Book Review: Just Keep Buying

If you are a normal Joe like me and want to learn about investing as well as personal finance, do yourself a favor and get “Just Keep Buying“. The lessons contained in the book are popular and well-covered by many other authors. So don’t expect any earth-shattering discoveries there. But great lessons remain great and it’s always delightful to regularly re-acquaint with them.

Just Keep Buying covers essential issues from rent vs buying a house, focusing on income instead of expense control to dollar-cost-averaging vs buying the dip, traditional IRA vs Roth IRA, individual stocks vs ETFs, REITS vs stocks vs bonds etc…The book doesn’t give a deep dive into each of these issues. Instead, it analyzes the pros and cons or when an investment option makes and when it doesn’t. The arguments are supported by recent data and written in a way that each a dummie like me could understand. If you are new to investing or personal finance, great. Take it as a great inspiring starting point. If you are relatively experienced in some investment areas, there may still be some valuable learnings to gain from the book.

What I also like about “Just Keep Buying” is that Nick offered some great personal perspectives with refreshing honesty. He talked about missing his saving goal by the time he was 30. He mentioned that he didn’t feel rich years ago because unlike his classmates, he never visited Europe. These admissions, if you will, make the book more relatable and credible. It’s a rare quality in books, I find.

All in all, I highly recommend this book, along with The Psychology of Money, to anyone who is interested in money, investing and personal finance. Below are a few highlights from the book

“The first tip is what I call The 2x Rule. The 2x Rule works like this: Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.

So, if I wanted to buy a $400 pair of dress shoes, I would also have to buy $400 worth of stocks (or other income-producing assets).” This makes me re-evaluate how much I really want something because if I am not willing to save 2x for it, then I don’t buy it.

“When it comes to housing as an investment, unfortunately, the data isn’t that promising. Robert Shiller, the Nobel Prize-winning economist, calculated the inflation-adjusted return on U.S. housing was “only 0.6% a year” from 1915–2015. More importantly, most of that return came after the year 2000. Anytime you look at U.S. housing as an investment, you have to compare it to what an investment in another asset would have done over the same time period. This is known as the opportunity cost of the investment.”

“For example, my grandparents bought their $28,000 home and paid a $280 monthly mortgage from 1972 to 2001. Around 2001, their home was valued at around $230,000. If they had put $280 a month into the S&P 500 from 1972 to 2001, they would have had over $950,000 by 2001, after reinvested dividends. And this doesn’t even include their down payment! Had they invested their down payment as well, they would have had over $1 million by 2001.”

“Given that the transaction costs of buying a home are 2%–11% of the home’s value, you will want to ensure that you stay in the home long enough to make up for these costs. For practical purposes let’s choose the middle of this range and assume that the transaction cost of buying a home is 6%. Using Shiller’s estimate for real U.S. housing returns of 0.6% per year, this means it would take ten years for the typical U.S. home to appreciate enough to offset this 6% transaction cost.”

“Just 4% of stocks from 1926–2016 created all the excess return for stocks above U.S. Treasury bills. In fact, “just five firms (ExxonMobil, Apple, Microsoft, General Electric, and IBM) account for 10% of the total wealth creation.”

“As Geoffrey West calculated, “Of the 28,853 companies that traded on U.S. markets since 1950, 22,469 (78 percent) died by 2009.” In fact, “half of all companies in any given cohort of U.S. publicly traded companies disappear within 10 years.”

“The main purpose of this chapter is to reiterate that saving up cash to buy the dip is futile. You would be far better off if you Just Keep Buying.”

“For example, if you had picked a random month since 1926 to start buying a broad basket of U.S. stocks and kept buying them for the rest of the following decade, there is a 98% chance that you would have beaten sitting in cash and an 83% chance that you would have beaten 5-Year Treasury notes as well. More importantly, you would have typically earned about 10.5% on your money while doing so.”

“And if your net worth exceeds $93,170, which is similar to the median net worth in the U.S., that puts you in the top 10% globally. I don’t know about you, but I would consider someone in the top 10% to be rich”

“There is no right answer, because being rich is a relative concept. Always has been and always will be. And that relativity will be present throughout your life.”

“I would be willing to bet that not one of you, if you were offered every dollar of Warren Buffett’s fortune, would trade places with him right now… And I would also bet, by the way, that Buffett would be willing to be 20 years old again if he was broke.” Consider Attia’s trade for a moment. Imagine having Buffett’s wealth, fame, and status as the greatest investor on earth. You can go anywhere you please, meet anyone you want, and buy anything that can be sold. However, you’re now 87 years old (Buffett’s age at the time). Would you make the trade?”

Review of my 2021

Here is the scorecard for my 2021.


The last couple of months wasn’t nice to my portfolio, but overall I made money in the whole year. My portfolio’s total return went from 4% in 2019 to 23% in 2020, to 40% in 2021. It’s not much, but it’s honest work and I can’t say I am too disappointed. Can it be better? Absolutely.

I made some stupid mistakes with my portfolio. The first was to sell Costco. I love the business, but I was in need of some capital to invest in companies which, to me, had more potential for growth than Costco. I paid the price dearly as the stock went from $370 when I sold it back in April 2021 to $550 today. The second miss was Upstart. A good friend recommended to me when the stock was trading at $88 in January 2021. I didn’t jump on it for reasons that I still don’t fully understand. At the peak, the stock hit $390 or something and even though there was a big pull-back, I would have still made a healthy return. The third mistake is that I didn’t save enough cash on hand when the market dipped and presented great opportunity to buy.

I wrote about how Investing is hard. It really is. I am sure I will continue to make mistakes. I can’t promise that I won’t repeat the ones I made this year. What I do hope is to take my return to a new height. The good news is that I have compounding on my side.

Grade: 6/10

Books I reviewed

I read in total 15 books this year. Not bad, but not a lot either. I’ll strive to read more in 2022. Below are some of my reviews:

Richer, Wiser, Happier: How The World’s Greatest Investors Win In Markets And Life. This is the best book I read in 2021.

Obviously Awesome

Junk To Gold

Amazon Unbound

Think Again: The Power Of Knowing What You Don’t Know

The Spotify Play

Exercised: Why Something We Never Evolved To Do Is Healthy And Rewarding

Grade: 7/10

My Blog

I blogged less this year than I did in 2020. There were weeks when I only had one post, excluding the weekly reading series I always do on Saturdays, or when I didn’t write anything at all. One of the goals I have for 2022 is to increase the posting frequency while keeping the same level of quality. I am not saying that I am a good writer at all, but truth be told, what I wrote this year or in 2020 makes me cringe less than what I put out three years ago. So I’ll take that as progress and continue to work on myself as a writer. I wrote some time back about why I blog. It rang true then and it does ring true now. It helps me become a better person, a better professional and I still do enjoy the process. If you ever came across this little blog of mine and became a subscriber or left a like, you have my thanks.

My top 5 blog posts, besides the homepage:

My experience with Amazon Shopper Panel

Naval Ravikant’s take on death

Create a hover effect on Mapbox

Circadian rhythm, Melatonin, Adenosine, Caffeine and Sleep

My thoughts on Walmart Plus

Grade: 7/10


2021 has been a very busy year for me at work. The pandemic has turned the team upside down with folks relocating to other cities or leaving for better opportunities. Though we tried to backfill the ones that left, the new arrivals have to take some time to acclimate to the team and the overall business. Meanwhile, the work just keeps coming. Existing business-as-usuals and new initiatives. Hence, I have had to shoulder more responsibilities and spent more time working outside the business hours more than I’d like to. But it’s not all bad news. I got promoted and had a chance to mentor interns and new teammates; which is one of the areas I really love to improve next year and beyond.

There are two main things that I want to do better in the future. The first is to sell better, whether it’s myself or my work. This year, several occasions showed me that while the work I did might be good, it didn’t come across as convincing to others as I was a lousy salesman. My self-assessment was echoed by a senior leader in the company, who was gracious enough to share his thought candidly. To be able to move up the ladder, I need to be more confident and communicate my ideas more effectively and better.

The second goal is to have a team to manage and more ownership of an entire project. I managed folks before, albeit briefly, and have been mentoring some people at work. Nonetheless, my goal in the first 2 or 3 years to have a team of my own so I can manage and lead. In addition, I don’t want just ownership of a project’s aspect. I want the ownership of an entire project that can help my company meaningfully.

Grade: 8/10

Book review: Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life

This book is up there among the best that I have ever read. You won’t find the technical advice or methods to determine whether a stock is a good buy/sell or when. Instead, it’s full of nuggets of wisdom drawn from some of the best investors or thinkers in the world such as Howard Marks, Nick Sleep or Charlie Munger. Whether you are a successful investor has more to do with your patience, your temperament, your thinking and your process than with your IQ, your maths prowess or your ability to build sophisticated financial models. Don’t get me wrong. Those factors definitely help, but if they were the role determinators of success in the investing world, then why would professional traders fail to beat S&P500 all the time and why wouldn’t we have more millionaires?

Because how you approach investing, your patience, your ability to detach emotions from decisions, your character and your thinking affect significantly impact the outcome of your portfolio, they also shape how happy and wise you are in life. On the other hand, learning to be a better investor also helps you understand about yourself better and become wiser & happier. This book is all about that.

Even though the investors interviewed in this book are highly successful and legendary, all the lessons and advice aren’t applicable universally. Everybody’s make-up is different. The audience will have to decide for themselves which lesson works and which doesn’t. Case in point, there are a few investors that are more tolerant of risks and have high concentration of their portfolios in a few stocks, while others consider more diversification acceptable. Some investors feel more comfortable through the volatilities of the markets while others prefer a smooth ride.

I really learned a lot from this book and expect to read it again soon. Really recommend to anyone who is interested in self-improvement or investing. Below are a few of my favorite excerpts. It’s not really easy to pick out these because I literally took note all over the book.

Learn from other people

I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart. —Charlie Munger

“Yet Pabrai’s success both as an investor and a philanthropist is built entirely on smart ideas that he has borrowed from others. “I’m a shameless copycat,” he says. “Everything in my life is cloned.… I have no original ideas.” ”

Luck & humility

One way that Marks keeps his own ego in check is by reminding himself of the starring role that luck has played in his life. After reading Malcolm Gladwell’s book Outliers, which explores various causes of success, Marks compiled a list of lucky breaks that have helped to propel him to where he is today. His streak began with the “demographic luck” of being born to white, middle-class parents in the United States at the start of a golden era of postwar growth.III Nobody in his family had a college degree, but he was fortunate that his parents valued learning, bought an encyclopedia, and encouraged him to go to college. His high school grades were nothing special, so he thinks he was also lucky that Wharton accepted him. And it was Wharton that exposed him to finance, leading him to jettison his earlier ambition of a career in accounting.”

“I once gave an interview in which I mentioned that Marks has a high IQ, which has no doubt contributed significantly to his success. In response, he sent me a charmingly modest email, remarking, “People who don’t fully acknowledge their luck miss the fact that being intelligent is nothing but luck. No one does anything to ‘deserve’ a high IQ.”

There’s one other great benefit to acknowledging his luck: it makes him happy. “I walk around with this incredible feeling that I’m a lucky guy,” Marks confides. “If you’re a negative person, you might say, ‘Well, I’ve been lucky in my life and that really sucks because it means that my success is undeserved and may not continue.’ But I say, ‘Gee, what a great thing to be lucky. And, you know, I really owe it to somebody, whether it’s God or chance or whatever.’ ”


“Instead, says Pabrai, they “place many bets, small bets, and frequent bets.” The trouble is, there aren’t enough compelling opportunities to justify all of this activity. So Pabrai, like his two idols, prefers to wait for the most succulent salmon. During a conversation in his office in Irvine, he says, “The number one skill in investing is patience—extreme patience.” When the market crashed in 2008, he made ten investments in two months. In more typical times, he bought just two stocks in 2011, three in 2012, and none in 2013.”

Fourth, said Templeton, successful investing requires patience. When he bought US stocks at the outbreak of World War II, he knew how cheap they were, but he couldn’t predict how long it would take for the market to agree with him. His edge lay not just in his superior insight, but in his willingness to wait year after painful year for the situation to play out as he’d predicted.”

Margin of safety

How, then, can individuals reduce their vulnerability and bolster their resilience? Following Buffett’s lead, we should always keep enough cash in reserve so we’ll never be forced to sell stocks (or any other beleaguered asset) in a downturn. We should never borrow to excess because, as Eveillard warns, debt erodes our “staying power.” Like him, we should avoid the temptation to speculate on hot stocks with supposedly glorious growth prospects but no margin of safety. And we should bypass businesses with weak balance sheets or a looming need for external funding, which is liable to disappear in times of distress. None of this is brain surgery. But it requires us to take seriously that oft-forgotten commandment Thou shalt not depend on the kindness of strangers.”

“Kahn became Graham’s teaching assistant at Columbia in the 1920s, and they remained friends for decades. I wanted to know what he’d learned from Graham that had helped him to prosper during his eighty-six years in the financial markets. Kahn’s answer: “Investing is about preserving more than anything. That must be your first thought, not looking for large gains. If you achieve only reasonable returns and suffer minimal losses, you will become a wealthy man and will surpass any gambler friends you may have. This is also a good way to cure your sleeping problems.”

As Kahn put it, the secret of investing could be expressed in one word: “safety.” And the key to making intelligent investment decisions was always to begin by asking, “How much can I lose?” He explained, “Considering the downside is the single most important thing an investor must do. This task must be dealt with before any consideration can be made for gains. The problem is that people nowadays think they’re pretty smart because they can do something quite rapidly. You can make the horse gallop. But are you on the right path? Can you see where you’re going?”

“Second, to achieve resilience, it’s imperative to reduce or eliminate debt, avoid leverage, and beware of excessive expenses, all of which can make us dependent on the kindness of strangers. There are two critical questions to ask: “Where am I fragile? And how can I reduce my fragility?” If, say, all of your money is in one bank, one brokerage, one country, one currency, one asset class, or one fund, you may be playing with a loaded gun. With luck, you can get away with anything in the short term. With time, the odds rise that your vulnerability will be exposed by unforeseen events.

Third, instead of fixating on short-term gains or beating benchmarks, we should place greater emphasis on becoming shock resistant, avoiding ruin, and staying in the game. ”

Hard work

“Second, said Vinik, “There’s another constant through the twelve years, and that’s very, very hard work. The more companies you can analyze, the more cash-flow statements you can go through—and go through every line of—the more good ideas you’re going to find and the better the performance is going to be. There’s no substitute for hard work.”

“The best predictor of success is often nothing more mysterious than the unflagging fervency of a person’s desire”

Incremental yet sustainable improvement

What’s distinctive is the indomitable consistency of his discipline. Most people get fired up for a few days, then flame out. I own a kettlebell and a skipping rope, neither of which I’ve used more than three times. The primary purpose of their existence is to make me feel guilty. Yet Gayner keeps plugging away, never perfect, but always directionally correct. The key, he says, is that he is “radically moderate” about everything he does. “If I make extreme changes, they’re not sustainable. But moderate, incremental changes—they’re sustainable.”

Resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time. “If you want the secret to great success, it’s just to make each day a little bit better than the day before,” says Gayner. “There are different ways you can go about doing that, but that’s the story.… Just making progress over and over again is the critical part.”

“In short, there’s nothing flashy or grandiose about Gayner. Yet it would be hard to find a better role model in the investment world. After all, his “satisfying, slow, and steady” method of building wealth relies heavily on common sense and well-chosen habits, not esoteric skills or daredevil risks. When I ask him what regular investors should do to get rich, he offers the least exotic advice imaginable: “Live on less than you make. Invest the difference at a positive rate of return. You cannot fail if you accomplish those two tasks.” He adds, “If you’re living on less than your means, you’re rich right now.”

It’s more important to avoid idiocy than to try to be smart

“I don’t have any wonderful insights that other people don’t have. I just have slightly more consistently than others avoided idiocy. Other people are trying to be smart. All I’m trying to be is non-idiotic. I find that all you have to do to get ahead in life is to be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.”

“None of this would have happened if Buffett and Munger weren’t so committed to challenging their beliefs. Munger has always disdained “heavy ideology” in everything from investing to politics, denouncing it as “one of the most extreme distorters of human cognition.”

“While other billionaires collect art, vintage cars, and racehorses, Munger describes himself as a collector of “absurdities,” “asininities,” and “inanities.” His daughter Molly recalls listening in her youth to his many cautionary tales “about people doing stupid things,” which often included “a tinge of ingratitude and poor moral judgment.” A typical story would feature the cosseted heir to a fortune who turned with bitter resentment against his father. Molly Munger remarks, “It’s stupid at every level: ungrateful, self-sabotaging, unrealistic, egotistical.”

This habit of actively collecting examples of other people’s foolish behavior is an invaluable antidote to idiocy. In fact, it’s the second great anti-stupidity technique we should learn from Munger. It’s a perverse hobby that provides him with endless entertainment and insight, enabling him to catalog in his head all of the “boneheaded” moves to excise from his playbook. Anyone can benefit from this practice, he tells me, “but I don’t think you get it unless you have a certain temperament. A lot of what I do is not IQ. It’s something else. Temperament. Attitude.”

Weekly reading – 4th September 2021

What I wrote last week

Important investing lessons that I learned


Google Pay team reportedly in major upheaval after botched app revamp. 92% of mobile wallet transactions in the U.S in 2020 were on Apple Pay. If I were an Executive at Google, I’d question why a firm with limitless resources, world-class engineering and ownership of Android couldn’t get Google Pay to be an equal competitor to Apple Pay. One can argue that Apple should have some credit with popularizing Apple Pay. If the driving force were the Cupertino-based company’s dominance and monopoly, why wouldn’t Google replicate that success with its own digital wallet?

How one woman helped build the #AppleToo movement at tech’s most secretive company. I never want to read about anybody being mistreated at their workplace. This #AppleToo movement is no exception. I am very disheartened to read about a group of folks being mistreated and disrespected, especially at a company that I long admire for other reasons.

PayPal is exploring a stock-trading platform for U.S. customers. It came as no surprise to me that PayPal is planning to launch a stock-trading feature. The ambition to be the Super App for consumers’ financial needs has been in full swing for a while. The company is putting the pieces of the puzzle together and this is one of them.

Affirm Holdings’ Moat: Why World’s Largest Retailers Want Affirm. I don’t necessarily agree with everything said in this piece, but that doesn’t mean it doesn’t have some good points.

Why Marta Ortega Pérez Is the Secret to Zara’s Success. This is one of the more interesting points in the article: Every morning after dropping off her son at school, Ortega Pérez gathers with the company’s CFO, Miguel Díaz, and other top staff around an industrial table out on the open floor to review global rankings for such bestselling pieces as a minimalist black spaghetti-strap summer dress, or a rococo printed pajama-style blouse with matching shorts. Orders heading to stores are constantly adjusted, an anomaly in an industry that typically plans merchandise drops well in advance. (Zara’s operations are supported by an in-house technology product team that uses  Netflix as a measuring stick for both consumer-facing and back-of-house innovations, including a mock fulfillment center floor set up to study the movements of a box-moving robot.)

To appease Japan Fair Trade Commission, Apple agreed to relax its anti-steering rules for Reader apps globally. What it means is that the likes of Spotify and Netflix should be able to sell digital goods to consumers without paying commission to Apple by adding a link to an outside webpage. Historically, Apple was vehemently against this, but the regulatory pressure has been piling up around the world so I guess this is Apple’s pre-emptive action to hopefully get some relief. I have seen some developers skeptical of how this change in policy will actually pan out. I mean, they have reasons to, but given the resources and clout at Apple’s disposal, this is a great step for developers. For consumers, this remains to be seen. One of the selling points of the App Store is that consumers feel safe whenever they make a purchase. Since Reader apps can now direct consumers to outside the App Store, it will depend on who will make the determination as to which app can qualify for the new policy. There remains a possibility that some developers with a harmful agenda can camouflage their app as a Reader App and commit fraud.

Apple Plans Blood-Pressure Measure, Wrist Thermometer in Apple Watch. Apple’s positioning of the Apple Watch is very smart. It’s not trying to compete with normal watches whose main function is to tell time or luxury watches whose main value is the bragging rights. By focusing on the watch wearers’ health, Apple sticks to its core value of providing hardware that is personal to consumers and its strengths, mainly the combination of hardware & software as well as its ecosystem.

How Disney and Scarlett Johansson Reached the Point of No Return. The legal debacle with Scarlett Johansson is unfortunate and worrying as it foreshadows what could be in store for Disney in the future if they didn’t learn from this lesson. According to the article, it could have been avoided, yet here we are. Plus, the pandemic, the interconnectedness of Marvel storylines, the pressure on the bottom line and the priority status imposed on Disney+ make release distribution a delicate matter. While Black Widow brought in $60 million in extra revenue and profit from the Premier Access, Kevin Feige, the Marvel boss, wasn’t happy about it. Putting “Black Widow” on Disney+ conflicted with Mr. Feige’s tiered approach—creating TV shows that complement movies on the big screen. He resisted plans for the movie’s simultaneous release, in part because he didn’t like the idea of having one of Marvel’s few female-driven movies demoted to the at-home streaming service, said people familiar with his thinking.

Other stuff I found interesting

Indonesia, More Majestic Than Ever by Boat. I have never been to Indonesia, but I’d love to. And of course, by boat, if possible.

These charts show which states will get the most money from Biden’s infrastructure bill. Regardless of the criticisms of this bill, I am pleased to see more investments in the embarrassing and decaying infrastructure in this country.

Can ‘smart thinking’ books really give you the edge? Makes you really think about it

Stats that may interest you

Vietnam saw $16 billion in remittance in 2020

52% of young adults in America lived with parents in 2020. The figure jumped to 71% for people aged 18 – 24

Cash accounted for 78% of transactions at Point of Sale in the EU in 2020

YouTube Music hit 50 million subscribers, up from 30 million reported in October 2020

Important lessons on investing that I learned

Over the weekend, I reviewed my portfolio and by extension, my performance as the CIO of my personal hedge fund (lol). I want to see how I have fared so far and importantly, if there is a lesson or two to take away going into the remaining four months of the year and 2022, what would that or they be?

In the first half of 2021, ending 30th June 2021, my portfolio’s return is 8.5%, compared to the return of 15.3% of the S&P 500, including dividends. Last year, Minh Duong Capital’s 2020 return was 21.3%, compared to S&P 500’s return of 18.4%. What does it mean? Obviously, I underperformed the market in the first 6 months this year, a fact that is particularly disappointing given that I outperformed the index last year. In other words, I overestimated my stock-picking power this year. Frankly, I didn’t do a good enough job. Instead of spending a lot of time looking at new ideas, I should have just bought the S&P 500.

That’s actually one of the big two lessons I learned: buy more ETF stocks. Take S&P 500 ETF ($SPY) and Vanguard Total Stock Market ETF ($VTI) as examples. In the last 10 years, they have an annualized return of 13.9% and 15.2% respectively. The beauty here is that investors don’t need to spend any time researching and regularly checking their portfolio. The ETFs just routinely deliver two-digit returns every year with minimal efforts or financial understanding of the companies.

At the moment, ETFs make up only 2% of my portfolio. I do plan to increase the ratio significantly in the next few months and next year. Don’t get me wrong. I still enjoy researching companies and finding winners which I believe will bring higher returns than that of the ETFs. But at the same time, I want to make sure that I at least have the same return as the market. You know, being realistic and all that. Does buying ETFs sound simple and easy? Yes, but it’s not in reality. Nowadays, it only takes a few phone taps to trade for a stock. When the barriers are that low and when you are tempted to prove that you are a better investor than just somebody buying an ETF, the illusion kicks in and the temptation is highly irresistible. Nonetheless, that’s what I plan to do in the near future. Buy more index and wait for only great opportunities.

That’s one lesson. What’s the other one that I learned?

In addition to stock picking and investing in ETFs, one can leverage the expertise of hedge funds. These guys get paid in the form of 2/20 (2% management fees and 20% of your profit) with an implicit promise to outperform the market. In other words, they are EXPECTED to deliver higher returns than what investors would get from the likes of S&P 500 or VTI. Here are the returns of a few funds in the first half of 2021:

Among this small sample, my personal return this year is higher than some funds’ and lower than others’. Of course, there are more funds spread out across the spectrum. The question, though, is how should I think about my performance in comparison with these funds? Well, not so much. Such a comparison is a slippery slope. If I want to make myself feel better, I only need to identify a few underperforming firms. On the other hand, it’s just unrealistic to think that I can beat the professionals whose full-time job is to find investing ideas and whose experience & resources far outweigh mine. The goalposts should stay constant, not move based on how I want to feel. In fact, Morgan Housel said: one of the most difficult skills in investing is to not constantly move the goalposts.

Hence, I decided to judge myself based on two things: did I avoid making the same mistakes twice? Am I delivering a higher return than ETFs? If the answer to both questions is yes, every time I conduct a review, then I will be a happy person. Otherwise, there is work to do.

Clear Secure – Plenty of growth opportunities and a couple of red flags

Clear Secure made its debut on the stock market this week at around $4.5 billion in valuation. I read its S-1 and wanted to talk about some of my notes.

What is Clear Secure about? In essence, the company is all about using biometrics for security. Think about how, in movies, people use retinas or fingerprints to unlock valuable assets in a vault or a safe. CLEAR gives customers access to services that they already paid for. With CLEAR, partners can be assured that customers are who they say they are and elevate the customer experience due to expedited verification process. On the other hand, instead of waiting for a long time in lines, customers can have a more pleasant experience with dedicated CLEAR kiosks, applications and lanes. Below is an example of how it works at airports.

CLEAR makes money from two sources: partners and end users. Partners that use CLEAR technology compensate the company based on the number of users or transactions. Even though there is no mention of a standardized contract structure in the prospectus, usage-based pricing means that once CLEAR is established, the more popular and used it is by end users, the more revenue the firm generates. In addition, CLEAR also makes money from CLEAR PLUS, its flagship subscription. With CLEAR PLUS, users can save time at airports by using dedicated CLEAR lanes to quickly verify their identity and travel credentials before entering the physical security check. CLEAR PLUS is priced at around $175/year and if you enroll at airports, you can get one month free trial. In January 2020, CLEAR announced that it was selected by TSA to handle both renewals and new subscriptions for TSA Check. As part of the agreement, CLEAR will be allowed to sell a bundled subscription for both TSA Check and CLEAR PLUS. While both services are essentially the same, TSA Check has a much wider coverage in the U.S. The program is expected to go live in the back half of 2021 and will be a new revenue source for CLEAR. Apart from the aforementioned services, CLEAR also offers end users free access to other services such as Home To Gate, Health Pass or CLEAR Pass for CBP Mobile Passport Control. These freebies serve as an acquisition channel for CLEAR, but the company reported that in-airports are still the most popular one.

CLEAR has plenty of room for growth. Its kiosks are available in major airports nationwide, but there are still a lot more to cover. The company said in the prospectus that its footprint as of the end of May 2021 only covers 57% of the TSA departure volume in 2019 while the total signups to CLEAR PLUS reached only 4% of the potential market. If you think about it, what CLEAR offers can be useful to companies in many verticals. Hospitals or healthcare firms can access confidential information quickly without a slew of forms. Hospitality players can check in and out guests more quickly with CLEAR. Sports events can handle the inflow and outflow of spectators more efficiently. Plus, CLEAR is available only in the U.S now. Right now, CLEAR already has a commercial agreement with Wal-mart, MLB, NBA, Delta Airlines, United Airlines, 67 Health Pass-enabled partners and 38 airports. International expansion is a tricky yet lucrative opportunity. Given the increased publicity from its IPO, I suspect that CLEAR will have an easier time than before talking to new partners.

According to the S-1, CLEAR information security program received the highest designation according to the Federal Information Security Modernization Act from DHS. It is also certified as Qualified Anti-Terrorism Technology under the Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 (“SAFETY Act”). U.S Customs and Border Protection also uses CLEAR to let U.S citizens and permanent residents enter the country more expeditiously. Additionally, it will help TSA handle new subscriptions and renewals for TSA Pre Check. The acceptance and certifications that come from the federal government are a robust competitive advantage for CLEAR. It’s not easy at all to win these designations and work with the government, especially when it comes to security. The longer CLEAR is in the market, the more weight and trust the CLEAR brand will carry, making it exceedingly difficult for any challenger to compete. In the world of security, trust and brand names are of utmost importance. Those can take a long time to gain yet seconds to lose. So far, CLEAR has done a very good job of building its credentials. Any challenger will have to take time to go through the same process and no money in the world can speed up the process. Meanwhile, CLEAR can continue to expand its footprint & verticals and use more usage data to improve its technology platform and strengthen its lead further.

Let’s dig into the numbers. Compared to March 2019, enrollments, uses and total bookings in the quarter ending March 31, 2021 were up meaningfully. If you question why retention rate has been trending down and why the explosive growth often seen in IPOs is absent here, it’s worth noting that Covid-19 severely limited in-person events as well the travel industry; therefore, it is not surprising to see such a great adverse impact on CLEAR’s business. With that being said, as the country is opening up, travel is getting back to 2019 level and in-person events are relatively safe again, do expect to see these numbers go up in the next few quarters.

In the last two years, CLEAR had positive operating income only in two quarters, at the height of Covid. What concerns me isn’t the lack of explosive growth many may expect. It is the lack of economies of scale. Compared to 2019 quarters, the quarter ending March 31, 2021 didn’t seem to show that CLEAR gained much more efficiency. Granted, the impact of Covid-19 is undisputed and the company did seem to transfer some marketing expenses to R&D; which is a positive sign for a technology platform. Yet, the two biggest expense line items in Direct Salaries and G&A, mainly stock-based compensation, still dominate their cost structure. That makes me wonder when this trend will end, given that historical data in the last two years indicate otherwise.

Another red flag is that the company has a shareholder deficit. Total shareholder equity is the difference between total assets and total liabilities. A deficit means that CLEAR’s liabilities are larger than its assets and that it has been losing more money than what investors put in so far. While a deficit may be the short term pain in exchange for the groundwork for future success and the IPO should give CLEAR a big windfall, investors shouldn’t gloss over this fact.

I like the potential growth and the competitive advantages that CLEAR has while being a bit concerned about how the company is currently managed. I put the company on my watchlist and will monitor it in the near future to see if it makes sense for me to take a position.

Take-aways From Berkshire Hathaway 2020 Shareholder Letters

Shareholder letters, when written well, are a great source of knowledge, wisdom and interesting things. Berkshire Hathaway’s is one of those letters. Today, the company, which is based in Omaha where I currently reside, published its 2020 letter. I read it with a hot cup of coffee and pleasure, and now I want to share my take-aways in this post. You can read the letter in full here

You don’t always win every year, but being patient and having a long-term horizon matters

On the second page of the letter, readers can see the annual and compounded return of Berkshire Hathaway for the last 55 years. The firm didn’t always have a positive return every year. Far from it. It fluctuated greatly from one year to the next, from 28% return this year to -32% the following year. If these professional capital allocators who have more years of investing than my years of living don’t have a positive return every year, I think I shouldn’t set that bar for myself or neither should you. The main thing is that Berkshire had a compounded annual return of 20% in the last 55 years, meaning that the overall gain is some 2.8 million percent, a ridiculous return. Everyone prefers getting rich fast, but in the long term, it is likely better to be patient and have a long term horizon. The results will come, if you do it right.

Having an investing philosophy

Once in a while, I ran across some FinTwit folks who questioned the wisdom of holding large cap stocks such as Apple or Amazon. You know, the familiar big names across industries. These people claimed that to earn an outsized return, investors should look somewhere else where the fish isn’t fished as often. That may be true, but in the age of information, it’s really hard to get information that others can’t. What is harder to possess is patience and willingness to adopt a long term horizon. Back to Berkshire Hathaway, the company said that its Apple position was likely its 2nd most important asset. I mean, if these people upon whom thousands of investors entrust their savings choose Apple and earn excellent returns, why shouldn’t anyone, provided that they did their homework?

Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple.

Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion of our position.

Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding.

To Charlie and Warren, I think they don’t care about being a contrarian like so many aspire to be. What they want to be is to be right with their allocation of capital, as it is their fiduciary duty to shareholders. If we can get excellent returns, will it matter if those returns come from a tech giant or a company few heard of? Nah. So if you are only comfortable with the companies you know, don’t listen to the “advisors” who seem to be more eager to be “contrarian” (whatever that means) than to be right.

On page 4 of the letter, Warren and Charlie laid out their investment philosophy. They prefer owning a piece of a great business to 100% of that business. Their reasoning is that great businesses are rarely available for the taking, and even if they are, they will be greatly expensive. Owning a piece of a great business is cheaper, more profitable and cheaper. Berkshire Hathaway’s favorite companies are good to great businesses with a competent leadership that retain most of their annual earnings. As the investees grow their businesses over time, Berkshire’s ownership becomes more valuable. Over a long period of time, the growth in value will be aided by the 8th wonder of the world, compound interest. It may sound easy, but it isn’t. Identifying great businesses to buy is a challenge in and of itself. Sitting on those investments patient for a long period of time is not an easy task either.

What’s out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually building value – lots of value – for Berkshire. Investees use the withheld funds to expand their business, make acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future earnings). As we pointed out in these pages last year, retained earnings have propelled American business throughout our country’s history. What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions of shareholders as well.

Admittedly, I learned a lot from Charlie and Warren in terms of investing. I try to read up as much as possible about a business and if I like what I read, I buy the stock and try not to sell it. The decision not to sell isn’t driven by my financial determination that a stock has more upside to go. That piece, I still have to learn, even though I don’t find it easy. Instead, my choice to keep stocks over time is mainly driven by my laziness. I don’t want to get up every day and day trade. Plus, I believe that once I own a piece, a very small piece of a great business, it will be more beneficial to keep the ownership as long as possible. A lesson from the two wise old men.

Work ethic

Charlie is now 97 years old and Warren is 90 years old. They are still actively managing their firm, making investment decisions and interacting with shareholders, either through letters like this or a meeting. In the letter, they talked about the story of Nebraska Furniture Mart and its founder, Mrs B, which is one of my favorite business stories:

The company’s founder, Rose Blumkin (“Mrs. B”), arrived in Seattle in 1915 as a Russian emigrant, unable to read or speak English. She settled in Omaha several years later and by 1936 had saved $2,500 with which to start a furniture store. Competitors and suppliers ignored her, and for a time their judgment seemed correct: World War II stalled her business, and at yearend 1946, the company’s net worth had grown to only $72,264. Cash, both in the till and on deposit, totaled $50 (that’s not a typo).

One invaluable asset, however, went unrecorded in the 1946 figures: Louie Blumkin, Mrs. B’s only son, had rejoined the store after four years in the U.S. Army. Louie fought at Normandy’s Omaha Beach following the D-Day invasion, earned a Purple Heart for injuries sustained in the Battle of the Bulge, and finally sailed home in November 1945. Once Mrs. B and Louie were reunited, there was no stopping NFM. Driven by their dream, mother and son worked days, nights and weekends. The result was a retailing miracle.

By 1983, the pair had created a business worth $60 million. That year, on my birthday, Berkshire purchased 80% of NFM, again without an audit. I counted on Blumkin family members to run the business; the third and fourth generation do so today. Mrs. B, it should be noted, worked daily until she was 103 – a ridiculously premature retirement age as judged by Charlie and me.

Mrs B worked daily till she was 103. Charlie and Warren are in their 90s and still working. I mean, I find it inspiring. Sometimes, I feel old whenever I think about the time when I was 16, even though I am just approaching 31. But these great examples remind me that I still have a few decades to work and enjoy life. Such a reminder can be hugely valuable.

Why revenue doesn’t tell the whole story and why we need comparables in retailers’ financial reports

This post addresses these two questions

  • What do you think when you read on the news: Retailer A’s sales increased by 9% this year compared to last year?
  • What does “a 7% jump in comparables/comps for a retailer” mean?

In addition to revenue growth, look at gross margin as well

The first thing that jumps out of an income statement is revenue or net sales. That’s why it’s often referred to as “top line”. Does a change in revenue say a lot? Not so much. Let’s say if there is a year-over-year decrease in revenue, it’s safe to say that the company goes backwards directionally. If there is an increase year-over-year, the only conclusion that can be made at this stage is: well, at least this year isn’t a disaster, yet. Because there are a lot of factors that can contribute to the increase in revenue and can make such an increase pretty meaningless. It requires further investigation.

Let’s look at an example. You sold 10 tomatoes last year, each of which was bought at $7 and sold at 10$. The total revenue last year was $100 and the gross margin was ($10 – $7)*10 pieces = $30. Gross margin ratio is $30/$100 = 30%.

This year, you sold 15 tomatoes for $12 each, but the cost of sales for each tomato went up $10. The total revenue this year went up to $180, an increase of 80% compared to last year. However, gross margin stays at ($12-$10)*15 = $30 and the ratio, as a result, decreased to $30/$180 or 16.7%. You can see clearly that the unit economics worsened and your business is actually in a worse shape than it was last year. Of course, this doesn’t even take into account other expenses such as Sales and Marketing, Selling, General and Administrative Expenses (SG&A) or R&D. I don’t want to go off track too much and this example should show you that relying on revenue growth alone isn’t anywhere close to being enough.

If gross margin isn’t an issue and revenue increased, does it mean that it’s all good? Not really.

Why do we need comparables?

For instance, if a retailer that operates multiple stores has an 8% YoY increase in revenue, it means that it brings 8% more this year than it did last year. There are two important factors that can contribute favorably to that and potentially mask the true performance of the retailer

  • Time: sometimes the comparison is between 52-week and 53-week fiscal years. As a result, it’s not surprising that the 53-week fiscal year brings in more sales. You can see from Figure 1 below Target highlighted the fact that 2017 had 53 weeks and they removed the results of the 53rd week from comparison to make it fair
  • Number of stores: if this year’s performance is derived from more stores that last year’s, it’s then not a fair comparison.
Figure 1 – Source: Target

That’s why retailers use the comparables concept in their reporting. It reflects the increase or decrease in performance derived from the same stores over the same period of time. Such an approach will result in a true fair comparison and an honest reflection of a company’s health

Figure 2 – Source: Costco

Figure 2 is a table from Costco’s latest annual report. The changes in comparable sales are smaller than the changes in net sales, albeit that all are positive. It means that in addition to the growth organically from the same stores in 2018, Costco also benefited from opening new stores. Without the breakdown, investors would not be able to discern Costco’s true performance in 2019.

Another useful metric to look at is Revenue Per Square Foot. It divides the total revenue by total square feet and reflects how much money a retailer can generate per a square foot. A square foot’s size doesn’t change over time. Using this metric, investors can generally tell whether a retailer leveraged its retail space better, regardless of how many stores were closed or opened.

Figure 3 – Source: Target

In Figure 3, the first number column from left to right is for 2019, followed by 2018 and so on. As you can see, Target increasingly generated more revenue per square foot from $298 in 2017 to $326 in 2019. Generally, it should be a positive sign, but like the case of revenue above, it may still be a misleading metric.

Figure 4

Let’s run a scenario. This retailer ran two stores in 2018 and added one more store during the year of 2019. As you can see, the revenue per square foot in 2019 was higher than that in 2018, but it may not be cause for celebration. Sales in Store A and B declined and the increase in revenue and revenue per square foot came solely from Store C’s performance. It means that there was some trouble with Store A and B; which caused a decrease in revenue.

In conclusion, it’s hardly enough to use one single metric to judge a company’s health. It’s a combination of many. Hope you found this helpful. Have a nice 4th of July.

Conversation between Patrick O’Shaughnessy and Brad Gerstner

I haven’t listened to podcast for a while. Simply because I read a lot more than I listen to podcasts. But this podcast between Patrick and Brad is very good, packed with insights, nuances and common sense. Though there are a few points that I don’t fully agree with him, I learned a lot from his talk. A few key highlights are quoted below, but do give it a try. It’s worth for time if you are interested in technology, business and investing.

Buffett, although he comes out of the quantitative school, he has a quote where he says: my highest returning investments, those that really made the cash register ring, have come from simple qualitative insights applied to a big business opportunity

Source: Invest like the best with Brad Gerstner

While we’ve been talking about the cloud, since really 2002 and 2003, and I remember by 2010 and 2011, we actually started decelerating rates of growth of a lot of cloud companies, people started wondering: Did we overestimate the cloud? Just as they wondered in 2005 and 2006, after the demise of companies like Danger, whether we overestimated mobile. And the reality is we weren’t even getting started. So, we look at, we break down the backend of cloud software really into system infrastructure, the infrastructure software that enables companies to do the things they wanna do in the cloud and the application software. When you look at the TAM (total addressable market) of all three of those, by our account, we are still a decade away from having 50% penetration to the cloud.

Source: Invest like the best with Brad Gerstner

For almost all investors, a hugely disproportionate amount of their career profits that they generate, whether in public markets or private markets, will come from a few bets, a few great investments. And if you succumb to the ego that is easy to succumb to which is if I study it hard enough, I’ll be able to figure it out. You look at your Bloomberg everyday, and you have 100 different opportunities you can go and invest everyday and maybe a couple of hundreds of opportunities. People tend to overtrade, invest in too many things. It divides their attention. And so the opportunity cost is they are not there when the fat pitch comes. So they don’t have capital available when the fat pitch comes. And I’d argue for myself at least to less happiness because I can’t go as deep on a particular subject as I want to go because I am managing too many things at once…

Source: Invest like the best with Brad Gerstner

Far more has been lost betting on the end of times, trading out of your good ideas, trying to hedge out of Covid than just making great bets on great companies and allowing them to compound.

Source: Invest like the best with Brad Gerstner

Right? Is going to this dinner, is having this coffee, is having this meeting, is joining this board, is making this investment, is it an easy yes? If it’s not an easy yes, then it’s an easy no. Organizing your life with less, but enriching the stuff you do choose to do. Your children, your interaction with friends and family, your time in nature, your time spent with a couple of management teams, instead of divided across 15 boards. I can’t promise that leads to maximum financial return for you. But I am pretty confident that your return on happiness is going to be pretty extraordinary

Source: Invest like the best with Brad Gerstner

Tool: Atom Finance

I recently came across a finance tool that I have been pretty pleased by so far. Credit to Morning Brew newsletter, which introduced the tool. It’s called Atom Finance. It is essentially very similar to Seeking Alpha. As far as I am concerned, Atom Finance can do pretty much what Seeking Alpha does. Below are a few screenshots for your reference

There are three features I particularly like about the tool so far. The first is that in the Financials segment, I can pick and choose variables to show on the interactive bar chart. All I need to do is to click on the variables in the table below the chart.

The other feature I like is the capability to customize peer group, a feature that I believe is currently at an extra cost on Seeking Alpha

The third feature that I appreciate is that I can view earnings call transcripts smoothly from the beginning.

There are usually a few hours between the end of the earnings calls and the transcripts on Seeking Alpha. I haven’t observed how long it takes on Atom Finance, but I will and once I do, I will update this post accordingly.

For now, the tool is free just like Seeking Alpha. It is a handy tool to do research and I personally prefer the User Interace of Atom Finance to that of Seeking Alpha, which I am deeply grateful to for their transcripts. I am by no means affiliated with Atom Finance in any capacity. I am just being reciprocal of their allowing me to use the tool for free.

I hope you will like the tool and if you do, help spread the word to help a young company.