🔑 Why you should move somewhere boring
Welcome to The Business Academy. Here's what we have in store for you today:
- Why you should move somewhere boring
- An inside look at building a permanent equity HoldCo
- A tree business with a phone that won't stop ringing
🔑 My interview with an entrepreneurial dentist - Dr. Peter Boulden...
He's building an empire of dental practices (he has 8 currently). Check out my conversation with him for insights on buying a dental practice, developing real estate, and moving from operating to investing.
Why you should move somewhere boring (and regain your willpower)
At age 15 I was a very competitive swimmer.
I trained 6 days a week in the pool. I ran and lifted weights several days a week.
Before every competition, I had a consistent routine. The night before I ate a huge bowl of pasta. Went to bed early. Ate some oatmeal in the morning. And an hour before my swim race I was in my bathing suit, wearing a parka and listening to my favorite CD-mix.
I was limiting variables to maximize my chances at a successful outcome.
LeBron James shared this quote about creating the right environment to compete:
"I believe in a good routine, but more than that, I believe in consistency. I take my time warming up, stretching, and getting my mind right. My body knows it’s time to perform because I’ve done the same things for years."
If world-class athletes are so focused on their routine...the best investors should be as well.
Investors show up daily, ready to compete. An off day can lead to meaningful loses.
So it got me researching the answer to this question:
What are the world-class investors doing to bring their best game, every single day?
In his book, The Education of A Value Investor (link to book), Guy Spier does a deep dive on this topic.
Guy recognizes all humans have weaknesses and that will power is a muscle that loses strength throughout the day. With enough draws on your willpower, eventually, it will dwindle.
When he lived in New York, Guy had a fancy office near Times Square (AKA near all the distractions).
He was paying a lot of money. It felt cool and fancy.
But he realized that being surrounded by other people in finance led him to be influenced by the current emotions of the other people in the building.
It also increased his envy.
Everywhere you look in New York you see wealth. The cheapest 2-bedroom apartment with a view of Central Park is worth $4 Million. Even a very successful person can look next door and find themselves envying their neighbor.
Guy found himself wondering if he was starting to take bigger risks in his investments to balloon his wealth and match the people around him.
In some ways, I had a similar experience in the year that I lived in New York. It's fun. Exciting. You can see live music any day of the week. There is always a cool exhibit and your friends are within walking distance.
But because of all of the distractions I found it hard to put my head down and focus on my startup.
People who move from New York to San Francisco complain about how boring it is. Most restaurants close at 9pm. Bars close at 1:30am and there are very few places anyone would consider a "club". People go to bed early and wake-up early in SF.
And that's part of what makes it more conducive to starting companies.
SF is boring. So you can spend ungodly hours trying to create a company of the future.
Guy Spier is not weaker in spirit than anyone else who lived in New York. If anything, as a value investor, he has more control of his will power than most people in times of crisis. But he is smart and humble enough to understand the limitations of our simple primate brains and emotions. He is willing to act to change his environment to improve his skills as an investor.
Guy considered following in the footsteps of his idol, Warren Buffett, and moving to Omaha. But instead, he picked an office outside of the downtown of Zurich.
Why did he pick Zurich?
Quality of life - it's expensive but relatively egalitarian, with a large amount of free high-quality resources for its residents, including public transportation, access to education, parks, swimming pools, libraries and more.
Good airport - flights to all major cities
It's bland - he says "Boring is good for investors"
Built on a web of trust - crime is low, and society seems to run on a high degree of trust
Not an investment hub - to avoid being influenced by the hive mind of investors, Guy prefers to stay away from other investors
Not a destination - unlike Paris or New York, people are less likely to randomly visit Zurich. Guy isn't distracted hosting guests all the time.
Here are learnings from other great investors...
Mohnish Pabrai - works in a boring office park in Southern California instead of an oceanside office.
Seth Klamran works out of a nondescript office in Boston
Nick Sleep's office in London was near a Cornish pasty shop, far away from the grandeur of Mayfair (the financial hub)
Warren Buffett works in Omaha's Kiewit Plaza, far far away from Wall Street
Guy Spier was once invited to visit Warren Buffett's office. During his visit he noticed Buffett had no computers, or phones near by. Just a desk, and a chair. His walls were bare, as if to avoid distraction. On his desk he only had 3 piles. "incoming" "outgoing" and "too hard".
Even the world's best investor is making a clear effort to limit his distractions. And he creates mental psychological guides that seem silly but encourages better investing behavior. The "too hard" pile is a beautiful tool that I will adopt in my office....
One last structural trick Guy introduced. He has a "busy room" and a "library". The library is free of distractions, designed just for reading. The "busy room" has a standing desk and no chair. So he's not incentivized to stay there for too long glued to his distracting monitor.
Curious, what strategies have you employed to help you be a world-class performer in your work?
🔑 One interesting read: How to start a permanent equity holding company
I just read the fascinating story of a young HoldCo called Traction Capital.
Their first acquisition was a fire fighting equipment distributor in 2018, and the two partners have gone on to acquire three more businesses since then.
They're long-term holders, just like my firm Enduring Ventures, and they love to acquire boring businesses.
I like their story because it gives us a real-time look at the process of building a HoldCo as it's happening.
The article & accompanying podcast episode goes in-depth on their HoldCo structure, how they financed their acquisitions, and what size business they recommend new business buyers start with.
🔑 One interesting deal: A boring tree business with unlimited demand
Take a look at this 30-year old tree company in Connecticut that does $1.36 million in annual sales.
It's selling for $1.5 million, about 5.8x cash flow. Here's what I think about the deal:
What I like
I love the age of the business. I always look to buy companies that have been around for at least 15 years and have weathered several economic storms. A 30-year old local service company likely has a strong brand within the local area.
What I don't like
The multiple of 5.8x is a bit high for the size of business. Some brokers will try to sell you the "business" and the equipment seprately. Our response is that without the equipment, the business won't operate so either we need to buy the business including normalized levels of equipment OR we buy just the equipment. Not both.
This scale of business should be priced closer to 2x EBITDA. At this size, they're going to have trouble selling the business for much more than the equipment cost.
One red flag is that the listing insists that there is unlimited demand that the business isn't attempting to fill right now - "why not?" I say. Are there some hidden operational problem that prevents the company from doing so? Is it too hard to attract the talent you want? Talent attraction and retention is pretty tough in this business.
This may be a situation where you get a loan to buy the equipment and offer the seller 1x of yearly cash flow as a forgivable seller note contingent on the business maintaining some level of sales.
Have a great week!
Sieva
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.