My Story: The Sequel to the “Owning Unsexy Businesses” Thread

This is from Wall Street Oasis and really highlights where I am at with my own decision matrix in the “MBA/no-MBA/Leave secure job/Don’t leave job” spectrum.

“Anything worth gaining in life takes a solid brass pair.”

Hey everyone,

About six months ago I created a thread on WSO that ended up having a profound impact on my life. The thread was about owning and operating relatively “unsexy” businesses, and my goal was to pick the brain of other users to hear any thoughts or experiences they could offer (link: http://www.wallstreetoasis.com/forums/gas-station-…).

The idea for the thread came to me after working on a couple specific sell-side deals. These companies were in relatively boring industries, yet they were generating millions for founders that seemed to have a pretty chill lifestyle (i.e., they certainly weren’t turning comments to a CIM at 3:00am). More importantly, these guys weren’t super brilliant or anything like that; in banking, you quickly realize that founders/C-level types aren’t nearly as smart as you think they should be. If they could do it, I felt like I could too.

So during a few 3:00am nights I began to realize that: a) I didn’t want to do banking forever, b) I wanted to be my own boss, and c) I wanted to start a company in one of these “unsexy” businesses that was easy to understand and offered consolidation opportunities (almost all of the unsexy success stories I had seen were basically just roll-ups). I didn’t have the faintest idea of what I actually wanted to do though, so I started the WSO thread to help jog my brain.

The thread had some great dialogue including a few ideas I had not previously thought of, in addition to a few websites for small business listings. I went to one of the listing websites and searched for businesses back in my home state (Tennessee), and after about 10 minutes stumbled on a listing that caught my eye: an established billboard company in an area of rural Tennessee that I knew very well. It was generating ~$125k in gross revenue and ~$100k in EBITDA, and was priced at ~$500k. I didn’t know the first thing about billboards until reading that listing, but I did some due diligence and shortly became convinced that this business satisfied every qualification I was looking for: passive business model, location agnostic, niche industry that most people did not understand, opportunity for consolidation, and of course high cash flow.

I ended up having a few diligence calls with the owner before deciding I wanted to go for it. I drafted a comprehensive business plan and applied for an SBA loan with 10+ banks. The process was grueling; I had always heard that SBA loans are sometimes more trouble than they were worth, and I can now attest to it. Everything moves at a snail’s pace, and the seller’s taxes were a mess so I was having to walk the loan officers through all the adjustments (it was tough to even schedule these calls during my work day). That said, SBA also provides 80% financing with 6% interest, much better than I could do on a standard commercial loan with no track record and minimal collateral. Fortunately the seller signed an LOI with exclusivity, so we went far enough down the path that an extra month or two before closing did not cause him to walk away (but he was very close!).

After about six months from start to finish, I finally was approved by the bank and closed on the deal. I have owned it for about two weeks now, and it still shocks me that I actually went through with it. There were so many opportunities to walk away: can I actually do this? will I have enough money? what if I suck? what if I go bankrupt? what if all the customers leave? what in the hell am I doing??? But at some point you need to just take the plunge, and I am proud of myself for doing it.

My current plan is to work my banking job for another 1.5 years, collect two more bonuses, than quit to move back home and work on the business full-time. I need to grow organically to reach my annual income goal, and it is hard to do that from another state (not to mention while working a grueling IB job). As cheesy as it sounds, banking helped me realize that I am a “work to live”, not “live to work” type guy, and I am looking forward to getting my free time back while making a nice income.

Sorry for the long post, this ended up being much longer than I anticipated. But I felt like I needed to post a follow up given how helpful the prior thread was for me.

If anyone has any questions, please fire away!

Thursday reads; GILD Presentation; Market Thoughts

Thursday Reads

I read far and wide to build a base case for broader market movements. I am on the lookout for an opportunity similar to the oil and gas situation a year ago today. I said commodities was the trade of the year last year, but I don’t have any sort of conviction at the moment for a really great opportunity for this year.

I post the Trader links below to add another arrow to the investing quiver.


GILD at these levels looks like a great very long term play. 5 second elevator pitch is, great positioning for big time M&A activity this year, a strong existing pipeline, and a probable dividend hike with a reduction in buybacks. The Trump policy wildcard is the unknown. I am inclined to ignore Trumps words on drug pricing and wait for a defined action.

An article I can no longer find, put it well “Take Trump seriously, but not literally”.

Trump took the sector lower yesterday. To me current levels and lower has to be a buy for GILD.

GILD JP Morgan Presentation

AAII investor sentiment 43/29/27 Bull/Neut/Bear

The “Trump Trade” is still Bullish in sentiment. Make of that what you will. My cash position continues to be used when IV spikes on a liquid security. For now I wait to see what happens in the coming days up/down/or sideways. Generally it helps to have some sort of directional bias when writing options, and I have no conviction either way.

I have minimal exposure beyond core very long term holds so I would not be opposed to a market selloff and a big spike to the VIX, but I have no reason to think that will happen.

Jan 10 update EW

Jan 11 EW update TW

OEW Wednesday Update

 

 

 

 

Swarm Intelligence -Startups -Drones

A swarm of tiny robots acting in one accord from a single brain? It looks like Krall is coming. Or sky net for the non-star trek fans. Applied Game Theory meets warfare (and other cool stuff).

Anyway, I’ve been thinking through and modeling business outlines for various robotic systems that can be integrated into drones and then leverage swarm theory while filling a market gap.

Side note: The above video is pretty cool but also gives insight into a real downside. However, I’ll refrain from diving into a dissertation on the ethics of war on this site.

Using swarm theory as a base, its pretty incredible to think about what you can disrupt within virtually any industry…with a sufficient capital base.

Let alone what public spending could do to things such as housing, infrastructure layout, and the labor market.

An old article on swarm intelligence startups

Top 20 Drone Company Rankings

Inside Israel’s Secret Startup Machine

Goldman on the Drone market


Wednesday Reads

Here’s what really caused the housing crisis

Calculated Risk on 2017 Question and Prediction #4

Monetary Policy and Inequality

Irrationality In the Boardroom

Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Take the world as it is!

Best to your investing.

 

 

 

 

 

 

Tuesday Reads; Fed Predictions; Industry Rollups; Gilead; Bonds

Industry Rollups

Three Key Ingredients for a Successful Roll-Up Strategy

“Getting roll-ups right boils down to finding the right industry dynamics and market opportunity; developing, testing and perfecting the right operating plan; and finally, bringing a disciplined and focused approach to finding, evaluating and integrating targets.   Please let me know if you have a different take or if you’d like to talk about your specific plans.”

Roll up for a ride rich in risk and reward

“One of the ways financiers make money is doing a “roll-up”: a series of horizontal acquisitions in a fragmented industry. Typically these are industrial sectors that are obscure, unloved and overlooked.

I first saw this technique in action among various listed companies I researched as a stockbroking analyst in the 1980s. For example, a series of companies sprang up that consolidated funeral homes, including Kenyon Securities, Hodgson Holdings and Great Southern Group. They rationalised the use of hearses and crematoria, saved money on administration and marketing, and arbitraged the different earnings multiples between private and public companies.”

Strategic Rollups: Overhauling the Multi-Merger Machine

“Take a highly fragmented industry, like used-car sales, funeral homes, office supplies, air-conditioning services, veterinary care, or laboratory diagnostics. Buy up dozens, maybe hundreds, of owner-operated businesses. Create an entity that can reap economies of scale, build regional or national brands, leverage best practices across all aspects of marketing and operations, and hire more potent managers than the small businesses could previously afford.

It’s called a “strategic rollup.” The formula has seemed like an attractive business proposition—and Wall Street has embraced it enthusiastically. But for each successful rollup like Sysco Corporation, the food-distribution giant, or Quest Diagnostics Inc., which operates medical-testing laboratories, dozens of failures litter the landscape.”

Tuesday Reads with commentary

New generation of drones set to revolutionize warfare

I view the drone industry as ripe for a lot of money to be made and value to be created. There are hundreds of startups trying to fill the commercial space and a fraction of that in behemoths like General Atomics, Lockheed Martin, and Northrup Grumman, behind the veil of the DoD latching on to huge primary contracts while subcontracting smaller at risk ventures.

Goldman sees drones as a $100Bn market opportunity between now and 2020. This falls into one of my primary strategies going forward along with a specific industry rollup and very specific/concentrated capital markets investing.

Drugmakers question the future of drug prices under Trump

I view specific names in the Biotech and Healthcare industry as a good buy right now. I’ll share the buys after I finish getting long in them.

U.S. Government Bond Prices Decrease

I also view US Treasury Bonds as a candidate for trade of the year. I said the same thing commodities at the beginning of 2016.  However, Trump policy is the wildcard and that view could quickly go the other way.

The future of central bank independence: Results of the CFM–CEPR Survey

The impact of unemployment insurance expansion on aggregate employment during the Great Recession

Calculated Risk on Inflation for 2017

“The Fed is projecting core PCE inflation will increase to 1.8% to 1.9% by Q4 2017.  However there are risks for higher inflation.  The labor market is approaching full employment, and the new administration is proposing some fiscal stimulus (tax cuts, possible infrastructure spending), so it is possible – as a result – that inflation will increase more than expected in 2017 and 2018.

Currently I think PCE core inflation (year-over-year) will increase further and be close to 2% in 2017, but too much inflation will still not be a serious concern in 2017.”

Calculated Risk on Fed Hikes for 2017

“The number of hikes depends on the economic outlook and inflation. There are significant uncertainities concerning fiscal policy, and some of the proposals could boost economic growth (as an example, if there is a real infrastructure spending program), and some could impede growth (like a significant trade dispute).

My current guess is the Fed will hike twice in 2017.”

Gilead poaches Novartis cancer specialist Riva

Gilead Presentation

 

 

 

 

 

 

 

 

 

 

 

 

 

Networking over the Holidays and a few goals for 2017

Happy Monday and Happy New Year!

Over the period leading up to our holiday trip I sent around 200 emails and LinkedIn messages requesting various informational meetings with business leaders, investors, and interesting people of all types in our region.

The response rate was around 10% which, with the level of volume mentioned above, is plenty for the short time frame I was dealing with.

Like anything that has a skill component, the more you do it the better you get.

I would consider this networking push as the first time I have reached out and expanded my contacts with a completely new set of people. I loved it. The positive experience has spurred me onward to continue developing these relationships and planning new methods for a bigger expansion of my contacts over the coming year.

A few goals for 2017

I am a believer in setting goals and making them happen. Below is a snapshot of a relevant few. Specific and Measurable. Plenty more related to other hobbies and niche investing skills that I may include at a later date in a complete list.

  • Connect with 1 new person per week via LinkedIn and email. Build a value added relationship
  • 750+ GMAT and admission to my target MBA program
  • Read one book per week (Partial 2 column book list below)
  • Launch first venture (more to come)
  • Run 1 of trail des allobroges, Ultra Trail Ehunmilak, Ultra Tour Des 4 Massifs
  • Visit: Ireland, Iceland, Scotland, Finland, Norway, Sweden, Denmark, Spain, Portugal, Czech Republic, Hungary, Greece, Estonia, Latvia, Slovenia, Croatia

 

Book List:

  • All the Light We Cannot See                        Why Don’t we learn from History
  • Thinking Fast and Slow                                  The American Way of war
  • Mastery                                                               On War
  • Margin of Safety                                              Supplying War: Logistics
  • Fooling Some of the People                        Roots of Strategy Series
  • The Last Lion (Winston Churchill)              When Genius Failed
  • Riding rockets                                                    Barbarians at the Gate
  • The most important thing                            Kings of Capital
  • The art of short selling                                   Lincoln: Speeches and Writings
  • The Real estate Game                                   Ulysses S. Grant: Memoirs and Selected Letters
  • George Marshall Series                                        Memoirs of General W.T. Sherman
  • Eisenhower’s Biography                                         Whiz Mob
  • The Goldfinch                                                    The Big Con
  • Maverick Real Estate Financing                  Rules for Radicals
  • What color is your parachute?                    Billion Dollar Lessons
  • Charlie’s almanac                                             Washington: A Life
  • A Zebra in lion’s country                               Eleven Rings
  • Investing the last liberal art                         The 33 Strategies of War
  • Why smart people make big money mistakes
  • The Partnership                                                       The Strategy Paradox
  • Strangers in Paradise                                      The Book of Five Rings
  • Wealth Management Unwrapped           Inside the Brotherhood
  • Never Eat Alone                                               Strategy: A History
  • The checklist manifesto                                     The Speechwriter
  • A Tiger in the Land of Bulls and Bears      Stress Test
  • One Up Wall Street                                         The Courage to Act
  • Quality of Earnings                                          On the Brink
  • Confidence Game                                           Other peoples Money
  • The Outsiders                                                    Makers of Modern Strategy
  • Empire of Cotton                                             Supreme Command
  • The Grass is singing                                         Titan
  • The Hidden Wealth of Nations                   Capital in the Twenty First Century
  • Pit Bull                                                                  The New Financial Order
  • Irrational Exuberance                                     Finance and the Good Society
  • The Champions Mind                                     Relentless
  • The Sports Gene                                              The art of mental training
  • Dead Companies Walking                             Competition demystified
  • Competitive Strategy                                     Good to great
  • The Greatest Salesman in The world       Influence
  • The Compound Effect                                    The Power of Habit: Why We Do What We Do in Life
  • Valuation: Measuring and Managing       Economics in one lesson

Picking the posts back up

As my 3 readers may have noticed, I stopped posting for a while. This was based off of a conversation related to risk in the context of breaking into the business world. 

All that is in the rear view though and I want to continue with my original aim of building some sort of track record as I network and hustle my way to big goals. 

Posts to follow: 

1. 2017 reading list 

2. Revisiting my investment process 

3. 2017 goals 

4. Thoughts on networking 

5. To MBA or not to MBA 

6. Gilead, Commodities, McKesson, solar and Under Armor 

7. Handicapping the economics of 2017 

8. The drone industry 

9. Ideas on agriculture investing 

I will also continue with the “Things you should read” posts and posting derivatives spreads I am entering. 

Best to your investing and happy new year!