Jul 2022 - It Works Until it Doesn’t
A meme I think about a lot more lately… Shout out to Marvel Studios for Infinity Wars
Hi friends,
Welcome to my 7th monthly email, in this segment called “Michael’s Monthly Musings”. If you missed my earlier monthly newsletters, please refer here.
Remember to add my email as a legit contact! Otherwise, my email may go to your spam folder... I’m thankful for all the friends, family, and readers of this newsletter for the support and replies via email I got from my last newsletter. We’re now >100 email readers! Feel free to share this with friends who may find this interesting or may want to meet/know me.
I apologise to readers in advance, for this month's newsletter is going to be less "self-development" or "advice" oriented, and more just a reflection on a realisation I have come to confess, that has been on my mind for the last 6 months now. Thank you to all my readers who persevere to the end…
The bottom of Wentworth Falls, in my recent solo trip to Blue Mountains. It was totally worth it for this picture!
🧘 What does the Blue Mountains and writing my newsletter have to do with me?
As I write this newsletter, I am on a solo trip to the Blue Mountains for the weekend, taking a step back and reflecting (something close friends will know I do regularly whenever I don't know what to do). Have any of you been to the Carrington Hotel in Katoomba? I would recommend checking it out for lunch! I have to thank the welcoming church members I got the pleasure to meet when I visited the church service at Katoomba Anglican Church (i.e. St Hildas) today for the recommendation. Pro tip, another place I would've checked out for lunch in Katoomba if I had more time was Cattlefish, and they're known for their fish and chips (the owner attends the church I mentioned above)!
It has been a while since my last time away from Sydney. Maybe that was due to my work in the stock market (which hardly ever switches off), maybe due to COVID restrictions (with the omicron variant), or maybe just due to other personal things in life (like doing CFA exams, volunteering in different roles at church, etc)... Whatever the case was, I was glad to use this time to go away from Sydney.
I have a bad tendency to associate where I am, with what I should be doing. For example, being at my desk in my bedroom with the laptop has the effect of making me think that I have to be productive with my work, website, volunteering or frankly anything. Whilst all good things, I very rarely have time to step back and soak in the bigger picture. Being away with nobody to talk to, I was certainly worried about what I would actually do… I deliberately did NOT bring my laptop to avoid actually working. I'm glad I did that.
Whilst I actively try to "step back" in my day to day (by looking at my personal milestones tracker daily, maybe too obsessively - which I describe in this blog post here), I think often I cannot truly step back unless I change the environment of which I am in.
An old snapshot of my personal milestones tracker as at Jan 2021 (somewhat outdated now but for what it’s worth), with link to full sheet here.
The history of that personal milestones tracker, was something I explored in my podcast interview with my good friends from Atlas Academia (i.e. a social education enterprise based in Epping, Australia) who I donate and advise to. They interviewed me back in Jan 2022, talking about goal setting and mentoring, documented on YouTube below. Listen to the first ~15 mins if you want the context (but I also summarise it below here quickly).
🤐 A confession I need to make
I have a confession. I have been a big believer of this tracker that I discovered back in my first year of UNSW in 2015, purely by luck when I was starting off as a fresh cadet at Deloitte in the audit division in July 2015 (audit is basically checking financials of companies before they report them to the regulator/market/etc - I intend to write about my ~3 years of experience as a cadet in future…).
Anyways, off the back of that tailwind of a big corporate giving me a chance to work whilst being a first year commerce student (incidentally at the time, I think I was the youngest employee as at that time when I started in Deloitte), I was driven to make a name for myself. The highest level you could get to at Deloitte was the role of a "partner" (shout out to actress Arden Cho in her Netflix Original Series "Partner Track" which should give more details about what it's like trying to get there).
I was so naively passionate about that goal to become a partner in my first month at Deloitte, that I "cringely" bought this book called "How to make partner and still have a life" by Heather Townsend and Jo Larbie.
I read that book, and one thing that stood out to me was that I did not like the lifestyle of a "partner" (no offence to any partners reading this! That was just my own 2c conclusion...). I didn't have the stamina nor the determination for it ultimately. That was probably one of my wisest decisions when I look back in hindsight. I'm often reminded by a similar line that the famed investor Warren Buffet talks about, which is that "omission" (i.e. Not doing something) is often times more important than "commission" (i.e. Doing something).
⭐ A productivity north star that has led me for the last 7 years
The greater thing that stood out to me in the book I read above was chapter 2, which introduced me to the personal milestones tracker that my friends/family know that I obsessively have treated as my north star for the last 7 years. I learnt that tracker of thinking about my life in different roles, and setting milestones for each of my roles over time from that book. It was a productivity gold mine. Some people thought I came up with it myself, but I certainly did not. But that said, I do not know many people who think about goal setting in this way, and maniacally stick with it for a long time like I have to see the benefits of it.
When I think about this personal milestones tracker, I get emotional. It has been a historic record of all the failures and successes in my life, documented on a single spreadsheet.
Moreover, it has provided me a look back into how I have changed as a person with respect to a lot of the goals I had (for e.g. at one point I dreamt of being going to China and being fluent in Mandarin, and at another point I was going to be a famous food blogger who would travel the world and make money just off that...). This is why I am a big believer that people genuinely change with the passage of time. That personal milestones tracker was the tool that often acted as a guard rail for me. Good friends will know I often liken meeting goals in life as if you're walking on the yellow brick road (in the Wizard of Oz) and so long as you're on that path and not veering off it (with a guard rail like that tracker) you will be safe. That's how I try to manage the volatility of life personally, using that framework. But it doesn't always work.
🧠 A story about The Reject Shop and iSelect back in 2018
Like any good framework, they are just that... A framework. Something that sounds great on theoretical paper, but can get very ugly very quickly when you put it to the test in reality at times when it's stretched to the limit. I call this phenomenon out, because I am reminded by my mentor Albert and his comment of the stock market, that things work until they don't.
Just because you made money on a stock with a thesis, doesn't mean you can repeat it all the time and exploit it every time. Competition is fierce in reality, and people eventually figure out what you're doing, or you get complacent and get a bit too lassez faire in your thinking and overlook other jarring issues.
A mental framework I personally applied was Ben Graham's (Warren Buffet's university teacher) "net net formula" for valuing stocks that were cheap on a "liquidation value basis" (i.e. if you liquidated all the assets and collected 100% cash, 75% receivables, 50% inventory, and paid off all the debts, not counting anything else, that would be your liquidation value).
This was incidentally a formula that was disclosed in his book "The Intelligent Investor" back in the 1950s. The first time I applied that formula was when I was a final year university student and was observing The Reject Shop (a discount consumer retailer) which was led by CEO Ross Sudano at the time. He made a series of missteps on promises of a stronger retail environment which did not eventuate, and I remember when he cut the 1HFY19 net profit guidance. The stock sold off from ~$4/sh at the time all the way down to ~$2/sh during Oct 2018. However, by quickly applying the "net net formula" I had learnt from reading "The Intelligent Investor", I quickly realised the current market capitalisation of the business was trading at LESS than the liquidation value based on the "net net formula" (i.e. You could buy the entire company hypothetically on public market for say $150m, and sell it for $200m based on the "net net formula"). Buy for $150 and sell for $200 - sounds like a great deal! But that said, you had to be brave or stupid to buy The Reject Shop at $2/sh at the time… I could remember some friends calling me crazy for buying an irrelevant consumer retailer who was getting demolished by bigger scale players in Kmart and Target.
Maybe it was luck, but I pulled the trigger and bought the stock at $2/sh and very quickly within the next month, the stock received a takeover offer from the Geminder family for $2.7/sh (they own Visy, a privately owned packaging company in Australia). The Reject Shop's stock price rocketed back up, and went back near ~$3/sh very quickly and I exited at that point because I assumed the Geminder family saw the same value as I did (a stretch I know…) and my thesis was proven correct (there was no more reason to hold the stock). I exited at ~$3/sh. I documented the trade here back in 2018. Incidentally, the stock never went below $2/sh again, and had a boost in COVID reaching a height of ~$8/sh at some point in 2020-21. The stock is now $3/sh still despite the weakening consumer macro environment in Australia. The Reject Shop was the only time that I had applied that framework of the "net net formula" and it actually worked.
Just because it works once, does not mean it works all the time. These opportunities are rare, and typically don't happen for a variety of reasons which explain why the stock is so cheap and will stay cheap for a reason. Maybe there's fraud, maybe the stock is a value trap, etc.
That was certainly the case with a stock I used to own which has been a "value trap", and that was iSelect (an insurance and utilities comparison provider online). Indeed, the stock did reach "net net value" at one point back in 2018, when it was ~50c/sh if I recall correctly. It used to be ~$1.5/sh when I bought into it back in early 2018, but the stock sold off when the CEO Scott Wilson resigned suddenly and there was a net profit guidance cut at the same time. Whilst arguably you could have made that "net net formula" argument at the time at ~50c/sh, the stock had a quick jump back to 80c/sh on no real fundamental news, but basically never reached that peak price ever again from 2019 onwards very quickly. It now trades at ~20c/sh... You could quickly overlook the management turnovers, insider selling, and lack of competitive advantage vs peers, for just the "net net value" of iSelect, but the reality was, that company was NOT cheap even on a liquidation value using Ben Graham's formula back in the 1950s...
The point is, just using the same framework like in the past does not always work.
☯ A harsh realisation about the personal milestones tracker - it's "just" a framework and nothing more
By extension, why I laboured on a stock story about The Reject Shop and iSelect, is to make the point that frameworks work until they do not. I confess, ever since I finished my CFA exams and received my charter, I have been asking much more existential questions about the tracker for the last ~6 months. It has happened a lot more than I would like to admit. It's not that I am necessarily unhappy with it, but I keep wondering whether my happiness has been tied to this because of how dependent I have become on it.
I don't know exactly what happened. Maybe I'm tired of following the tracker so religiously after 7 years... I think there's certainly a case to be made that the passage of time can certainly do that to the user of the tracker. Lately, I've looked at the tracker, and feel directionless with it. I have all these roles, and milestones for each of the roles, forecasted out for the next ~25 years of my life. Shouldn't I be pretty convicted about what I am doing?
I am much less sure these days. Many days I stare at the tracker (sometimes for 1 or 2 hours - that's probably a sign I'm going insane), hoping for energy to come to inspire me to achieve my next milestones. But it just doesn't work like it used to anymore… I have found myself more regularly questioning all the roles I have of myself and wonder WHY am I doing them exactly. I give superficial answers which I am not happy with, for a lot of the roles and milestones. I just cannot defend the tracker like I used to anymore it feels…
Don't get me wrong, I don't want to suggest that this tracker has lost all relevance to me, but I want to illustrate that people change, and with it, the frameworks they use also need to change and evolve. Just because something worked in the past, doesn't mean it will continue to going forward (recall my 2 stock story examples above). That is something difficult to do, because it's easy to be complacent and trust the "process" of what has worked in the past, to continue into the future. Whilst that is true to a degree, I also note from my experience in the last ~4 years of the hedge fund industry (for what it's worth) as a stock picker, that just because you love a stock you've owned that has made you money in the past, there often comes a time where the stock get too expensive, and you have to learn to let it go. That is a difficult conclusion to get to. Letting go is always hard.
At church, I'm reminded of the illustration of a monkey sticking their hand into a jar to get a banana, but so long as they're holding onto that banana, they cannot pull their hand out of that jar unless they let go of the banana…
There are elements of my framework I want to retain, but I completely acknowledge that the personal milestones tracker that has served me faithfully for the last 7 years will now be a lower priority as I reflect and re-evaluate it, and I want to evolve from it. In terms of what that will like going forward, I am still reflecting on this, and seeking advice from mentors, friends, family, colleagues, etc.
For now, I am reminded by a friend, when she cited James 4 to me recently (recall this from my last newsletter here, where I used it for a slightly different context, but the below is a shorter snippet).
"Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that." - James 4:13-15 (NIV)
Perhaps that is the principle in which to live by for now? Watch this space as I continue to wrestle with what this "evolution" will look like in the future.
I think this is the appropriate time to say farewell to my personal milestones tracker. Thanks for everything in the time you served me. You were and always will be a friend to me.
I can't believe I am getting this emotional writing about a personal milestones tracker... Maybe I was a little too obsessed with it?
👍 To conclude for now…
Thanks for reading my ramble if you got this far for my July 2022 thoughts. Please do hit <reply> to this email if you have anything to add / any questions. I quite enjoy replying to comments/emails as a source of procrastination. Please share this email with others if you found it value-adding.
Thanks for reading,
Michael
🚀 Some of my favourite memories from July 2022
Got shouted a memorable degustation Japanese dinner in Barangaroo by a close friend - would recommend Zushi and give it a 9/10
Celebrated sister and her baby's birthdays over an Italian dinner in Chatswood - would recommend Spago, they currently have a truffle season menu for a limited time! I give it 8/10.
Got to catch up with some old high school friends from North Sydney Boys, one via FB call and the other at a Sri Lankan restaurant in the city called Indu (I give it an 8/10!)
Watched Thor: Love and Thunder movie with 2 good friends. Felt like the previous Thor movie was better… But definitely, Christian Bale as the villain stole the show for me (I remember him from the Batman Begin days when I used to study the film in year 8).
Got to catch up with the UNSW I4C (Investing 4 Charity) execs for a general update on the awesome events they've been doing for 1H22, and plans they've got for 2H22. I am continually inspired by these students every time I speak to them. I wrote a blog recently about the amazing turnaround story I got the privilege to witness in the last 5 years with the society here.
Trying to survive earnings season for a lot of companies reporting their quarter ending June 2022 results… It has again, been a volatile earnings season both on the upside and downside.
Signed up to begin sponsoring a child through Compassion, after speaking to several friends and doing my own research. The kid is currently just in high school and based in Indonesia. I hope to commit to this until the end.
Been 2 weeks into a 4 week program at my church, going through how to lead growth groups at church. We have been studying the book of Colossians and working through a book called "Growth Groups" by Colin Marshall. Been challenged but enjoying it.
Went on a solo trip to Blue Mountains, and got to see small towns like Lawsons and Leura along the way to Katoomba. My favourite part of the journey was the people I met and getting to walk ~3 hours around Wentworth Falls. I was initially worried about my solo trip, but after this experience, I have a bit more confidence to do another one. I'm planning to go solo to Kiama next month hopefully…
