There are a number of media-shy investors who have influenced me with a few bits of their process they’ve graciously shared with the public. Josh Tarasoff of Greenlea Lane Capital is one of those people. There’s so little stuff on him that a few things I wrote about based on my learnings from him have even attracted a few subscribers hoping I would continue to share more about him. In his recent essay, Tarasoff shared thoughts on a self-driving portfolio, positive feedback loops, quality, and the endgame. Here’s what I took away. 

Making “long-term” a habit. 

"True long termism should be automatic—not something you do but something you are."

I imagine this is the natural evolution for every investor. Where a mindset becomes something you practice until it becomes a habit and way of life. The closest thing I can draw a parallel to is powerlifting. Having trained nonstop for ~13 years now, it’s not something that requires any thought or discipline. Just like how I don’t understand people who have to try to get their ass to the gym, I imagine that needs to be the same for me to ignore any business impact under five years.

Tarasoff notes the self-driving portfolio is about having an infinite time frame. Not the typical “5 years = long-term”. Though this is a true challenge for professionals like himself, it’s one with fewer barriers for individual investors. 

Positive Feedback Loops: Obvious + Non-obvious

“I approach each investment with a permanent attitude, hoping and expecting the company to shoulder the work of compounding itself, ideally allowing Greenlea Lane to own it forever.....a self-driving portfolio creates a virtuous cycle, in which less time pressure improves the quality of decisions, which strengthens the portfolio, which further reduces time pressure.”

Though Tarasoff covers the positive feedback loop for business models like network effects (more people using it brings more people onto it) and economies of scale shared (more people = cheaper per unit = cheaper for others so more people), it’s evident his investment philosophy has a positive feedback loop as well. 

"My point is not merely that positive feedback loops are good; it is that they are necessary for reliable and durable long-term growth… The self-reinforcement provided by positive feedback loops is what makes growth sustainable.”

Yes, as a way of looking at companies that already have it part of their business model. Where economies of scale are shared or where they have network effects. Most people look at it in the idea of Facebook for network effects or Amazon for scale economics shared. But let’s not forget how an employee-focused company has positive feedback loops to attract better talent. Culture is inherently self-affirming and a good one can be a positive feedback loop. 

"An important benefit of understanding feedback loops is that one is guided toward dynamics instead of events.”

Prices decreases can be seen as a result of increased competition leading to uneconomic price wars. But it could be the result of economies of scale shared. Price increases are seen as a strong business with captive customers. But can’t it also be a sign of desperation and no other avenues of growth to pull? Basic psychology says people hate seeing price increases. These companies aren’t dumb, how desperate are they to pump up prices? 

“….relatively high and/or increasing expense items are sometimes mistaken for deteriorating economics, when actually they are part of healthy feedback loops with suppliers, employees, or customers.”

It’s worth questioning everything investors are trained to like and dislike. Investors are trained to like insider ownership. Did you know accountants are trained to be skeptical of insider ownership? Consider how different people have different standards of what’s good and bad. 

Culture

"I have found that quality manifests as a mission-driven culture….”

"Quality is underappreciated. It cannot be modeled in Excel, it’s not on the balance sheet, nor does it make for an exciting investment pitch. Quality is not easy to pin down, because it often represents new ways of doing things that stretch or break old mental models. Investment ideas based on quality can be difficult for investment organizations to implement because deep appreciation of and conviction in quality is difficult to convey from one person to another. It seems common for quality to be dismissed in favor of so-called “structural” advantages—things like a brand or a switching cost. These are important, too, but the more I have seen, the more I’m convinced that the difference between great and merely good is qualitative.”

Micro > Macro

The case for individual bottom-up business analysis over macroeconomic, trends, frameworks, models, etc…

"Linear thinking and analysis—though they play an important role in building a full understanding—are insufficient for revealing superlative quality. A superlative company is best understood on its own terms, not by way of comparison or analogy. Because the best companies are so good, are so rare, and defy standardized methods of analysis, I suspect they remain undervalued for a long time”

Never forget about “time".

"Investing under time pressure lends itself to fragility.”

"Duration—the force multiplier of all that compounds—is underrated.”