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Investors Therapy #14: Found Money

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Hey investors! It’s easy to get stuck in zero-sum game mentality. This mentality appears when you loo
 

Investors Therapy

March 10 · Issue #23 · View online
The best investors focus on improving their thinking habits before investing in the market. Investors Therapy is a monthly newsletter that covers all forms of investing and helps investors understand their psychology to make better investment decisions. If you're ready to take the next step in your investment journey, subscribe!

Hey investors!
It’s easy to get stuck in zero-sum game mentality. This mentality appears when you look at an opportunity as a fixed pie that can’t grow larger. We think in terms of what we can gain, and not what we are losing by squeezing our business partners for a few extra pieces of pie. As a result, people don’t want to share new pies with you because you’ll always try to eat the entire thing.
Small company values
I used to work at a family-run machine shop (a small factory that produces high precision parts). Back then, we were in the depths of the financial crisis and businesses were shuttering left and right. Being our firm had a great reputation, we still had vendors competing to work with us. One of these vendors, a small family operated shop, was so desperate for work, the owner of the firm dramatically cut his prices to secure a contract with us.
My manager realized the vendor’s quoted price would lead to a profit windfall for our firm, however, the vendor would be losing money on the deal. He knew the vendor’s firm was struggling, so my manager told the vendor, “You can’t possibly be making money off of this deal, so I need you to sharpen your pencil and bid this out at a price that makes it worth your time.”
The vendor rebid the job at a higher price, and we signed the contract. The vendor’s company survived the financial crisis and continued to work with us on different projects that led to a profitable relationship.
Dividing the pie: One unfair slice or infinite fair slices?
Found money is a new opportunity that’s only available through your partnership with another person. Found money can be finite or infinite due to how the financial rewards are shared.
The problem with found money is once it appears people become concerned about their portion of the pie. No matter how the pie is sliced it’s a net positive for your bank account. You went from previously having no found money to the potential of earning found money. Unfortunately, once we see this pot of gold, we try to squeeze as much out of the deal as possible for ourselves.
We fall victim to the annual investor’s mindset, so we decide to take as much from the deal as possible. By squeezing the deal you prevent future found money opportunities from arriving at your door, resulting in an infinite opportunity turning into a finite one. Who wants to share an opportunity with someone who is selfish?
Found money comes in many different shapes and sizes:

  • It could be an equitable business partnership that leads to future partnerships because both members were treated fairly.
  • Fairly compensating a hardworking realtor that provides you with early access to off-market listings.
  • Providing a consultant with a percentage of profits created by her work.
  • Structuring a real estate deal so everyone takes part in the upside.
A series of games
Business is a series of games played over many years. When you optimize for squeezing as much out of the deal as possible you hurt your reputation and decrease the chances of being offered future found money opportunities. People will never forget how you treat them in a deal, and if you’re fair, people will always come back for more, resulting in even more found money.
Cheers,
Jordan

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Box plummets on revenue miss and weak guidance
Warren Buffett’s Letter To Berkshire Hathaway Shareholders: Highlights
10 Tips for Successful Long-Term Investing
Startups/VCs
Lyft's financials show a $911 million loss ahead of its IPO
SoftBank's latest big real estate bet is in a start-up that's taking on the physical storage industry
Economy
Private equity investors fret about managers overpaying for deals | Reuters
Real Estate
Calculated Risk: MBA: "Mortgage Delinquencies Dropped to 18-Year Low in the Fourth Quarter of 2018"
What You Should Know About Real Estate Valuation
The Major Challenge of Inadequate US Housing Supply - Freddie Mac
Appraisal waivers & the foreclosure wave
Careers, Society, and Personal Development
Why some Japanese pensioners want to go to jail - BBC News
U.S. Economy: Big Cities No Longer Deliver for Low-Skill Workers - Bloomberg
Speed Summary – Social: Why Our Brains Are Wired to Connect | Digital Wellbeing
The Evolution of Anxiety: Why We Worry and What to Do About It
Robots are being used to deter homeless encampments in San Francisco - Business Insider
Watch/Listen
Paul Volcker & Ray Dalio | State of the US Economy & Government
Why 50 Million Chinese Homes are Empty
The Best Advice Ever for Succeeding In Record Time | Michael Ovitz on Impact Theory
Leaving Game of Thrones | Jack Gleeson
Robot Tries to Escape from Children's Attack
What simple invention ended the Wild West?
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