Since we’re entering into the economic recovery phase (over the next 6-9 months), it’s a good time to revisit decision making for your typical reader. For better or worse, the typical reader here is high income (over $200K per year) which is in the top 10% or so. The top 10% is always in a different zone as they are trying to leverage their time and don’t view life in terms of dollar/hour trade offs. So with that we can make some general/broad statements. The nit pickers will be deleted instantly.
No Favors to be Taken: When it comes to headache avoidance, you want to avoid receiving favors from someone. This is not the same as a gift. If someone wants to give you a gift you simply provide a genuine thank you and move on. If you’re going out of your way to ask for a favor we would recommend paying for the activity/service instead. There are exceptions but this is the ideal path.
Why? Well if you ask for any favor (big or small) the person will respond by asking for*a bigger favor* in return. If you received a favor that saved you an hour, you’ll be asked to help the other person for 3-4 hours (yes seriously). So you’re better off paying for a service that is rendered by an organization. Hint: reading between the lines you can see that the major issue with working with friends (favors or money) is that you *assume* they are good at their jobs (they might not be to your standards).
The exception to this rule is when you’ve known each other for at least 10-15 years. In those situations you have easy ways of re-paying each other and you know the character of the person.
For everyone else, assume that you have not received a favor you’ve received *debt*. In fact, you don’t want to work with friends in general as payments might come back!
For example, if you give your friend a task to do and you pay him for it, later on he/she might come back and say he “did it at a discount” and deserves more money. Yes… This happens a lot. Given the state of the economy and split of haves and have-nots… You want to try to keep favors/asks to a minimum for the foreseeable future. Keep friends and money separate when possible.
Assume Cash is Gone: If you give someone money during this crisis, assume it is gone forever. You will not receive a penny back and you should assume it has evaporated into thin air. This does *not* mean that you shouldn’t give it away. It means that you should never expect the money to return.
In the rare case that the money is returned, take note as this individual is extremely organized and grateful (likely to become extremely successful in the near-future). This life rule will allow you to avoid headaches and help people that need it. If you break this rule, you’ll be disappointed and likely over extend yourself in the process, creating more long-term headaches.
Avoid Arguments About Investments/Bets: We give a lot of our recommendations out for free. What you learn is that people will rapidly change their opinions on everything: who’s going to win the election, if they should buy or sell a stock and who is going to win the next big championship. Seriously. They will change their opinions based on a whim: a missed quarterly earnings report, a poll that says they are losing badly and a random statistic they saw on a popular website. Some people even change their opinions based on a single player having a bad game in a playoff series, refusing to look at statistics.
To no surprise to readers of this blog, we don’t really change opinions. We have a high hit rate and don’t waver. We don’t “shift positions” three days before an earnings call. We don’t change views on who wins the next election (we don’t even vote) and we don’t make emotional bets as it relates to sports. For fun, we still think Trump will win (for those that have followed the Q&A’s closely, we bet immediately after the 2016 election since he was priced at 3:1 a good enough return. At 1.6 to 1.0 it’s still worth a swing with some money you’re willing to lose (incumbents usually win and Biden doesn’t seem to have any real charisma).
People have too many emotions tied up in every single event so they think you will change your opinions as rapidly as they do. Why? They have zero emotional control. This is also why they will go broke over the long-term and will do everything in their power to point out when you’re wrong (which is ideally less than 25% of the time, a high hit ratio is all you need).
Avoid Developing a Gambling Mentality: One of the other major issues in 2020 is that people are developing bad gambling habits. This is currently underway. Gambling addiction has been around for a while but with people sitting at home all day, they are turning to crazy stock and crypto currency bets. To provide examples, look no further than Hertz and Dogecoin.
This is a sign of quitting. There are two simple ways to gain wealth: 1) significant risk and responsibility through ownership and 2) consistent cash flows that are reinvested as you save more than half of your income per year (rough number). Both of those strategies lead to wealth over the long term and of course the ownership route can lead to billions while the second route will get you close to around $10M or so.
When someone veers off of these two paths you can see it in their gambling/addiction for highs. They will see a specific stock like Tesla go up 5x and be visibility frustrated “I knew about this stock i knew it would happen!”… despite owning zero shares. Meanwhile the people in camps 1 or 2 likely own a small-medium position and participated in at least some of the upside. You can take a guess who wins over the long term. One guy goes broke and the other two get rich over time.
Get Used to Complaints: When two people have a “conversation” it usually revolves around both of them complaining about something to one another. Next time you meet someone new, see how quickly it devolves into 1) series of complaints or 2) a series of brags about prior accomplishments. At least the second one gives you an idea of what an accomplishment is (IE. if they brag about making $150K a year, they probably make closer to $125K and you know they think this is a large sum of money).
There is no way you can change the complaints. In fact, if you don’t complain about anything they will actually feel uncomfortable. So get used to that and steer most conversations into neutral territory. If you are looking for complaint fodder, just find any world activity that is in the news and say its “sad”. For example “I’m sad that XYZ sport has been cancelled”. This steers the conversation into a neutral territory about sports where their sport team is the best – allowing you to easily agree with them.
Since the majority of people are not successful, they do not know how to deal with people who talk directly. No frills, straight to the point. This is because they haven’t had to manage large tasks. Managing tasks requires direct communication since it reduces errors and focuses entirely on solving a particular problem. You can guess where this is going… under no circumstances do you tell them “stop complaining”. This is the biggest way to make a social enemy. The truth is that complaining about anything just puts you in a bad mood and doesn’t solve the problem. You cannot say this publicly without making enemies so don’t do it. You’ll be tempted… but over time you’ll see it’s better to *say nothing*. Smile, nod and agree.
Accept Reality – High Finance Example: One of the common complaints we get here is that our views on high finance have not changed. M&A related positions (PE/M&A banking) are preferred to practically everything else. Guess why? It is the truth that is why.
We’re not going to go back in time. Companies are opting for more direct listings and alternative methods for funding. So our opinion isn’t going to change since it is the truth. The reality that no one wants to hear? Finance is largely a skill-less industry built on politics and relationships (like practically every other industry).
If this is bothersome that’s great, it’s also true. Collect as much money as you can if you’re still in the industry since it is in secular decline. The real talents will end up making a large sum and they will primarily go into those three sub-sections (since they are performance based)
The good news is that there are still options in high finance. M&A, PE and successful hedge funds. If you attempt to go into wealth management, capital markets and other industries being attacked on all ends (robo-advisors, cheaper ways to raise money etc.) that’s going to be a declining industry.
Yes you can still make a good living (today). And. That industry is in secular decline. Both statements are true. The guy making $800K a year will be making $400K a year 10-years out. Should he quit? Of course not! Keep the money flowing and focus on a side business instead.
Now that we’ve reiterated the same point… the good news? If you go into M&A you get to learn how each business is run. This should allow you to develop skills to start your own business! That is why M&A is still a great career path (along with PE/good hedge funds). The skills you learn are directly translated into real world application if you’re smart enough to take advantage of the information you’re given (learning about business models).
Headaches Always Have Two Legs: As a rule of thumb you want to scale as much as you can without any humans. Since you (an individual) should care the most, you can move the fastest by yourself. Use every single tool at your disposal to scale up without any hired help. Outsource, outsource, outsource until it’s no longer feasible.
At that point, you should be in a position to pay *above* market rates. Why would you do this? You want to create stickier employees and you want to make sure you can always hire the best person for the slot. This is easier said than done. Also. Every single direct report you get is a massive massive headache. You have to learn how to delegate, deal with varying personalities and work on your own teaching abilities. Just remember, when you pay for quality, you only cry once.
One of the main takeaways from the prior two paragraphs is that you should always be open to new technologies. It is your job to stay on top of new developments that can help you scale without additional overhead. Do not fall behind and allow your competitors to scale with less employees as you’ll be driven out of business long term (they can cut prices and drive you into the red).
Some High Level Summary Comments: Some key items include the following: 1) the divide between the rich and poor is going to continue. Even in areas like finance with high wages… you will see a divergence between the winners and losers – easier to see which people are really outperforming the market and closing deals; 2) stay on top of technology. Even if you hate it, it’s for survival; 3) remember that you want to scale as much as possible without people, adding people always adds headaches; 4) don’t take favors particularly in this environment, people will ask for 4-5x more in return and 5) goes without saying, do not flash wealth. This does *not* mean you should be frugal. In fact you should spend a ton on marketing, ads etc and push your competitors out of your industry. We’re only referring to public displays of wealth in an economy with double digit unemployment.
