Weekly Brief #54
Reader, meet uniformed optimism... 7-Eleven acquired by Ito family, Sony in-talks to acquire Elden Ring, Google pushed to sell Chrome, Neuralink gets Canada approval, and more.
Good morning investors 👋,
Welcome back to the 54th Weekly Brief.
The long-awaited Jake Paul-Mike Tyson boxing match was aired live on Netflix last Friday, raking in the most money ever for a Las Vegas sporting event. If you haven’t watched it, keep it that way — it was very underwhelming; I’ll never get those minutes of my life back. Aside from mediocre boxing matches, this past week was full of very interesting acquisitions and announcements. Most of which I’ve covered today for you. Along with, more importantly, an explanation on why so many individual stock investors fail starting out (and how to fix it).
Let’s get into it. (13 min read)
In this issue:
☄️ Reader, meet uniformed optimism
🔍 Google pushed to sell Chrome
🇷🇺 Russia revises nuclear doctrine
FEATURED STORY
☄️ Reader, meet uniformed optimism
You’re not the greatest investor starting out. Yet you think you’re an amazing investor with impeccable stock-picking skills. You’ve read The Intelligent Investor, and you follow the teachings of Warren Buffett, and you’re as optimistic as ever about your skills in the stock market.
But hold that thought — you think you’re all that and then some, knowing all you could ever know… while being brand new to the game.
Meet, uninformed optimism.
Inflection point
In entrepreneurship, uninformed optimism is the feeling of first starting out with a business. Say, a weekly email newsletter or blog. You start out, create your newsletter’s name, learn some basics of starting a blog business, then tell your friends and family. You gain some subscribers from this, and you publish and send out your first blog post.
“God,” you tell yourself. “I’m going to do this. This is actually going to work.”
A couple of months pass, and… whoops! Turns out, you can’t do this.
Fun fact: only 10% of online writers continue writing their blog for a year straight. From running into growth difficulties, a lack of revenue, burnout, or loss of motivation. You didn’t know this starting out. You thought you enjoyed writing. You heard this was a way to make money, and you thought you knew everything you needed to know… you were an ignorant optimist, so to speak. As more months pass, you start to feel the pressure. All of what you didn’t know, all of the problems you’re encountering, all of it starts to get to your head.
Eventually, your optimism fades, and you end up in a position of despair. All the feelings and factors of this business you weren’t prepared for start to take over, replacing the optimism. You’re now more informed, less ignorant about the facts of this business, but instead of optimism, you’re filled to the brim with pessimism. You think you’ve failed. That’s it; it’s over. Your uninformed optimism shifts to informed pessimism.
During the euphoria of starting this business, your optimism is through the roof. You’re excited to start something you enjoy, something you believe you know enough about — but this turned out to be clouded judgement. The optimism stifled your ability to learn — it made you comfortable. You forget to learn about all the statistics, the growth paths, whatever it may be.
This is the inflection point. This is how most startups fail. Most people at this stage allow the pessimism to overcome them. They didn’t reach 10,000 subscribers within the first five months and crap! Looks like this business doesn’t work, and I don’t like the stress of learning. Time to wrap things up. The end.
Most don’t realize that being ignorant is a great sign. It means you have much to learn, as most people do. In the realm of starting a business, it’s an ever-evolving cycle of learning. There will be problems, obstacles, and burnout. From your starting point to the inflection point, your motivation fades.
All it takes is time. Keep pushing forward. Get past that pessimism. If you’re at that point of informed pessimism, there’s nothing stopping you from succeeding except your mindset. You’re already informed, no? What’s the problem? You know what you need to know to keep pushing, so keep pushing. This is what leads to success. Once the pessimism fades (which, for most, it doesn’t, as they refuse to allow it to), then you succeed. Assuming your business provides actual value and isn’t worthless.
My sister and her husband — let’s call him Jefferey — own a landscaping company. Last year, Jefferey mentioned that during the first year of operation, they made $10,000 in revenue. He didn’t bring this up out of the blue, nor was it to brag. I actually asked about a job they were working on while sitting outside on their deck drinking an iced coffee. Jefferey told me that this one job, of the hundreds they complete in a year, would make $10,000 in profit.
From $10,000 in annual revenue, to $10,000 in profit on one job.
Jefferey and my sister could have easily given up in that first year. Easily, but they didn’t. And now, nearly a decade after starting the business, they have succeeded in their ventures. All because of persistence. They most definitely experienced low points and obstacles, but they pushed through them, and won.
Do I enjoy writing? Yes. Do I enjoy writing about the stock market? Yes, absolutely. I started this newsletter for one thing and one thing only: to write about stocks. I enjoy doing this. I’ve put all my thought and focus into growing this newsletter into a successful business. I’ve been in this pessimistic hole many times, and that will repeat in the future.
But it is what it is. I have a growth path, I have a model, I believe I provide value, I know what I’m taking about (for the most part at least — I’m human), and I enjoy what the business consists of. I just need to wait. I’ll get past the occasional slumps and let time play its role. Eventually, success will come.
Persistence is key.
Ok, but how does this make me a bad investor?
Much like starting a business, investing in individual stocks — being an individual stock investor — has this firsthand sort of optimistic, “this seems easy” appeal. I mean, it’s just picking a freaking stock, right? How hard can it be? You want to maximize your returns, and stocks go up, so buy a stock.
Right there. That’s your uninformed optimism.
During the 2021 COVID market bubble, so many retail investors fell into the craze of uninformed optimism. “All I need to do is invest in a stock, and I’ll make money!” Not knowing much about qualitative analyses and quantitative analysis or investment research. Nada. Since every stock bought during the craze went up, a retail investor could buy a stock and feel as though they were the smartest person ever. Even though the stocks were completely detached from the business’s fundamental position, moat, or what have you. (Similar to what’s happening in the current market, but that’s for a another day.)
This is how you lose money. And you will lose money with this mindset.
Like with starting a business, you can never be fully prepared, that’s just the truth. It doesn’t matter if you know a lot about the stock market before you invest in stocks — you’ll fail eventually. You need to know the research process, and everything that comes with it, but you also need experience in the stock market to implement your knowledge. You’ll lose money starting out, but eventually, you’ll learn why. You should learn why, then implement.
Creat informed optimism for yourself. Continue learning and becoming informed, but don’t allow emotion to ruin it all. Pessimism is an unwanted placebo effect for achieving your goals — it’s tells you your goal is unachievable, when it’s really not.
Most don’t create informed optimism. Most start to make money in the stock market, get that euphoric uninformed optimism, and when they fail eventually thanks to the overwhelming pessimism, they stop. “This stock market thing is stupid, I lost money.” No, you’re just ignorant. Are you playing with option contracts? Day trading? That’s not investing in the stock market, that’s get-rich-quick.
Investing in individual stocks is not hard; anyone can do it. The same way starting a business isn’t hard. But the process to get consistent results is hard. If you’re a new individual stock investor, think to yourself — do you actually know as much as you believe you know? Do you actually keep up with earnings reports, listen to earnings calls, ponder the valuation, form a thesis on the long-term aspects of the business you invested in, analyze its moat, and understand its business? If not, learn about it. It’s not hard to start investing or achieve some beginner’s luck. The real challenge lies in managing an individual stock portfolio over the long term to provide consistent returns.
This is something that takes time to perfect.
“Investing in stocks is an art, not a science, and people who’ve been trained to rigidly quantify everything have a big disadvantage.” — Peter Lynch
But look, if individual stocks are too demanding, even with the potential for more flexible returns, buy an ETF. Starting a business isn’t for everyone, and neither is investing in individual stocks. I’m rooting for you.
That’s my spiel. Happy investing.
PS: Consider upgrading to the paid membership below if you’d like to improve your knowledge of individual stock investing. A paid Brookfield analysis is coming by the end of the week, and if you’d like to receive that, it will be paywalled. (This should have been released on Tuesday, but there were some minor difficulties.)
FINANCE
a. 🏪 7-Eleven acquired by Ito family
The Ito family, founders of Seven & i, the parent company of 7-Eleven, announced plans this week to raise over 8 trillion yen ($52 billion) to take the company private by the end of the year. The family has set up a special-purpose company and is in talks with Japan’s largest banks and U.S. lenders for funding.
This is an obvious under-pressure move to fend off the $47-billion buyout offer from Alimentation Couche-Tard (parent company of Circle K and Mac’s) back in October. According to Reuters, going private would allow Seven & i’s management to disregard shareholder pressures to sell and eliminate the threat of a takeover.
Related articles:
b. 🎮 Sony in talks to acquire Kadokawa
Sony is reportedly in talks to acquire Kadokawa, the Japanese media company behind the immensely popular game Elden Ring, with a deal that could be finalized in the next few weeks at around $3 billion. Sony already holds a 2% stake in Kadokawa, as well as its game developer FromSoftware.
Since its inception, Elden Ring has sold 25 million copies, and its expansion, Shadow of the Erdtree, sold over 5 million units within three days of its release back in June. Over the years, Sony has shifted from electronics to a global entertainment and media powerhouse. As the company further expands into gaming, gathering IP is one of the most effective strategies (as we’ve seen, and will continue to see, with Microsoft).
Related articles:
BUSINESS
c. 🔍 Google pushed to sell Chrome
The U.S. Department of Justice (DOJ) argued in court this week that Google should sell Chrome in order to address its monopoly on online search. Chrome could be valued at over $20 billion, and if sold, would require a company with significant resources to maintain. That’s where companies like Microsoft and Amazon are expected to come in.
Since its ruling as an illegal monopoly in August, Google has faced massive pressure from the DOJ, and proposals this week include ending exclusive search agreements (such as with Apple’s Safari) and breaking apart the company. U.S. President-elect Trump has been very vocal about his push to end these antitrust lawsuits against American companies, including in the EU. Google will most likely postpone the hearing until the inauguration.
Related articles:
d. 💉 Neuralink gets Canadian approval
Elon Musk’s Neuralink has officially received approval for its first clinical trial in Canada, where it’s set to test a brain implant designed to help paralysed individuals (more specifically those with quadriplegia) control digital devices with just their minds. The trial will be conducted at Toronto’s University Health Network and will evaluate the implant’s safety and functionality.
Neuralink has already tested the device on two patients in the U.S., with one successfully using it for tasks like playing video games and designing 3D objects. It’s groundbreaking stuff for the described use cases, I’ll say that much. But would I get an implant just to use tech better without any underlying condition? No. Sorry, Elon, not falling for that.
POLITICS
e. 🇷🇺 Russia revises nuclear doctrine
Russian President Vladimir Putin signed a revised nuclear doctrine on Tuesday, the day marking the 1,000th anniversary of Russia’s invasion of Ukraine. The revised doctrine now states (paraphrasing) that “a conventional attack on Russia, supported by a nuclear power, will be treated as a joint assault.”
The update follows reports of Ukraine using U.S.-supplied ATACMS missiles to strike Russia, with successful attacks in the Bryansk region. While no casualties were reported from the attack, the Kremlin characterized the revision as “timely” and said the use of ATACMS was a sign the West wants to escalate.
My thoughts
Now look, Putin is not an idiot. He’s a smart man. He knows, just as much as Biden, Trump, and the entire world population, that nuclear weapons aren’t something to be reckoned with. Such destructive weapons used in a conflict end in mutual destruction; taking an eye for an eye. All this does, is make everyone blind. There’s no winning. This revision is a scary and aggressive reminder for the West to back off, crunching them into a corner, that’s it.
I don’t believe Putin is serious about the intent to use one of these weapons in the conflict. However, I bet Russia never believed Germany would betray them in WW2, so never say never when it comes to war. War is an emotional conquest by a few powerful humans making quick, emotional decisions. Emotion is usually irrational, and pressing the nuclear button is as irrational as you can be.
Related articles:
📚 Book of the Week
⭐️ For every book purchased using the links below, 100% of affiliate commissions are donated to charity. (Amount donated so far: $31.11.)
My full bookshelf: Here.
The LEGO Story - Jens Andersen
Book Description:
It’s estimated that each year between eighty and ninety million children around the globe are given a box of LEGO, while up to ten million adults buy sets for themselves. Yet LEGO is much more than a dizzying number of plastic bricks that can be put together and combined in countless ways. LEGO is also a vision of the significance of what play can mean for humanity.
This book tells the extraordinary story of a global company and a Danish family who for ninety years have defended children’s right to play — and who believe grown-ups, too, should make the time to nurture their inner child. The LEGO Story is built on Jens Andersen’s unique access to LEGO’s own archives, as well as on Andersen’s extensive conversations with Kjeld Kirk Kristiansen, former president and CEO of the LEGO group and grandson of its founder, Ole Kirk Christiansen.
A riveting cultural history of changing generations’ views of childhood and the importance of play, The LEGO Story also a fascinating case study of how innovation and creativity helped leaders transform LEGO from a small carpentry business into the world’s largest producer of play materials and one of the most beloved brands in the world. Richly illustrated with never-before-seen photos from the family’s private archive, this is the ultimate book for fans of LEGO, revealing everything you ever wanted to know about the brand.
Thanks for reading. Feel free to reply to this email or comment on the web if you need anything — I always reply. If you enjoyed today’s issue, feel free to share it with friends and family.
All the best,
Jacob