On June 3, 2017, Alex Honnold climbed El Cap, a 3,000 ft. mountain in the Yosemite National Park in California. No ropes, no equipment; he did it free solo.
Looking at El Cap that day, you would see a man mounting this giant barrier, his life hanging on the tip of his foot while his hands intrude cracks or grip tiny imperfections on the granite wall. At times, Honnold’s body appears to fluctuate, sustained only by the sheer will to perform at the level of the unfathomable.
Success or death. That’s what Honnold faced.
We often think about odds—the odds of getting a promotion, of getting caught, of making money on an investment.
In free solo there’s no need to calculate probabilities; suffices the certainty of outcomes: success or death.
What we don’t know
Outside specific and time-constrained events, life isn’t binary. Neither is investing. The scenarios that could play out are infinite, and we don’t see them coming.
The problem is we lack imagination. What you can’t imagine, you can’t think about, and what you can’t think about isn’t a possibility until it happens.
Shutting down whole countries was unimaginable some months ago. What else can’t we imagine?
The most significant risks lie in the unknown.
What we know
Yet, given a long enough path, risks stack on each other, and certainty emerges—events that can happen inexorably do. Honnold can only climb free solo so many times; with repetition, ruin is inevitable.
Keynes famously said that in the long-run we’re all dead.
Don’t go there
We usually think in averages, but in the face of ruin, averages matter little. The long tail of unimaginable risks matters the most. Life and investing are path dependant. When survival is the ultimate reward, success means staying in the game to play another round.
Things happen, but we can do our part. Limited downside is paramount; let the upside take care of itself.
What Keynes said is as true as it is impractical. To navigate life and investing, I bury that truth and embrace Charlie Munger’s wit:
All I want to know is where I’m going to die so I’ll never go there.
Investment Update
Duluth
Duluth is a workwear retailer shifting its focus from growth to profitability. Duluth has a reliable brand, products that customers love, and a management team that is invested in the company. You should read my write-up HERE.
Revolve
The stock has gained 150% since my initial purchase. My fair value estimate is much lower than the market price, but I’ve decided not to sell because:
Revolve has a long runway for growth with low capital requirements. I’m letting this winner run.
The valuation is rich but sensible; it implies growth rates and margin expansion that are possible (though I’d rather not bet on them). In a best-case scenario, I calculate Revolve is worth +$26/share. There’s still plenty of upside. It hasn’t been a year since Revolve reached +$45/share.
I have nowhere else to invest the money. Today, my portfolio has too much cash.
I think distortions on the price of money largely explain the recent market run. Money is cheap so asset prices are being pumped up. To maintain my sanity, I’ll keep my focus on long-term fundamentals. In that instance, Revolve scores well.
Portfolio
Here is our latest portfolio performance and composition:
What I’m Reading
The Autobiography of Benjamin Franklin
Benjamin Franklin’s autobiography is full of wisdom. His short but comprehensive list of virtues from the 18th century has more value than most life hack books today:
TEMPERANCE. Eat not to dullness; drink not to elevation.
SILENCE. Speak not but what may benefit others or yourself; avoid trifling conversation.
ORDER. Let all your things have their places; let each part of your business have its time.
RESOLUTION. Resolve to perform what you ought; perform without fail what you resolve.
FRUGALITY. Make no expense but to do good to others or yourself; i.e., waste nothing.
INDUSTRY. Lose no time; be always employed in something useful; cut off all unnecessary actions.
SINCERITY. Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.
JUSTICE. Wrong none by doing injuries, or omitting the benefits that are your duty.
MODERATION. Avoid extremes; forbear resenting injuries so much as you think they deserve.
CLEANLINESS. Tolerate no uncleanliness in body, cloaths, or habitation.
TRANQUILLITY. Be not disturbed at trifles, or at accidents common or unavoidable.
CHASTITY. Rarely use venery but for health or offspring, never to dullness, weakness, or the injury of your own or another’s peace or reputation.
HUMILITY. Imitate Jesus and Socrates.
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Stay well,
Fred
Watchlist
You can find my updated watchlist HERE.