Screen Shot 2015-11-18 at 4.55.47 PM

What’s neat about this isn’t what’s changed. It’s what’s stayed the same.

The line, “One million titles, consistently low prices” seems like marketing guff. But it helps explain why Amazon has dominated where others have failed.

The allure of the Internet in 1995 was betting on change. New paradigms born. Old strategies discarded. Something requiring radically different thinking.

Yet Amazon’s focus from day one was as old as it gets. Selection and price. Businesses have pursued the idea for millennia.

Jeff Bezos once explained why this was critical:

I very frequently get the question: “What’s going to change in the next 10 years?” That’s a very interesting question.

I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two.

You can build a business strategy around the things that are stable in time. In our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, “Jeff I love Amazon, I just wish the prices were a little higher.” Or, “I love Amazon, I just wish you’d deliver a little slower.” Impossible.

So we know the energy we put into these things today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.

This is one of those important things that’s too basic for most smart people to pay attention to.


Things that change are amazing. They can fuel massive growth.

But change by itself is hard. Investors have to spot it before it’s obvious. Consumers have to change their behaviors to make it viable. Those two points repel each other like magnets. And things that change tend to keep changing. A company whose pitch is “We’re doing this entirely new thing” likely has to reinvent itself and its product line every year, maybe more. Each iteration is a front-line battle where you’re exhausted from the last war but overconfident from its victory. So the odds keep stacking against you. An investor hoping to ride successive changes in multiple industries over a 40-year career faces tenth-degree difficulty. Practically a claim of clairvoyance.

Change often creates bursts of opportunity. Huge opportunity, yes. But businesses and their investors need more than slippery bursts to succeed. They need endurance. And endurance resides in long-term bets. Things you can pour energy and capital into today with a reasonable chance of still bearing fruit ten years from now. Which tend to be things that are stable in time.

This might seem heretical to venture capital. Marc Andreessen was once asked how his investment style compared with Warren Buffett. He replied:

[Warren is] betting against change. We’re betting for change. When he makes a mistake, it’s because something changes that he didn’t expect. When we make a mistake, it’s because something doesn’t change that we thought would. We could not be more different in that way.

Seems directionally true. But I don’t think it’s that black and white. Both investors pursue the same things; they just weight them differently.

Every successful investment is some combination of change that drives competition and things staying the same that drives compounding. There are so few exceptions to this, regardless of size or industry.

Buffett has owned GEICO stock since 1951. During that time the company went from exclusively selling auto insurance to government employees in cafeterias, to selling several kinds of insurance to everyone on their iPhones. Analytics went from abacus to AI. These are not small changes. But one thing stayed the same, which is that an insurance company selling directly would have a cost and convenience advantage over those paying brokers. That’s been the driver of Buffett’s GEICO bet for 66 years. It’s timeless.

Andreessen Horowitz partner Frank Chen recently talked about two trends in insurance startups. One is better software. “Software will rewrite the entire way we buy and experience our insurance products,” he said. Second is capital structure. “We expect to see more crowdsourced insurance companies … it should be a cheaper way to pool capital.” Both innovations promise lower cost and added convenience. Which is as timeless as GEICO’s edge.

Investors weigh the importance of change and timelessness differently, but every great company has some element of both. The extremes are where things don’t work.

Take three companies in the 1990s: Sears, Beenz, and Amazon.

Sears bet the Internet changed nothing, to its detriment. Beenz bet the Internet changed everything – creating a points-based currency valid only at online merchants – to its detriment. Amazon bet the Internet changed distribution, but rooted its strategy in things that have never, and will never, change. It nailed the center of the Venn diagram of change on one side and timeless on the other. One drove competition, the other drove compounding. Every successful company does this.


In the last 100 years we’ve gone from horses to jets and mailing letters to Skype. But every sustainable business is accompanied by one of a handful of timeless strategies:

  • Lower prices.
  • Faster solutions to problems.
  • Greater control over your time.
  • More choices.
  • Added comfort.
  • Entertainment/curiosity.
  • Deeper human interactions.
  • Greater transparency.
  • Less collateral damage.
  • Higher social status.
  • Increased confidence/trust.

You can make big, long-term bets on these things, because there’s no chance people will stop caring about them in the future.


Screen Shot 2015-11-18 at 4.55.47 PM

Start with the big picture. Milken explained how successful investors first look for big global shifts that will affect many facets of life, and then drill down to find ways to invest in that coming shift. These tectonic moves can be even more lucrative since so few investors take the time or have the ability to see them coming. “The best investors take a look at the world on a macro basis and then try to figure out, looking at the macro basis, for the best ways to deploy,” he says. “We are quite often surprised how little research people do and how divorced they are … from the real world.”

* Know when to be afraid. Managing risk is one of the biggest jobs for investors and executives. But many decision makers allow themselves to mistakenly think risky investments are safe because others say there’s no risk. “Often the greatest risk is when you perceive no risk,” Milken says. Milken pointed to the poor long-term performance of government debt as a good example. Investors typically pay up for so-called “sovereign debt” as they think the securities are safe and government officials say they are. But that assumption has caused costly mistakes by banks in the past and could return.

* Risk is necessary for progress and needs to be taken intentionally and consciously. Investors and CEOs must take risks to succeed. To underscore his point, Milken quoted Facebook (FB) co-founder Mark Zuckerberg, “The only strategy that is guaranteed to fail is not taking risk.” But Milken said rather than taking risk, many investors and CEOs think they can sidestep danger by taking what they think are safe bets. But this is a folly as these executives are actually taking on greater risk as a result, Milken says. “One of the major challenges we have is so many investors perceive they haven’t taken risk, when they’ve taken great risk.”

* Find companies that will be big dividend payers. Facing the needs to generate steady returns on their money, large investors often seek companies that have large dividend yields right now. But Milken cautions it’s often companies that don’t pay big dividends now that might prove to be the biggest dividend payers in later years. “It’s a lot better to buy the dividend stocks of tomorrow rather than the dividend stocks of today,” Milken says. “You’ll get a lot higher rate of return on your money.”

* Know your limits. Milken spent much of his time subtly criticizing the recent trend in investing to buy passive investments such as index funds. Index funds don’t try to find the best opportunities, but instead offer investors a low-cost way to diversify and get exposure to the market return. Milken, though, says macro events can present big opportunities that require expertise to find — or those to avoid. “If you don’t have expertise in a sector or knowledge, invest with some else who does rather than diversify,” he says.

One of the troubles with trying to beat the market, or picking someone who says they can, is that it takes many years of outperformance before one can prove the investor is beating the market due to skill, rather than luck, says Mark Hebner, founder of Index Fund Advisors. For instance, on average it would take 180 years in order to prove that the average fund manager who beat the market did so from skill, rather than just luck.

Milken acknowledges the difficulty professionals have in finding these opportunities again and again. “In reality, very few people achieve those rates of returns … for a long period of time.”


I’ve been managing the XLF position as the market has moved to the upside quite significantly over the last two trading days. Probably should have executed today’s trades on Friday, but, executed them today.

I’ll update later today.


Opened a new trade in XLF. Better liquidity in this than there is in XHB. Liquidity is [in the short term] a real issue so I’m looking to see if the greater liquidity provides, or rather prevents, larger drawdowns.

The new position uses about $900 [small position].

Screen Shot 2015-10-03 at 6.35.20 AM


After the strong close, my final PnL for the day

Screen Shot 2015-10-04 at 6.15.47 AM


There has been further weakness in the market. Quite a substantial fall in XHB. Still suffering from the lack of liquidity, but larger moves like this one registers.

Screen Shot 2015-09-29 at 5.48.21 AM


Spent some time rolling a number of positions to bank profits. The idea being, [i] protect profits [ii] try to maximise profit potential. Of course commissions play a part and over trading will increase that cost.

However, on the whole, I am reasonably pleased with the outcome. I banked almost $500 in profits, so the cash balance has risen. The open positions are now mostly in the red as the reset creates [hopefully] greater profit potential.

One issue is that XHB is nowhere near as liquid as DIA [SPY, QQQ] and this is an issue. Over the longer time frame, it will not make any difference, but right now, it is an issue.

Screen Shot 2015-09-24 at 6.11.43 AM


Screen Shot 2015-09-22 at 6.03.52 AM

Still trading in the established range.

The Fed seems unable to make a decision to raise rates. All they are talking about is 25 basis points. Essentially nothing, yet still they procrastinate. Therefore we are probably range bound until some catalyst breaks the deadlock.


Screen Shot 2015-09-22 at 8.01.23 AM


Screen Shot 2015-09-19 at 6.01.19 AM

After the Fed, looking ok.

Part of the issue was that some of the position had gone to maximum loss and wasn’t repricing. I’m thinking that this was mostly due to liquidity issues. I watched the market trade for a while yesterday morning, and the liquidity of XHB as compared to SPY was just stark.


Screen Shot 2015-09-17 at 6.00.47 AM

Reducing the losses.


Screen Shot 2015-09-15 at 6.18.17 AM

This is the position as of last Friday, which I didn’t have time to post due to my two assignments. You can see that over the w/e, although nothing much changed in the way of price, the positions re-priced and the loss narrowed.

Screen Shot 2015-09-15 at 6.13.18 AM

This is due to two factors: repricing of theta and vega. Both make quite a [substantial] difference.

And at market close:

Screen Shot 2015-09-15 at 3.41.17 PM

Next Page »