Tren Griffin @trengriffin I work for Microsoft. Previously I was a partner at Eagle River, a private equity firm established by Craig McCaw. I am on the board of directors of Kymeta. Nov. 19, 2019 1 min read

1/ Any business owner making capital allocation decisions in operating a business should be using "value as an analytical style." An owner not having a "circle of competence" about what is involved in those decisions and a "margin of safety" as protection from mistakes is unwise.

2/ If a business owner doesn't know what they are doing in making a decision, the risk of a permanent loss of capital rises. The cost of capital is what the business owner could have earned on their second best opportunity, whether inside or outside of the business.

3/ Intelligent investing in:

a) your business; and
b) public securities or a private business (ie, buying a partial interest in a business)

should involve the same process. It is possible invest capital based on speculation about price, but that isn't intelligent investing.

4/ Sometimes sectors of an economy outside your circle of competence (e.g., semiconductors; biotech) are appreciating in price more that your performance where you do have competence. When compared to an index fund like the S&P 500 you may underperform that index if this happens.

5/ Ignoring the absence of a circle of competence about an investment (eg, semiconductors; biotech) isn't rational. But since discipline is required to stay within your circle people can find themselves on balance with financial losses caused by not knowing what they're doing.

6/ >90% of investors will do better investing in index funds because it protects them against making decisions about things they don't understand. Financial returns for these investors can be even better if they select low cost index funds, because of the cost matters hypothesis.


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