2022 Recap: A Foggy Road Is Still A Road

A Happy New Year to All of You!

Jan 01, 2023

Hello everyone,

Happy New Year! I’m writing this note in a café in the Portuguese port city of Lagos. While the city is still sound asleep, I’m happy that my favorite place is open for business. It’s filled with expats, tourists, and the smell of smoothies and scrambled eggs. I guess I’ve joined the ranks of the digital nomads after all, at least for a few days.

Portugal’s southern coast, the Algarve, is gorgeous in the winter with lush green vegetation reaching its iconic cliffs. It’s generally quite affordable and out of season, a value investor’s dream. And it’s the perfect spot to balance life’s uncomfortable questions with some optimism and gratitude.

Last year, I recapped my progress in the gloomy winter mood of my hometown Tübingen. I wrote that I felt “excited and terrified”, and for good reasons. The list of readers was growing but, frankly, small. In retrospect I’m astonished that I took the plunge into writing at all. The signs that this could be a lifelong professional endeavor were tentative and fragile.

In that piece I wrote about lessons from successful Substacks and they all still resonate. It’s great to see the ecosystem grow and prosper (though it’s still a vastly worse business than Onlyfans). But these lessons remain easier to observe than implement. Last year, I was wrestling with what exactly my Substack was about. I hadn’t resolved the tension between the professional and the personal, the product and the passion, the craft and the business (a challenge facing professional investors as well). That tension remains.

Yesterday morning, my mother and I drove to a local peak, Mount Fóia. After passing through forests of cork and eucalyptus trees, we reached a stony and open plateau. Supposedly, on a clear day, you can see the ocean. Instead, we were stuck in clouds of dense fog.

That’s what this year felt like. Made some progress. Gained some altitude. But still stuck in dense fog (a theme of my summer travel note View from the Peak as well).

Mount Fóia. Can anyone spot the ocean? Maybe next time.

Even though I just took a pot shot at the typical year-end reviews, it’s important to take stock. It’s tempting to rush into the new year without an appreciation of the many steps — and missteps — that formed our path. It’s easy to forget to thank those who walked alongside us (listen to Alix if you need a reminder). And, standing in the fog, we tend to lose track of how far we’ve come already.

This year, one of my teachers said: “Who am I? I am nothing. I am not here, not really. Without all of you, I wouldn’t exist.”

Without all of you, this would not exist. It has been the most amazing and satisfying experience to watch something emerge out of nothing. Understanding that this act of creation is possible is a powerful antidote to negativity and pessimism. It’s a tiny miracle and it wouldn’t be possible without you.

Thank you all for being a part of it!

Themes of 2022

A dominant theme in my writing was the difficulty of longevity as a professional investor. The past two years highlighted the struggle to adapt, the need to develop resilience, and the importance of continuous learning. Yen Liow called investing “the most extreme version of competitive learning” and in our conversation Alix Pasquet offered a ton of ideas on how to develop a mindset and process of continuous learning.

I also talked to Dan McMurtrie about the inner game of resilience — the toll of chronic stress and the danger of a lack of distance to the work. A related idea I explored was the tension between learning from mistakes and purposeful forgetting. All of this led me to ask if great investors are lazy and explored parallels between Buffett and Soros, including patience and managing energy.

I have yet to write a comprehensive piece on Soros but A Life In Full captures his evolution as an investor as narrated by the excellent Sebastian Mallaby (a guest on the pod twice, once on hedge funds, once on venture capital). The Herald of the Change is my take on Soros’s impeccable sense of timing. Combine it with his Layers of Conviction and you get a sense of the complexity behind his career. It’s a marker of great investors that their approach seems deceptively simple (“reflexivity and back aches”) which obscures the amount of work, network, and resources invested in making the simple and intuitive decisions possible.

Patience also shines through in the philosophy of young Seth Klarman. David Tepper on the other hand persevered through cycles with a more aggressive stance, often taking a beating before going all-in with a sixth sense for timing (The King of Bouncing Back, What I Learned From David Tepper; he recently commented he was ‘leaning short’).

The challenges of navigating cycles become apparent in Peter Thiel’s macro effort. Also in the story of ‘Mad Austrian’ Charlie Bluhdorn. Even though he started with the same Ben Graham-style philosophy as Buffett, Bluhdorn took a very different path. He became a driving force of the conglomerate bubble rather than leaving the game when it became unattractive. After a rapid ascent, his conglomerate was dismantled.

While his skyscraper is still standing, the Gulf & Western name is forgotten. Compare that to the lasting legacy of Julian Robertson whose focus on talent and competitiveness created a cultural DNA pervasive in the world of hedge funds.

No investment career has been studied as closely as Buffett’s. This year I wrote about The Next Warren Buffett, his early years (The Hustler), and his stock picking, kind of. I am convinced there are more areas of his life and thinking to be explored over the course of 2023.

I am less happy with my work on Stanley Druckenmiller. Druckenmiller’s career has it all: longevity, burnout, a blow-up, a comeback, macro and stocks. I started with the notion of exploring his career chronologically (The Young Gun Finds His Game, It's Good To Be Interesting, The Crash of 1987, When to listen to markets?) but ended up getting stuck in minutiae. I spent a lot of time on his philosophy for markets (Liquidity, Market Signals, and Capital Cycles) but did not take the next step and apply his framework to the present.

Druckenmiller was also very talkative this year (Sohn Conference in June, Delivering Alpha in September, David Novak podcast) which gave my substack the appearance of a Druckenmiller newsfeed. My work on him is a reminder of how easy it is for me to get bogged down in details. Choose your rabbit holes carefully.

Rounding out the work on resilience was a first piece on what creates opportunities in markets.

A final piece that’s on my mind is JAB and the Family Office Conundrum (and my follow-up piece on family offices and their history at Compound). I continue to believe there is much to learn from the successful operators protecting and growing wealth over generations. At the same time, I believe many family offices, often born out of liquidity events, struggle to achieve long-term success.

A friend of mine recently compared my work to a spine that required a few ‘chiropractic twists’. With just a few loud pops and cracks everything would fall into alignment and flow.

I’m hopeful we’ll hear these joints crack in 2023 and continue together on the road to wealth, wisdom, and the good life. After all, a bumpy road is still a road.

I wish you all a happy and prosperous new year. Take a deep breath and leave the fog behind. On we go.

And thank you for reading.

Frederik