Category: Wealth

Real Estate Investing Framework

[This is an edited version of a talk I recently gave at a MOI Global event.]

I’d like to summarize some of the lessons I learned from helping to run a buy and hold real estate portfolio:

Lesson 1: Find a framework

Before my involvement, I had no prior experience in the real estate industry.  So I needed a framework.

As you might know, my main investing model is value investing. So I chose value investing as my framework. I stopped viewing it like an isolated real estate operation, and started to view it like a regular investment.

Lesson 2: The need for a simple valuation heuristic

My second problem was, that I needed a simple valuation method.

I discovered a very simple one: the rent multiple. Basically, it’s comparable to a Price-to-Sales (P/S) ratio. You take the price of a property, and divide it by the yearly rent revenue.
 
After that, I needed a heuristic of what is expensive and what is cheap. In the current market condition you often see multiples of 25, and even 30 or more. This is quite expensive. In more calmer market conditions you see multiples of 20 or less. A multiple of 15 is reasonably cheap and a multiple below 10 might be described as deep value.

There are two ways to calculate this multiple. First, you can calculate it based on the most recent effective numbers, or secondly, you might use what might be called an intrinsic value multiple, where you take the realistic gross rent you expect, once you take control and implement the obvious quick wins. Of course, it’s more conservative to use effective numbers vs. the projections. Personally, I like to use both, and also like to apply a margin of safety.

After that, I needed to decide on what I consider fair value. In the end, I’ve decided to use a multiple of 20 as a proxy for fair value. The reason why I don’t mark-to-market is that it’s a buy and hold portfolio, so the owners are not interested in market gyrations. This gives the framework a certain stability, and takes the speculation out of the equation.

Lesson 3: You need comparable metrics

My next problem was, that I needed useful metrics to aid our decision-making.

It turns out that the real estate industry uses quite fuzzy metrics. You hear terms like gross yield, net yield, or return on investment. People that use those metrics often seem to exclude very key elements, such as financing costs, taxes, or the fair value of the employed equity. My best guess is that the purpose of these fuzzy metrics is to help the sellers (and their agents) inflate their numbers and make them look better than they are. This is supported by my impression that there seem to be enough real estate investors that keep using those fuzzy metrics, and don’t make the effort to find better ones.

Okay, so what was the job to be done? My main goal for finding a metric was to compare the real estate performace with the performance of a public stock portfolio.
 
I ultimately decided to use the after-tax return on equity. I want to stress after-tax, as a lot of people in the real estate industry seem to keep using pre-tax numbers.

To calculate the after-tax return on equity, I first calculate the after tax free cash flow. Again, without adjustments, and without exclusions of key elements. 

On the equity side, I use my fair value proxy. A lot of real estate investors use their cost basis, because this boosts their returns. This doesn’t make sense to me, because I want to take into account the opportunity cost of the employed equity. That’s why I use my fair value multiple of 20.

So now, this allows me to compare apples with apples and have a useful framework for capital allocation decisions, especially between real estate opportunities and public stocks.

Lesson 4: What are the performance drivers of buy and hold properties?

The next question I had, was to identify the main performance drivers of buy and hold properties. Basically a simple checklist to help me evaluate new opportunities.

I see three main drivers of performance:

First driver: Untapped growth potential: the best buy and hold property is one with untapped growth potential, first in terms of development potential (e.g. turning unproductive spaces into new units) and second, untapped rent potential (meaning: that the current rent is below comparable market rent that you could charge).

Second driver: A reasonable purchase multiple: in the best case scenario, you want to purchase a property with a low multiple, which results in an instant capital gain when you mark it up to fair value.

Third driver: Leverage: the more debt you have, the less equity you have to employ, which of course boosts your after-tax return on equity. With debt, you also have a yield from paying back the principle. This builds up equity. But over time, this reduces your returns, so you might need to re-finance periodically to keep equity low. Personally, I’m not a huge fan of leverage. But if you operate with a large enough margin of safety, leverage makes sense and boosts your returns.

What’s important to note is that I don’t view price increases as a driver. For a lot of real estate investors, this is their main goal and their main performance driver. In contrast, my main goal is to grow the underlying fundamentals. When rent increases by 10%, the value increases by 10%, because I keep the valuation multiple constant. That means that I only consider value increases when there is a corresponding rent increase. If a value increase is not based on fundamentals, I view it as speculation and don’t consider it.

This change in attitude helps focus our energies on increasing the underlying value, and not on being distracted by the fluctuations of the market.


Posted on by Remo Uherek

Investing Lessons from Running a Startup

[This is an edited version of a talk I recently gave at a MOI Global event.]

I’d like to share some of the lessons I learned from being a startup founder, and how these can be applied to investing:

Lesson 1: I’m a better investor because I was a founder

As Warren Buffett famously said: „I’m a better investor because I’m a businessman. And I am a better businessman because I am an investor.“

This rings very true to me, and I can confirm it based on my own experiences.

I was in the middle of my startup, back in late 2008, when I discovered Warren Buffett and Benjamin Graham. My main takeaway for my business was that I realized how bad our gross margins were. At the time, our gross margin was around 30%, and we were burning money. Then, when applying this insight over a period of 3 years, we were able to double the gross margin to 60%, which helped us to achieve break-even and ultimately lead to selling our business. Without those gross margin improvements, it would have been much more difficult.

Lesson 2: “Creative accounting”

The second lesson is what I call „creative accounting“.

We were sending our investors monthly updates. But, brained-washed by the venture capital industry, and suffering from our own insecurities, we believed that everything that didn’t go „up and to the right“, was hurting our story. So we made a conscious effort to keep the story going, by applying what we called „creative accounting“.

We took advantage of the grey areas, and applied somewhat loose and not very consistent accounting practices. We played with the capitalization of certain expenses, to move them off the profit and loss statement. We recognized revenues in different ways, sometimes at the start of a project, sometimes in the middle, and sometimes at the end of a project.

In good months, we rolled over revenues to the next month, to have a head-start and create a cushion. In bad months, we scrambled to recognize everything we could, to avoid reporting bad news.

So based on these experiences, I’ve learned to become more skeptical of accounting statements, because there is always room for “creativity”: adjusted numbers, not expensing stock options, playing with accruals, playing with revenue recognition, and similar tactics.

Lesson 3: Seek owner-operated businesses

The next thing I learned is what it means to be an owner-operator.

I’ve been a founder of my own startups, but I’ve also managed startups that other people have founded. A founder is an owner-operator. He holds a large stake, and the whole responsibility lies on his shoulders. There is „skin in the game“ and a sense of „ownership“. It’s a different quality than managing someone else’s company.

When the company is mostly you, you cannot escape. You have to „go forward or go under“.  We had very tough periods in our startup. On multiple occasions, I was very close to giving up. But I didn’t, because I was an owner-operator. As a manager, you can quit much more easily. It’s a different situation.

That’s why in my investing today, I gravitate towards owner-operators. I’ve been one, and I understand them much better than hired managers. 

Lesson 4: Strong sales organization

Number 4 on Phil Fishers 15 point checklist is: “Does the company have an above average sales organization?“

I had to learn this the hard way. For the first two years, I was the only sales person in our company. It wasn’t working well. I had no prior sales experience, and I wasn’t enjoying the job. I realized that we need to build a sales team.

So I took a deep dive: I read sales books, went to sales seminars and hired our first sales manager. We ended up hiring 4 sales managers in one year, and quadrupled our revenues.

So today, I have a much better sense for what Fisher means by „above average sales organization“.

Lesson 5: Strong marketing & lead generation

A sales organization cannot be effective without a strong lead generation. If all you do is cold sales, you likely won’t get very far. You need qualified prospects and hot leads. 

Here we had an advantage. Because it was one of the areas we were above average.

Our core product was sponsored postings on blogs, what today is called influencer marketing. To not be misleading, we required every blogger to label their sponsored posts. And not only label them with something like „This is an ad“. Instead, we branded the label with our company name, and most importantly, included a link to our website. So each campaign for our clients, be it NIKE or RedBull or Disney, turned out to be a free campaign for ourselves. It was a marketing flywheel. And it was our #1 lead generation source.

So, in order to assess the sales capabilities, you need to be able to understand the whole marketing & sales funnel.

Lesson 6: The Flywheel Effect

Ever since reading Good to Great by Jim Collins, I keep thinking about flywheels.

I’ve learned that great companies have a strong, self-perpetuating and ever-increasing engines. Our viral marketing tactic was a one example. Network effects are another example.

So my lesson is: look for strong flywheels.

Lesson 7: Innovator’s Dilemma

The Innovator’s Dilemma describes why established companies have great difficulties to cannibalize and re-invent themselves, and why startups can be so disruptive.

It was one of the favorite business books of Steve Jobs, and he was a master of solving the dilemma. 

In times of ever faster technological change, it’s important to keep this concept in mind, and seek companies that have demonstrated that they have the courage and stamina to solve this dilemma.

Lesson 8: Certain things don’t show up in the accounting statements

I’ve learned that certain things don’t show up in accounting statements.
Hiring procedures, HR practices, company culture, early R&D experimentation all don’t show up at all, or only much later. 

As a startup, we had a strong company culture. It was a matter of necessity. We couldn’t afford to pay market salaries, and the job required every team member to put their heart & soul into the company.

Startups not for everybody, but if done right, they create a strong culture and a high level of productivity. If a company can preserve this startup ethos, it can be a huge asset. 

So the lesson is: don’t forget the soft factors.

Lesson 9: All eggs in one basket / Take something off the table

As a founder, especially a young founder who has no meaningful assets outside his company, you are not only concentrated, you are hyper-concentrated. All your eggs are in one basket, and as this would‘t be enough, the odds are stacked against you. 8 out of 10 startups fail.

It’s not a healthy situation, because you are over-exposed. That’s why it can be good to take a portion, say 10 or 20 percent of your stake, off the table, if you have the opportunity, to reduce the psychological pressure. Not right away of course, but maybe after 2 or 3 years, depending on how your startup develops.

So while insider buying is usually a good sign, insider selling doesn’t need to be bad. It could be prudent from a personal capital allocation perspective, and also a risk-taking perspective. If essentially your whole net-worth is tied up in your company, it might be hard to take the necessary risks to maximize long-term potential. So you need to understand the motive of insider selling before drawing conclusions too fast.

Lesson 10: Be a Learning Machine

Books have been super important for me. Whenever I faced a problem, I ordered the best books on a the topic, and tried to apply the best practices. That’s how I learned how to organize myself, how to build a sales team, how to build a positive company culture, and much more.


Posted on by Remo Uherek

How to choose a money manager?

You’ve inherited some money, or sold a business. What now?

Most people don’t have the skill, time, or willingness to manage their own investments.

One option is to entrust your funds to a professional money manager. But how to choose one?

I would recommend the following checklist:

1. Skin in the game
The first question I would ask: “What percentage of your net worth have you invested in the way you are recommending?” If it’s not a significant portion, I would quit the meeting right here and walk out.

Some years ago, I helped a friend get his finances in order. He owned some products that the private banker had recommended. “A great opportunity”, the banker said. I asked him: “Do you own any of these funds and certificates?” He smiled and said: “No, I’m saving to buy a rental property.” A prime example of “Don’t listen to what people say. Watch what they do.“

2. Aligned incentives
Make sure that the incentives between the manager and yourself are aligned. How does the manager get paid? Does he charge a high management fee? Does he get paid when the performance is negative?

Personally, I prefer and recommend the old Warren Buffett Partnership model: 0% management fee, an annual hurdle, and then a 25% performance fee. A high water mark ensures that a negative performance needs to be made up before the manager is paid. Simply said: the manager should only make money when you make money. Here’s a clip of Charlie Munger commenting on this topic.

3. Aligned investing philosophy
How does the manager choose investments? Which criteria are applied? What is the minimum time horizon? The approach needs to make sense to you, and you need to understand the basic concept. The manager should also be able to show a track record of the applied approach. Ideally his own, or at least of the people/organizations that inspired him to use this approach.

Applying this checklist does not guarantee investment success. But it might help you prevent painful mistakes, and stacking the odds in your favor for finding a good manager.

(Image by teegardin)

Posted on by Remo Uherek

How to identify great capital allocators?

This was the topic at the recent MOI Global Zurich chapter dinner I attended. Here I summarize my notes and thoughts on this topic.

I understand capital allocation as follows:

How do companies spend their limited resources, be it capital, time, or mental resources, so that they create the maximum amount of value per invested unit of capital?

So it’s all about value creation, efficiency and high returns on invested capital, however you want to define it.

So how to identify a great capital allocator? First, try to find people with a solid record of value creation. Growth in earnings per share or free cash flow per share could be useful metrics. Exceptional customer loyalty, products that solve real problems, or a full R&D pipeline with promising improvements could be qualitative factors to look for.

One shortcut is to look for owner-operators. People who own a large stake of their company and are the driving force. Especially if those people already have a strong track record.

A case study by Phil Ordway of good capital allocators was mentioned.

Then we discussed a number of topics and companies.

Amazon
Jeff Bezos was mentioned as a great capital allocator. Because he is obsessed with creating customer value, and takes a very long-term view. He has a deep understanding of capital allocation from his 8 years working on Wall Street (including working at a hedge fund). Plus, he is the owner-operator.

Disruption / Innovator’s Dilemma
Disruption is a real challenge. Many companies are faced with the Innovator’s Dilemma, being stuck with path-dependancy and an inability to cannibalize their still profitable, but increasingly obsolete, business units. Steve Jobs was a master of breaking this dilemma. Mark Zuckerberg seems to be pretty good at it as well.

BMW vs. Tesla
So what should a company like BWM do, faced with the disruption created by electrification and autonomy, or more generally speaking, by software and data? Should they compete with the Google’s and Tesla’s of the world on software, and potentially lose a lot of money, or would it be better to milk the current cow and slowly decline?

Warren Buffett and his textile business
Warren Buffett was faced with the same situation in his early textile business. He did a very sensible thing. He did not try to save the business at all cost. He took the profits, and reinvested them more productively. In his case, buying great and profitable companies like banks and insurance companies. And when his textile business started to lose money, he shut it down completely. He faced the facts and acted accordingly. He wasn’t romantic about it.

Mergers & Acquisitions
Acquisitions only make sense when done sensibly. Buy great assets, and don’t overpay. A lot of times, mediocre acquisitions are made, for way too much money.

Stock buybacks & Dividends
If its own stock is undervalued, it creates value for a company to buy back shares. If buybacks don’t make sense, paying a divided is better than acquiring a mediocre business, or starting a mediocre project.

Apple
What should a company like Apple do? So far they have been heavily buying back shares and paying out dividends. So it seems that the current management can’t find better opportunities internally or externally to deploy the cash.

To summarize, there seems not to be a single way to identify great capital allocators. It all depends on the specific circumstances. Personally, I like the owner-operator approach. This might be a great shortcut to find, and then partner with, great allocators. In fact, when I look at my personal portfolio, this is exactly what I ended up doing in a lot of cases.

(Image by 401(K) 2012)

Posted on by Remo Uherek

Consider Using a Pen Name

We live in a time where the default is to use your real name for writing. This was not always the case, as I learned in Benjamin Franklin’s biography. 300 years ago the default was to use a pen name. For good reason, as speaking your mind could be dangerous.

This got me thinking. Why don’t we use pen names more often today?

There are clear benefits: You can create a completely different persona. You can speak your mind even more vocally. And it overall feels lighter as the personal downside is smaller, which could especially be helpful for introverts.

Here are some famous pen names I wasn’t aware of:

  • Mark Twain (Samuel Clemens)
  • George Orwell (Eric Arthur Blair)

Have you always wanted to start a blog, write a book or create YouTube videos?

So here’s today’s idea: Why not start with a pen name?

Source: https://www.flickr.com/photos/thomaseagle/429240455/
(Image by Thomas Eagle)

Posted on by Remo Uherek

Peer-to-Peer Microlending: Review of Zidisha.org

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” — Maimonides

I love microlending. Here’s how it works: You give an entrepreneur in a developing country a loan for his business, e.g. to buy a water irrigation system for his field. This increases his productivity, with in turn increases his income. He repays the loan, and you recycle the money into the next project. This maximizes the impact of your funds, as you can re-lend the same dollar over and over again.

In 2007 I started lending on Kiva and have made over 100 loans there. I also invited 5 friends who made an additional 150 loans. (If you’d like to sign up, here is my invitation link.)

Back in the day, the process was very manual, as there was no auto-relending function (now there is). Also, Kiva works with intermediaries, which increases the lending costs for borrowers.

Then in 2017, thanks to a tweet by Paul Graham, I discovered Zidisha. (Here is Paul’s latest update.)

The main differences between Zidisha and Kiva:

  • No middleman: Zidisha is a direct person-to-person community with no intermediaries
  • Lower cost: No middleman means lower interest rates for the borrowers (instead of the global average of 40%, to under 10%)
  • Auto-relending: 100% automated process (Kiva now has this feature as well). Zidisha claims that $50 in funds will fund $750 worth of loan projects in five years.
  • Impact accounts receive growth credits, so they grow

I have chosen an Impact Investment account with Zidisha. That means that a portion of the 5% service fee paid by all Zidisha borrowers is credited as growth credits, so that the value of my funds grow over time. The downside is that I cannot withdraw any funds, which is not important to me.

So far I have uploaded $1,024, which have funded $1,993 worth of loans. I have received $31.08 in growth credits, and have lost $2.47 in currency exchanges losses. All of my loan losses have been refunded by the Zidisha Members Loan Fund, so I currently have 0% in repayment losses.

To date, Zidisha has lent $16 million to over 233,000 projects. In comparison, Kiva has made $1.3 billion worth of loans so far.

Key learnings from Zidisha:

  1. Log in every few months and use the “Receive Advance Repayment” link on the projects page for all loans that have substantial delays. You will receive a full refund for those loans. I was able to recover more than $800 of late payments that way, which now should accelerate my lending cycle.
  2. Make sure that the “Early Repayment” checkbox is activated in your preferences. With that you will receive an early repayment from the Zidisha Members Loan Fund whenever one of my loans falls 60 days past due. It seems that this automates the “Receive Advance Repayment” mentioned above.
  3. Zidisha has a great “refer-a-friend” program. Each friend gets a free $25 credit which can be used for a first loan. Use this link to receive a free $25 credit.

Suggestions for improvements:

  • I’d like to set a maximum limit per loan. E.g. 5% of total fund value. This would increase diversification and reduce my risk. I had one loan which made up more than 70% of my total lending value, which is not exactly my idea of risk management.
  • I’d like to set a minimum value for “on-time repayments”, e.g. 90%. I just saw that a new loan has been made to someone with just 32% on-time repayments. I don’t feel comfortable with such borrowers.

Despite these shortcomings I can fully recommend Zidisha. The customer service has been great and the ability to refund delayed loans gives me peace of mind to never have substantial losses.

Sign up here and receive a free $25 credit!


Posted on by Remo Uherek

The Key Principles of Value Investing

The style of investing that speaks most to me is value investing, as practiced by Warren Buffett and Benjamin Graham. I’m often asked: “What is value investing exactly?”

Here is my understanding of the core principles:

Have more purchasing power in the future
The goal of all investing is laying out money today, so that you can enjoy more purchasing power in the future. The principle is: Instead of eating the seeds, plant them, so one day, you will have plenty more to enjoy.

Investing vs. Speculation
The goal is to be an “investor” and not a “speculator”. Here is the definition by Benjamin Graham: “An investment operation is one which, upon thorough analysis promises safety of principle and an adequate return. Operations not meeting these requirements are speculative.” (The Intelligent Investor)

A stock is a partial ownership of a business
A stock is not just an abstract ticker symbol with a constantly moving price. It is a partial ownership of a business. So no matter whether you are buying 0.000001%, 10% or 100% of a business, the decision process should be quite similar. You have to know what the whole business is worth, so that you can determine what each share of the business is worth.

Mr. Market is here to serve you, not to guide you
Treat the market as your manic-depressive business partner called “Mr. Market“. He is emotional, euphoric, moody, and often irrational. Every day, he quotes you a new price for his shares. You can reject him every day, and the next day he always comes back with a new price. You can never know what price he will offer next and you don’t know why he offers you the price that he does. Your job is to simply listen to him every day, and only buy if when he offers you a low price. As opposed to “market timing”, this is “market pricing”. You simply recognize a good deal when you hear one, but can never know when it happens.

A great song about Mr. Market

Margin of safety
Always have a margin of safety, as a buffer for errors and unforeseen situations. The principle is simple: If you are building a bridge that is supposed to support 20 tons of weight, you don’t build it for 21 tons. You build it for 40 tons, to have plenty of margin. The same is true for value investors: they try to be very conservative in their calculations. They don’t buy a stock because they think it’s 6% undervalued. They demand 50%.

Buy one dollar for 50 cents
To summarize, and to quote Warren Buffett: “All investing is value investing.” In fact, Warren Buffett or Charlie Munger don’t even call themselves value investors. They simply master these principles. The goal is to find something worth one dollar and buy it for 50 cents. And even if your assessment was wrong and it turns out to be worth only 50 cents, you at least didn’t lose any money, thanks to your wide margin of safety.

Results
By applying these principles, Warren Buffett has grown his net worth from $10,000 when he was 19 years old to more than $80 billion today, compounding at an average rate of more than 20 percent per year for more than 60 years straight.

If you’ve invested $1,000 into Warren Buffett’s publicly traded holding company Berkshire Hathaway in 1965, you would currently have $4.3 million.

So these principles are not just theory, they are achieving wonderful results.


Posted on by Remo Uherek

How to Attend Warren Buffett’s Berkshire Hathaway Shareholders Meeting: Guide for First-Time Visitors

It took me 11 years after becoming a Warren Buffett enthusiast to finally attend my first Berkshire Hathaway Annual Meeting in Omaha, Nebraska. Here are my notes and my guide for first-time attenders.


Key Learnings from 2019 Meeting

Write down your thesis
Before you buy a stock, write down: “I’m buying this company for [insert market cap, e.g. $500 billion], because…” If you can’t answer this question, don’t buy the company. Remember: A stock is not a piece of paper, it’s a part ownership of a business.

Broad vs. narrow circle of competence
You need to find what you can understand. There is much more competition today than when Buffett started. It’s always a good strategy to specialize. Read as much you can. Figure out what you are good at. You need an edge. Be smart in spots and try to stay around those spots. Having one edge is enough.

Environmental, social and governance (ESG)
Don’t spend time creating ESG committees and writing long reports. Simply do the right thing. Example: Berkshire Hathaway’s utility is on a path to soon produce 100% renewable energy in Iowa.

The Future Performance of Berkshire Hathaway
“Berkshire Hathaway won’t be the biggest compounder by a long shot. But it will and continue to be a very safe way to make decent returns for a long time.” — Warren Buffett

Keep trying things
“If you keep doing enough things, some of them will work out.” — Warren Buffett

Figure out what works
“Figure out what works, and go do it.” — Charlie Munger


How to attend / Guide for First-Timers

This guide by The Investors Podcast (TIP) is a great starting point. But there are a lot of additional details to figure out. Here is my guide for first-timers:

When to plan the trip?
Next years meeting will take place on May 2, 2020. It’s advisable to plan the trip as soon as possible, optimally as early as October or November. I planned my trip in January and it was already quite difficult to find reasonably priced hotels (I was still lucky though, see below).

Credentials / Tickets
You don’t need to be a shareholder to get tickets, and there aren’t any further controls once you have tickets. The easiest way is to order them on eBay directly from Berkshire Hathaway (brka_b is their user name) and send them to your hotel address. If you are a shareholder, then simply print out a recent broker statement, bring a matching ID/passport and pick them up at the CHI Health Center on Friday before the meeting at the “Will Call”. You can pick up as many as 4 credentials, so not all of your friends need to stand in line.

Accommodation / Hotels
I highly recommend staying in Council Bluffs, right across the river in Iowa. I booked in January and was lucky to find a decent hotel for just $55 per night. It only takes 10 minutes to go Downtown and the traffic was always very smooth, because you take the freeway most of the way. If you are on a low budget or like to stay with locals, you might also consider Couchsurfing. If budget is not an issue, then you might stay near the Old Market area, so you have everything in walking distance.

Rental Car / Parking
A rental car is highly recommended, and only costs around $30 per day. The alternative is using Uber/Lyft, but this can get quite expensive if you want to see many things. I never had parking problems, even in Downtown. Mostly you have parking meters which cost $1.25 per hour (payable with credit card or cash). I downloaded the “ParkOmaha App” which made the process even easier. (If you don’t mind walking 10-15 minutes, you can park for free on the bridge next to the Durham Museum. That’s what I did most days. But don’t tell others ;)

Join a WhatsApp / Telegram group
One of the best things I did was to join WhatsApp / Telegram groups. That way I always knew what’s going on and was never alone. We ended up being a group of 4-5 people that did most things together. One group I found on the TIP Forum, and the other through Guy Spier’s mailing list. I’m pretty sure there are others as well.

The TIP WhatsApp group photo!

How to prepare for the meeting
If you want to stand in line very early, I recommend to buy a $10 camping chair from Walmart. I did and it was a very good investment. Some Chinese people also brought blankets to lie on the ground, but I’d say this is optional. Other than that no special preparations needed.

When to stand in line for the meeting
There are multiple entrances. Mohnish Pabrai recommends to go to the South Entrance, so I did that. We were there at 3.00am, which guaranteed us excellent seats. I think 3.30am would have been fine as well. Most people come after 4.00am and the line will get very long after that. I was sitting in my chair and was even able to take a few naps, as did several Chinese people next to me. In fact, most of the very early people at the South Entrance were Chinese.

Waiting in line with Mohnish Pabrai and thousands others.

How to get great seats
When you pass the security check at the South Entrance, take the stairs down one floor, then continue straight until you see the Lexus Club. Take any door to the left to enter the hall (the sectors are not separated, so you can move freely within the hall). If you feel lucky, you might go all the way down to the ground floor and try to get a front row seat. We didn’t do that. We chose Sectors 104 which offers a fantastic view.

The Floor Plan. The South Entrance is on the left side near sectors 211/212.

Want to see Warren Buffett up close?
After you have secured your seats around 7.15am, I recommend to go the the Exhibit Hall. Warren often takes a walk trough the hall before the meeting starts. The movie starts at 8.30am, so there is plenty of time to look for Warren. Don’t forget to go to the restroom before the event starts. The morning session is nonstop until noon.

Backpack / Security
CHI Center’s clear bag policy doesn’t apply to the Berkshire Hathaway meeting. You can bring a backpack. Full bottles are not allowed (empty ones are okay).

Events / Meetups
There are a lot of events and meetups, and the best way to stay up to date is to join a WhatsApp/Telegram group. I highly recommend doing the 5k on Sunday. It’s a very nice and quite short run. As we’re in the US I expected 5 miles, and was pleasantly surprised to see the finish line after just 5 km :) After that I went to Borsheims to play against ping pong champion Ariel Hsing, which was a lot of fun.

Restaurants
I really liked Jams in the Old Market. They have great salads. I also liked the Old Chicago pizza place in the Old Market. On weekdays they have great lunch deals.

Other fun things
The Hollywood Candy store was fun. That’s where Buffett and Gates made the Sweet Nostalgia video. You can easily spend one or two hours there. Don’t forget to have a strawberry milkshake!

Disclaimer: All the above information is based on my 2019 trip. Things might change in the future, so keep your eyes and ears open.

The closest selfie I got with Warren and Charlie.
My first meeting and I even made it into the Omaha World-Herald, thanks to my friend Marnix Troudes.

Other people’s experiences:


Posted on by Remo Uherek

Why I created a Facebook page

Inspired by Rolf Dobelli’s book, I stopped using Facebook six months ago. Mainly because I was addicted, and also because the constant social comparisons and the instant gratification treadmill became toxic for me. (I’m still using Messenger/WhatsApp for one-one-one contact.)

The downside of leaving Facebook was that I lost a distribution channel for my content, and the people who were following me on FB suddenly stopped seeing my updates.

Reading Crush It! and Crushing It! by Gary Vaynerchuk convinced me that this was not wise if I wanted to maximize my impact, which I want.

So recently I changed my Facebook strategy and created a personal FB page.

Why a FB page?

#1: More reach: 1.52 billion people use FB daily. I want a slice of that.

#2: Compatible with social media software: I am using Crowdfire (they have a completely free plan, by the way) to manage my social media channels. You can only use such software with FB pages, not with personal profiles. This allows me to manage the page without having to actually log in to FB (which is what I don’t want).

#3: I can outsource my social media management: You can give third parties access to manage pages. So eventually I can completely outsource this channel.

#4: More options to customize: I can customize a page much better than a personal profile.

#5: Reply to private messages by email: I receive an email whenever somebody writes a message trough my page. I can answer by email, without having to log in.

#6: You can boost individual posts with ads. I’m not intending to do this, but it might be a good way to promote your business.

Final note on my private use of Facebook
I’m feeling a clear pressure to log back into FB occasionally. Some of my friends publish exclusively there (e.g. in private groups for travel notes), so each month or so I log in to check the updates of those selected people.

Also, less than 24 hours since creating my page, I received the first message from an acquaintance who missed my updates (and I his). I now make an effort to occasionally reach out to those people one-to-one. Since leaving FB, I ramped up my calls/lunches/dinners/coffees, which is socially much more rewarding anyways.

Follow me on Facebook.


Posted on by Remo Uherek

15 Years of (Failed) Side Projects

When writing about the hyper-niche strategy, I thought back to all my own side projects. In this post, I offer a brief post-mortem for each one, so you can learn from my mistakes and don’t repeat them. (There were even more projects, but these were the main ones.)

Webmaster forum (2003-2015)
While this started as a side project during my university time, it became my main project between 2003-2006. This was my first project where I could feel real traction. In its best days, it had 100.000 unique visitors per month.

  • The main mistake was a technical one. Most of our traffic came through organic search (SEO). In 2005, I wanted to rebrand the service and move it to a new domain. The new domain had a Google penalty from the previous owner. I didn’t know about the penalty, but I knew there were indexing issues, and I had an uneasy feeling. I did the switch anyways, mainly motivated by my ego. We lost all Google traffic for 90 days, until the ban was lifted. We never regained the past traction. F*ck! (I’m pretty sure that without this, the site would have grown to be 10x larger than it ultimately became…)
  • Managing a discussion board is hard. I let myself be totally absorbed by reading and writing in the community. I neglected everything else. Bad monetization, no business development deals, no development of own service offerings. Instead of working “on the business”, I worked “in the business”. We should have outsourced more and getting more help from freelancers. Don’t do everything yourself. Get help!
  • I just didn’t realize how many different monetization strategies could have been applied to this project. We only monetized with banner ads. We should have used more affiliate links. Write an ebook. Create paid directories of professional service providers. Promote our own professional services. Create a paid membership community etc. I’m pretty sure we could have come up with 25 different ways to monetize the site, while providing value. With banner ads alone, we made 15-25k CHF per year. Not bad for students. But not enough to make a real business out of it. It could have been a 250k a year business.
  • We had a niche, but didn’t communicate well enough. We should have been much more specific in our positioning/branding, and don’t be afraid to repel people we weren’t addressing. What do we stand for? Who is this service really for? We never answered those questions.
  • After moving on to our new startup in 2007, we held on to the site for 8 (!) more years. These were frustrating times for all community members and ourselves, and it went downhill pretty soon. Don’t hold on to projects you don’t want to focus on anymore! We eventually sold the site in 2015 for a small sum. In 2007/2008 it would have been worth much more, and we would have avoided much frustration.
  • I learned a lot from this project, and it pays dividends until today. I learned HTML/CSS, SEO, SEM, Affiliate Marketing, and many of the core skills I use until this day.

Keyword-based arbitrage website (2008-2013)
The idea was to pick an affiliate program on TradeDoubler or Zanox, to build a highly specialized site around a specific set of keywords, attract organic search traffic, and redirect it to the affiliate program to earn commissions. I hired freelancers to write the content.

  • I picked the wrong market and language. It was a Swiss site, in German only. Combined with the hyper-niche aspect the total addressable market was too small. Why didn’t I pick a global affiliate program and built a site in English? I wasn’t thinking big enough. Think big!
  • I didn’t want to spend much money, so I hired low-quality writers. I wasn’t proud of the site. Outside of SEO, I didn’t promote the site. I didn’t want to put my name behind it. Life is too short to do things you are not proud of!
  • At peak months, the site had 300 visits and made 100 EUR per month.
  • All the money we made was reinvested in buying backlinks and content. The project was not profitable.
  • In the end, traffic and motivation faded away, so I shut it down.
  • I still think that picking a hyper-niche topic and building an authority site around it is a viable strategy. But it needs to provide real value or solve a real problem, and don’t be a pure arbitrage play.

Meditation app (2014-2016)
Since 2012 I had the desire to build an app. In 2014 I had the idea for an app based meditation community. The idea was “Runkeeper for meditation”, and it was my main project in 2014. I sold it in 2016 and it still exists today.

  • My main goal was to build a lifestyle business. I outsourced the design and development to an app development company, and wanted to keep the operations as lean as possible.
  • I underestimated the amount of work (and cash, if you use contractors) it takes to create an app. It’s much more complicated than a website.
  • We got 40k downloads in the first two years, and our users logged 380k meditation sessions. Unfortunately, retention (in terms of repeat daily usage) and revenues were not very impressive. Only 3k Monthly Active Users and $200-$560 monthly revenues.
  • A larger pivot would have been needed. Addressing beginners instead of experienced meditators, create paid audio/video guides, or trying out radically different business models would have been possible approaches.
  • In the meantime, a different opportunity came up, and I decided to focus on that. I didn’t want to repeat the mistakes from the webmaster forum project (see above) and let the app die a death of abandonment. So I decided to find a new owner and found one. In fact, one candidate was a prominent Silicon Valley entrepreneur with >1M followers, but it ended up to not be a good fit.
  • I was applying the Lean Startup methodology for this project. But, I was not totally rational, intentionally so. I really wanted to build an app. It was a bucket list kind of thing. It might have been wiser to create a lean web-based version first, to validate the market, before building the app.
  • In the end, I learned a lot from this project. I now have the skill to build and market apps, and work with outside development companies. I was able to successfully apply this know-how at Exsila, where I led the creation of the iOS and Android apps.
  • Read more: What I learned building the ZenFriend meditation app

Investor community (2018-2019)
The idea was to build a paid membership community for entrepreneurs and professionals, and to give them everything they need to define and implement a passive stock investing strategy.

  • The main hypothesis was to make the discussion forum the center piece of the product. For members to share and encourage each other to take action. I recruited 40 founding members from my newsletter. Unfortunately, it didn’t work out. Even though it was a closed group, people didn’t feel safe (or simply didn’t want to) share their progress with others.
  • The guides I created for the members area were helpful and valuable. I was proud of them. Members found them useful, and I was able to inspire at least two people to start investing.
  • I wasn’t proud of the whole service. A larger pivot was needed.
  • In the end, inspired by Seth Godin, I decided to shut down the site, to have the freedom to start again with a blank canvas. Build. Test. Learn. Repeat.
  • I learned from this project that I don’t want to build online communities anymore. I want to have more direct relationships with people. Maybe in person. Maybe digitally enabled, but more personal. I also learned a lot about ClickFunnels, the service I used to build the site.
  • I still have a desire to help people achieve financial freedom. But not in this format. Maybe one day, I will come up with something new.

Conclusion

  • I seem to have trouble with Reid Hoffman’s wisdom: “If you’re not embarrassed by the first version of your product, you’ve launched too late.” I am pretty good at starting things, launching quickly, and also being somewhat embarrassed. But, when I’m not proud of the product, I don’t want to promote it and stand behind it, limiting its early adoption.
  • I seem to have trouble with pivots. When the initial hypothesis doesn’t hold true, I lose motivation to do larger pivots. On the flip side, people like Seth Godin recommend to better shut things down and start from scratch, instead of being influenced by the things you already have (a form of path dependency). It seems there is no clear answer. What is clear to me: don’t hold on to a product that is not working. Move forward, or go home.

What’s next?
I will keep creating new projects. I learn from each one, no matter whether it succeeds or fails. And also, to be totally honest, I see it as a personal challenge (and bucket list item) to build a side project that I am truly proud of, that solves a real problem, has traction, is fun and profitable. I’m not there yet, but I will keep trying!

What have you learned from your side projects? Let me know on Twitter.

PS: Here is a compilation of Thirty years of projects by Seth Godin.


Posted on by Remo Uherek