“My name is Joe from Tennessee. Over the last five years, we’ve seen a lot of change since the pandemic. From a capital allocation perspective, what would you say are your three biggest mistakes over the last five years, and what have you learned from them?
Also, you mentioned you’re not focused on forecasting, but a lot of times we look at what isn’t going to change. What are the key things you’re focused on that you know are not going to change in the future—things that will impact your strategy going forward?”
What’s not going to change?
That’s actually such a difficult question to answer. Three years ago, I might have said: “You want to become a programmer.” And now, I’d say: “You don’t want to become a programmer,” because AI changed that. I’m not sure I want my kids to become plumbers either, but that profession probably isn’t going to change that much.
When we look at our portfolio, this is a question I constantly ask myself: what’s not going to change?
We’re going to need energy, that’s not going to change. What kind of energy? That may change. We’re going to need food—that’s not going to change either.
As I answer this, I’m mentally going through our portfolio. If I frame it in terms of Maslow’s hierarchy of needs, those core needs are not going to change. The companies fulfilling them might change, but the needs themselves, food, energy, security-won’t.
Our need for security is not going to change. Therefore, I would argue that defense spending in Europe is not going to go down, it’s only going to increase. That doesn’t mean every defense company in my portfolio will be a winner, but the macro need is there.
So that’s how I approach it. When I look at a company, I consider where it fits into Maslow’s hierarchy. But your question is also about how technological changes affect that. And the truth is, we have to analyze each company with a lot of humility. Just because a company has done well over the last 100 years doesn’t mean it’s promised a future anymore. The rate of change is just too high.
Honestly, I’m not doing a great job answering this because I don’t think I have a great answer, at least not yet. Maybe at some point I’ll write more about it and find a better framework. But for now, that’s all I’ve got. Sorry.
Now, your other question was about my biggest mistakes.
On Mistakes in Capital Allocation
Over the past three years, I think I’ve made fewer mistakes than before, which is a good sign. It means I’ve learned.
The obvious one? Cable stocks. So far, that’s been a misallocation of capital. I keep questioning myself: am I going to be right long term, or am I just being stubborn? Right now, I still think I’ll be right long term. But we’ll see.
Should I have bought Bitcoin? I don’t know. I actually don’t consider that a mistake. That’s not really how I look at things.
Let me put it this way: I’m sure I’ve made mistakes. Either my memory is blocking them out to avoid pain, or I just haven’t processed them fully. But I can tell you about the kind of mistakes I tend to make.
I sell too soon.
And those are the mistakes that usually cost my clients the most.
I’ve talked about this before. Let’s say I’m wrong on a stock and it declines 100%. If it was a 5% position, then I’ve lost 5% of the portfolio. That’s painful, but contained.
Now let’s say I have a 5% position and it doubles, and I sell it. But then it goes up 3x or 4x from there, which has happened to me. The opportunity cost of that early sale is much greater. That could be a 15–20% difference in portfolio value.
So in the past, I’d argue that my biggest mistakes weren’t about losing capital, they were about missing upside due to selling too early.
Sometimes I sell for the right reasons and the stock goes up for the wrong reasons, that’s fine. That’s not what I’m talking about.
I’m talking about companies where the fundamentals continued to play out exactly as I expected, but I got emotionally drained or impatient and sold too soon.
Those are probably my biggest mistakes in general.
It’s happened over the past three years as well, but fortunately, I haven’t had a lot of those big misallocation decisions lately, so I’m not apologizing too much for that.
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