Issue 13

February 2020

I wrote my February newsletter two weeks ago. Since then, a lot changed.

Coronavirus became a global pandemic. Joe Biden leapfrogged Bernie Sanders to become the presumptive Democratic presidential nominee. U.S. interest rates are at the lowest levels ever. (Now is a good time to refinance that mortgage!) And as of Friday morning, the S&P 500 was on pace to be down ~13-14% from prior all-time highs. The six days for the S&P 500 to decline >10% marks the fastest in history.

What hasn’t change is the theme of my newsletter, which focuses on Goals, Transparency, and Incentives.

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Why are these important?

Because periods of stress cause us to make irrational decisions. Having a clear understanding of goals allows you to operate from a position of rationality in a sea of chaos. Transparency ensures you have the data necessary to make an informed decision. Lastly, create incentives that foster mutually beneficial interest. By operating under this framework, I hope to build a level of trust with my partners allowing us to avoid potential pitfalls. Combine everything and you have a recipe to make prudent long-term financial decisions.

Goals. For any new partner, I work with them to create a roadmap aggregating their assets and liabilities. Once you create a composite of your financial accounts it becomes a lot easier to project those accounts through retirement. With an understanding of what it takes to reach your long-term goals, it becomes easier to ignore the noise from short-term fluctuation in a stock’s value. Or when you have a major life event like buying a house, having a kid, starting a new job, etc. you already know how that impacts your long-term goals and what you need to do to make sure you get back on track.

Transparency. After I make a new investment in the portfolio, I send existing partners a write-up about the purchase. The write-up includes an overview of the business, competitive landscape, risks, fundamentals, and valuation. First and foremost, it provides partners insight about my investing process. Over time these documents will provide a reference library we can utilize to evaluate past investments. Was my investment thesis right or wrong? Why was this the case? While not an issue today, as SCP grows this will provide the most efficient medium to communicate with partners.

Alignment of Interest. My Partnership Pledge highlights what you can expect from working with me and highlights ways I have structured SCP to align the interest of all parties. There isn’t too much missing from that. The bottom-line is I am focused on helping people achieve their long-term financial goals because I think it increases their happiness. As events over the last couple weeks have highlighted, our time on Earth is finite. It is pointless being unhappy. The best way I can help you be happy is to make sure you have financial freedom.

As you think about your happiness and whether your finances are impacting that, I hope you think of me.

Bill