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Time Horizon

In our first post we touched on one important similarity between Yvonne Chouinard and Warren Buffett, which is time horizon. Later reflecting on the theme, I was reminded of a Tim Ferriss interview of Marc Andreessen (#163 on Ferris' podcast list). Andreessen, of course, co-created the first widely used graphical web browser. He also co-founded Netscape (later sold to AOL). Then he went on to co-found Loudcloud, which later became Opsware (later sold to Hewlett Packard). And then he co-founded venture capital firm Andreessen Horowitz (side note: Andreessen's co-founder at Loudcloud and Andreeseen Horowitz (also known as a16z). Ben Horowitz, wrote a terrific book called "The Hard Thing About Hard Things" about his experience at Netscape, Loudcloud, and Opsware. Very high on my list of top business books. But more on that another time).

In the interview with Ferriss, Andreessen talks about the glaring difference between venture capital (e.g. a16z) and value investors (e.g. Buffett, Seth Klarman, Mario Gabelli, etc.): one bets on change while the other bets against change (or at least bets that the rate of change will be slower than what most people think). Said another way, venture capital's objective is to find businesses that can disrupt the status quo, innovate, and create the future. Value investors often try to identify businesses where history provides a higher degree of confidence about the future.

But Andreessen also pointed to two factors that he and "Buffett & Co." have in common: (1) independent thinking and analysis; and (2) long-term time horizon. Independent thinking and analysis? No surprise there. Our preferred investment managers pride themselves on extensive, independent research, often with the objective of understanding the business better than anyone except management. Frankly, anyone worth their salt in business or investing should necessarily undertake rigorous analysis and be willing to demonstrate conviction in that analysis even (especially) when it's not the consensus. But what of time horizon? On the one hand private equity and some later-stage venture funds tend

to have relatively short time horizons (<5 years) and mandated exits due to fund limitations. But classic venture capital is more in the 5-10 year range, and while it's not Buffett's favorite holding period of "forever", 10 years qualifies as long-term. One of the wonderful things about long term horizon when applied to a special business is that the strengths of the business are combined with the magic of compounding to create outstanding results for owners over many years or even decades.

It says a lot about Andreessen that he has studied value investing - ostensibly diametrically opposed to his craft - and identified these common factors. Human beings are wired to seek out information that confirms their beliefs about the world, but investors like Andreessen do the opposite - seeking out information that might invalidate their beliefs. I'll posit that this is the third commonality between venture capital and value investing. Andreessen would say "strong views, loosely held" (which kicks off the Ferriss interview) to suggest conviction but a willingness to change if the facts change. Value investors sometimes use the term "intellectually honest" to describe a process of being humble and seeing the world for what it is, not for what you wish it to be.

Independent thinking...which informs strong views, loosely held...applied long-term. Not a bad formula for any business owner or investor.