to be present with every step. If it’s painful, it’s ok to go away from it and then come back. But DO come back and finish the process, all through to feeling grateful for the mistake that led to this process, in this moment.

Ownership Disclosure: Danielle Town owns shares in Berkshire Hathaway (BRK) and Square (SQ).

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