Money & Books (28 Jan 2023)
Coffee, Investing and Elon Musk's Algorithm
Coffee and Investing
Marcellus has launched its own podcast called Coffee and Investing with Saurabh Mukherjea which I highly recommend to anyone who wants to make their money make money.
Here are some highlights from their first episode:
Real Estate - has given 5 - 6% return over the last 30 years.
Fixed Income - has given 7 - 7.5% return over the last 30 years.
Gold - has given 9% return over the last 30 years.
Equity - has given 13.3% return between 1990 till 2022. Comfortably ahead of gold, real estate and FDs. Time Horizon in equity has a very strong negative correlation with risk. So if you hold equity for a long time you substantially reduce the risk.
Coffee Can Investing - gives 20-25% annualized return. This means approximately 10x your money in 10 years.
Asian Paints and Titan are two companies that have given 25% returns decade over decade. Saurabh and Rakshit go into details on why these companies continue to deliver.
Elon Musk's Algorithm
Elon Musk leads by example. He slept on the factory floors, under desks, in conference rooms - wherever it was required to make sure that companies survived and targets were met. His employees saw that the boss was right at the heart of whatever they were doing so they also pushed themselves to deliver. He expected his teams to be all-in and as hardcore as him. The results speak for themselves. He has revolutionized three industries (space, electric cars and solar). He is trying to revolutionize many more. The man is superhuman.
Here is what he calls the algorithm that he uses to run his businesses. It is worth going over these, no matter which business you run.
“I became a broken record on the algorithm,” Musk says. “But I think it’s helpful to say it to an annoying degree.” It had five commandments:
1. Question every requirement. Each should come with the name of the person who made it. You should never accept that a requirement came from a department, such as from “the legal department” or “the safety department.” You need to know the name of the real person who made that requirement. Then you should question it, no matter how smart that person is. Requirements from smart people are the most dangerous, because people are less likely to question them. Always do so, even if the requirement came from me. Then make the requirements less dumb.
2. Delete any part or process you can. You may have to add them back later. In fact, if you do not end up adding back at least 10% of them, then you didn’t delete enough.
3. Simplify and optimize. This should come after step two. A common mistake is to simplify and optimize a part or a process that should not exist.
4. Accelerate cycle time. Every process can be speeded up. But only do this after you have followed the first three steps. In the Tesla factory, I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted.
5. Automate. That comes last. The big mistake in Nevada and at Fremont was that I began by trying to automate every step. We should have waited until all the requirements had been questioned, parts and processes deleted, and the bugs were shaken out.
The algorithm was sometimes accompanied by a few corollaries, among them:
- All technical managers must have hands-on experience. For example, managers of software teams must spend at least 20% of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.
- Comradery is dangerous. It makes it hard for people to challenge each other’s work. There is a tendency to not want to throw a colleague under the bus. That needs to be avoided.
- It’s OK to be wrong. Just don’t be confident and wrong.
- Never ask your troops to do something you’re not willing to do.
- Whenever there are problems to solve, don’t just meet with your managers. Do a skip level, where you meet with the level right below your managers.
- When hiring, look for people with the right attitude. Skills can be taught. Attitude changes require a brain transplant.
- A maniacal sense of urgency is our operating principle.
- The only rules are the ones dictated by the laws of physics. Everything else is a recommendation.
*These stories and ideas are from the book Elon Must by Walter Isaacson.
Harsh Batra
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I build businesses (EthosData, Happy Ratio), evangelize Buffett style investing that produces 5x-10x returns every 10 years (Marcellus), and share what I learn every Sunday (sign up here).