Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Hello, Acquired LPs. We have an awesome, awesome interview today with a pseudonymous account, 10-K Diver. So many of you will recognise from FinTwit. David, it’s a great interview.

David: This is so much fun. We’ve never had a pseudonymous account before. We talk about how he got into this crazy world of Twitter and FinTwit, what the purpose of the account is, dive into all sorts of fun stuff, not to mention investing.

Ben: Some of his favorite mental models and threads over the last two years that he has gone from 0 to 200,000 Twitter followers.

But first, we are very excited to thank the sponsor of the LP program, Tegus. As you know from listening to the last couple of LP episodes, you may have heard of Tegus if you’re an institutional investor. They do awesome research and they’re an awesome tool for researching anything that you’re interested in buying any stocks, any companies that are interested in investing in.

We are here today to tell you that if you work in an operating company, or in strategy, or in a corporate development function, Tegus is now awesome for you, too. Their content empowers corp dev teams to make decisions smarter and faster by pairing the highest quality user-generated content and data with best in class technology.

Now, what on earth does that mean? The way it actually works is Tegus records expert calls, transcribes them, and then uploads them to their shared platform for all their customers to listen to. It’s pretty crazy. I’ve actually been using it and I’ve been blown away by the caliber of research and the access that they have to different experts. This is often customers of companies or people who used to work at companies, executive levels.

Just a sample, I was digging around in Tegus’s research on FTX, Roblox, DoorDash, Airbnb, and TSMC. I even did some digging around for Universal Music Group, for art, her Taylor Swift episode, and it’s really fun. I’m excited to start using it as a more integral part of our research process.

As many folks know, the model’s really interesting, super differentiated. They actually will record other people’s expert calls so you can just quickly search the transcripts in the database rather than commission expensive one-on-one calls yourself. Of course, you could set up a dedicated interview, too, but it’s very nice to have the benefit of everyone who came before you and did that research as well.

Users can seamlessly toggle between financial data, management commentary, and these expert interviews. It’s trusted by companies like JFrog, and it’s very widely used at investment firms like Spark, Thrive, Redpoint, and more, especially on the public side. You can learn more and get a free trial at tegus.com/acquired, and just tell them that David and Ben sent you when you get in touch.

All right, David. With that, let’s dive in. 10-K Diver, great to have you with us here on the Acquired LP show.

10-K: Thank you so much for having me on.

Ben: You bet. And David, correct me if I’m wrong. I think this is our first pseudonymous guest.

David: Yes, for sure. We’re so excited to do this. This will be really fun.

Ben: 10-K, I think as listeners will know from our little intro, you do these unbelievable Twitter threads. We’ve really enjoyed reading them over the years. I actually just retweeted one right before we jumped on today as I was doing research about the virtues of compounding and the great Morgan Housel clip that you found.

I’m curious. That feels like a reasonable place to dive in for people who aren’t familiar with the type of stuff that you tweet about. What was that Twitter thread and what’s the crazy Warren Buffett stat that you pulled out of it?

10-K: That Twitter thread is about the fundamentals of compounding. These are very basic facts. For example, if you have two exponential curves and one of them is growing at a faster rate than the other, then even if the slower one has a very big head start, the faster one is going to eventually overtake it. Very, very simple facts about compounding.

These facts are very important to internalize for a lot of investors. A lot of investors understand these things at a very intuitive level, but when it comes to actually putting numbers to these things and doing calculations based on these principles, I find that there is a definite gap in the numeracy, in how numeric people are.

What I’d like to do in my thread is to just include a few numbers and a few calculations to illustrate some of these fundamental concepts around money. Most of my threads are kind of like that. They take a particular concept and then they put some numbers to it. Maybe I have an example in there showing how this particular concept applies to a company and so on.

I draw heavily upon Morgan Housel’s work. I’m a huge admirer of him and his book, The Psychology of Money, and the essays that he writes from time-to-time. They’re all very outstanding material. Of course, he doesn’t quite have a whole lot of numbers or simulations. He has a very good idea of what are the key factors that are important in a particular situation. He zeroes in on those key factors very quickly. He’s a beautiful writer. He also expresses the stocks very clearly and very succinctly. Those are things that I admire.

In this particular case, he was narrating this story about, well not exactly a story but the fact about Warren Buffett’s journey. The fact is that Buffett accumulated most of his net worth after he turned 65 or something like that. After he reached the age where most people tend to retire if they have that much money. He did this calculation.

Buffett actually started buying stocks. He bought his first stock when he was 11 years old. He just turned 91. He has been compounding for 80 years. Morgan Housel did this calculation saying, yes, Buffett is a great investor. But if he had a more normal life, say he started investing at 30 years old and then he retired by the time he was 60—a normal investing career—then Buffett’s net worth would be 99% less than his current net worth.

Ben: If he only invested from age 30 to age 60, then he would be 99% poorer than he is today.

10-K: Exactly. So Morgan comes up with these unique insights. I had a lot of fun reading his stuff and tweeting about it when appropriate. That is exactly how compounding works. Most of the benefits come towards the end. Most of these compounding graphs, you almost have to plot them on a log scale to appreciate how much things have grown and so on. I found this particular anecdote very revealing, and that’s what I included in my thread.

David: How did you get into this? You have this account which is amazing—10-K Diver—you have almost 200,000 followers on Twitter, you’re a huge part of FinTwit. You only started this 18 months ago. How did you find yourself in this position?

10-K: I’ve always been interested in investing. Ever since I was a kid when I was growing up. My dad used to be very much into stocks and things like that. If we turn on the TV, the default channel would be CNBC or something like that. There were a large number of business magazines and business newspapers around the house.

Early on, the importance of saving and investing was drilled into me from when I was a kid. But then, I decided to study science and engineering, and computer science. I’m a computer scientist. Even though I sort of knew about the importance of saving and investing, I did not know even simple things about how the stock market worked.

When I was just starting out on my investing journey, if you had asked me is a $10 the stock cheaper than a $20 stock, I would have said yes, a $10 stock is cheaper. So I did not know the most fundamental concepts. I had to learn these things on my own by reading books, listening to podcasts, and watching YouTube videos.

Over a long period of time, I sort of managed to piece together all these very basic concepts that anybody who goes to business school probably will know within the first year, but it took me a long time to learn just the fundamentals.

Ben: And you didn’t go to business school?

10-K: No, I did not go to business school. I’m a computer scientist by training.

Ben: And we should be clear, not a computer scientist working in finance, at a hedge fund or anything like that. A computer scientist in a totally unrelated field.

10-K: Exactly. I’m a computer scientist who works in scientific computing, designing simulation software and things like that.

Ben: I don’t want to ask for your exact age because we want to keep your pseudonymity around, but can you give us an age range?

10-K: Sure. I’m between 30 and 40.

Ben: Great. Did your Twitter journey inspire you to become super knowledgeable, or did you start your study before starting the 10-K Diver Twitter account?

10-K: I started my study around 2011, well before I started the Twitter account. The Twitter account was started sometime in 2020, I believe. I’ve had a good nine years of reading investing books, various podcasts, and going through YouTube videos before I typed my first tweet.

The reason I started the Twitter account was because I could see that something special was developing in FinTwit. As you guys probably know, Twitter has all these various silos. There is Politics Twitter, then there is Sports Twitter, and then there is Vaccination Twitter these days.

Ben: Or lack thereof.

10-K: Absolutely. That is a large number in sub-communities within Twitter. For a very long time, I was lurking on FinTwit—Finance Twitter—but I hadn’t actually posted anything to it. Over time I saw that this community was becoming more and more valuable. There were lots of highly accomplished people, people whom I admire, who are joining the platform, who are contributing all kinds of insights and so on. People are forming very meaningful relationships on Twitter. They were initiating these relationships on Twitter and then developing them further in real life.

I wanted to be part of this community and I felt that I could contribute because I was a non-finance person. I could sort of make sense of what some of these investors on Twitter, the finance people on Twitter were saying because I had studied these topics for a while. But then, I could also see how most people would not be able to make sense of these kinds of tweets, and I could sort of be like a bridge, trying to connect non-finance people to financial concepts. That’s how this whole thing got started.

Honestly speaking, I do not think it would become so popular in such a short period of time or anything like that. A large part of that has to do with luck. If you’re noticed and retweeted by the right people, overnight you can get tens of thousands of followers. I had that experience a few times.

David: I have two reactions to that; I think both are true. One is that things like what you are doing is a great service and if you had done it at the quality level you are doing it, eventually you’ll get as big as you are now no matter what because I do feel that great content eventually does get rewarded.

And yet also, you started doing this at the exact perfect time as the pandemic happened, and so many people—the whole Robin Hood situation—started getting interested in finance, investing, and trading for the first time. Right there you were to be able to translate some of these more advanced concepts or things that hardcore long-term investors would know to the general public.

10-K: Absolutely. Timing may not be very important in the market. “Time in the market is more important than timing the market,” as the saying goes. But in my case, with his Twitter account, maybe timing matters a whole lot.

David: It’s all back to compounding, right?

Ben: What were your early tweets like and how did that change as you started to gain followers? I’m curious. This is the classic ‘how did fame change you’ question. How did you start to sort of morph as you saw what worked?

10-K: I try to have fun with my Twitter account. I like to write threads on things that personally interest me a lot. I try not to bother too much about how large an audience would resonate with a particular topic.

For example, I wrote a thread about generating functions, which is a kind of an arcane area of math. Even a lot of computer scientists and others. Generating functions are a way to solve recurrence equations, essentially.

David: Is this what Y-combinator is? Isn’t Y-combinator a function that generates other functions?

10-K: Y-combinator is a particular concept in functional programming. There is this whole area of computer science which is devoted to languages like Lisp and Haskell, very elegant programming frameworks, how to think about giving a computer a sequence of instructions and so on.

But in math, there is a book called Generatingfunctionology. The first sentence of the book goes something like, “A generating function is a clothesline on which we hang up a sequence of numbers for display.” Essentially, you have a sequence of numbers, say A1, A2, A3, A4, and so on. The generating function is basically you plug 1 into the function, you get A1. You plug 2 into the function, you get back A2. A generating function is something like that.

It’s a fairly arcane math topic. Although it can be used to solve a number of the equations very nicely by hand, you don’t need a computer to solve some equations if you know about generating functions. Most people just solve those equations using Excel or whatever, so they don’t have to know the theory behind generating functions.

I find the theory fascinating, so I wrote a thread about it. Predictability, it didn’t get that many likes or retweets, but I still find the topic a lot of fun.

Ben: Is there a MathTwit the same way that there’s FinTwit?

10-K: Oh yes, there is.

Ben: Did it find its way into that or have you had other tweets find their way over toward MathTwit?

10-K: That’s an interesting question. There is most definitely a MathTwit. Some of the people whom I follow on Twitter are actually sort of the bigwigs in MathTwit. There’s one guy I particularly like called Steven Strogatz. He’s a math professor. He not only excels at doing math. He also excels at explaining math. He has this wonderful book called Infinite Powers which walks the reader through the history of calculus, why calculus was invented, what were the motivations of the people who first inventing calculus—Isaac Newton and so on.

There is definitely a MathTwit, although my census that my audience is largely people who are on FinTwit and not so much people who are on MathTwit because the MathTwit people tend to be a lot more rigorous, and I think they see me as mostly [...] worth investing.

David: Other than wanting to be part of it, did you have any other intentions? Was there, ‘this could lead to something either business-wise or investing-wise’? What were your expectations?

10-K: As Charlie Munger said, the secret to happiness is low expectations. I just wanted to have fun. I don’t really have a whole lot of expectations associated with it. I wanted to help people sort of learn the same concepts that I did, but not go through as much time and effort as it took me.

Most concepts in finance and investing are fairly simple. If you understand basic math, basic probability, basic compounding, most of the concepts are fairly simple. But there is a lot of jargon in the field, especially when you have accountants and people like that involved. All these debits and credits, contra assets and contra liability, and all that. A lot of this complexity is not really necessary if you want to understand the basics that are going on. I just wanted to help people understand the fundamentals, maybe have an easier time of it than I did. That was basically the whole goal and I wasn’t thinking too much beyond that.

David: Has 10-K Diver become a business for you in any way, or do you want it to? What are some of the things that it’s led to?

10-K: The basic mission it still largely the same—to help people understand the fundamentals of finance and investing. But now that I have got all this traction, I have to figure out a way to reach as many people as possible. Lots of interesting opportunities have come my way simply because I have this Twitter account.

For example, one such thing that I’m doing I just started recently is this social podcast that I have. Every week on Sunday at 1:00 PM Eastern, we have this little group of investors. We meet virtually through this app called Callin.

Ben: Is that David Sacks’ app?

10-K: Yes, exactly.

David: That’s awesome.

10-K: Yeah. That is this social podcast. People come on, they ask me questions. Some of the questions have to go with the week’s thread that I put out. Sometimes, the questions have nothing to do with the week’s thread but have some tangential connection to investing. It’s a lot of fun and we just do that on Sundays. That is something that probably wouldn’t have happened if I did not have this Twitter following. In that sense, there are several opportunities that just knocked on my door because I had this Twitter account.

We just registered 10-K Diver LLC last week. We want to something to try and make this a business, but what exact products will the business offer? Not very certain at the moment. Some people have suggested that I should use a platform like Teachable to create a course.

Someone who’s just following me for the first time, if they look at all the work that I have done before, they will see that I have a large number of threads. They are not particularly well-sorted. The topics covered are all over the place.

David: You do have a nice website, though, where you at least link your threads. If somebody just finds you on Twitter. Twitter is so not made for this, but it’s one of the great things. Twitter gets shoehorned into all this stuff. If I just go follow 10-K Diver, you just drop right into a sea of this. There’s no organization or anything.

10-K: Exactly. I think there’s a bit of a mismatch between the kind of content that I like to put out and what Twitter was built for. I like to think that most of my content is evergreen, so fundamental investing concepts that don’t really change with time. How do they do a DCF or something like that, or what is inventory turnover, what is operating leverage. These things don’t change with time. It’s important for an investor to understand all these concepts.

But Twitter popularizes things that were tweeted out yesterday and today. Whatever is tweeted out yesterday’s sort of forgotten by tomorrow, even if it’s something that’s an element for life. There is a timing mismatch between what Twitter is meant for and what my content tends to follow.

People who just get acquainted with my Twitter account have this large number of threads that they see, but they are not sorted by order of difficulty, or what should they read, what order should they read them in. And there are gaps between threads as well. There may be a thread about topic A and another thread about topic C, but topic B which lies right in the middle, there may not be a thread about it yet.

Ben: It’s almost like a Khan Academy–style opportunity here where right now it’s sort of disorganized and it’s exclusive. The Twitter thread format actually is a pretty great learning format, which is I think why it creates this opportunity to go viral and get so much engagement so quickly. You really can have these amazing takeaways from it and learn at your own pace as you scroll through the threads.

But you’re right. Unlike Khan Academy which is like you’re in the accounting course and you just learned about balance sheets. Next thing we’ll do is income statements. Obviously, threads don’t lend themselves nicely to that.

10-K: Exactly. People have suggested that I should create a course that starts with the basics and then walks investors who are just getting into investing, people who are just trying to invest their money personally, just walk them through the basics and cover most of the important concepts that they would need, maybe not generating functions, options, or anything like that. Just the fundamentals.

I think that’s a good idea. There is definitely a need for a course like that. If I had a course like that when I was starting out, I might have learned a lot in a short period of time. I can see the merits of that, so that could be something we do. Although it also may not be something we do as the direction is fairly unclear at this point.

David: It’s so interesting. Yes, that is a valuable product. Yes, you’re in a great position to provide it. But because of what your account’s become, you’ve got some incredible people who follow you and love your work, like past Acquired guest Ho Nam loves the idea. He’s always interacting with you and tweeting with you.

10-K: The feeling of respect is mutual. I very much like Ho Nam’s work as well.

David: Ho’s the best. It’s interesting. In some ways, the most (from a certain perspective) valuable part of your account are the most advanced to users, so to speak. Ho probably doesn’t need an introductory course, and yet he may be the single most valuable person who follows your work.

10-K: We could all take an introductory course from Ho. What Ho has forgotten about investing is probably more than many of us will ever learn about.

Ben: 10-K, I’m curious. You’re talking a lot about investor education here as a business. There’s sort of a question that begs asking which is would you take on investor capital and start a fund or some form of structure where you invested on behalf of other people?

10-K: At this stage, I don’t have any plans to do anything like that, mostly because it’s a tremendous amount of responsibility, to be responsible for other people’s money. I tend to stick to companies that are fairly safe investments, companies that I understand.

My style of investing is more geared towards preserving capital. I have done some back of the envelope calculations and come to the conclusion that if I am able to get to 10%–12% return per year through my investing, that should leave me reasonably comfortable in life. I try to set things up so that the bar for me is fairly low to cross. If you manage money professionally, you’re mandate is to get the highest possible return for your clients.

Ben: Or the lowest risk return, depending on the style of which you’re managing money, the agreements that you come to, and what you’re doing on behalf of your investors. It could be to achieve the lowest possible risk with a fixed type of return.

10-K: Right. This is exactly satisficing versus maximizing trade-off there. I’m much more of a satisfizer than a maximizer. There are times most people may not be very excited about it. It’s a very safe kind of investing philosophy and I’m happy just learning the concepts, helping others learn the concepts, and just being an educational Twitter account for now at least.

David: Which is so funny. I love that on Twitter you can build a big following for that and intersect with us and other folks in FinTwit. We’re the opposite. What we do in venture and despite what we cover—Buffett and the like—on Acquired, we’re total maximizers. We just all kind of get put in this town hall together.

I’m curious. Now having gone through this journey with Twitter and with FinTwit, of going from lurker to starting as a content creator, to now being a big content creator and part of the community, what’s your take on Twitter? It’s interesting lately for us at Acquired. We use Twitter a lot, but it’s such a small part of what we do relative to the reach of the pod. We haven’t really quite been able to figure out. I feel a lot of people think that. What’s your experience?

10-K: My experience has been overwhelmingly positive with Twitter. Twitter is sort of the reason that I’m on this podcast, for example. I’ve met so many interesting people through Twitter. A large number of people who sort of are my heroes—like Michael Mauboussin, Sanjay Bakshi—people like this whom I would have never had a chance to meet in real life, I now have DM interactions with them.

Twitter has given me the opportunity to connect with so many people. That’s great because an anonymous account like mine, it’s only the ideas that matter. It’s not the person behind the account that matters. That is very, very egalitarian. That really appeals to me. Of course, there is a nasty side to Twitter as well.

Twitter itself as a platform perhaps has not developed at the base that most of us would want it to develop. They’re just getting into, for example, this Twitter Spaces. They’re just getting into things like they just bought this newsletter company called Revue. They have been fairly slow to roll out new features, but the basic product itself, there is a lot of value to be gained out of it if you are persistent with it.

Unfortunately, a lot of people aren’t very persistent. If you just go and create a new Twitter account, it’s hard to find who the right people are to follow. You have to come back to it everyday and read tweets in your feed. You stumble upon people by accident almost and if you stick with it for a long time, then over a period of time you develop the social network. I don’t know how many people are interested in sticking around for that long.

Ben: It’s fascinating because the purists in us who have been using Twitter for a long time, I’ve been resistant to so much of the change that actually makes it a much more accessible product. For almost a decade, I read every single tweet. I think the phrase is completionist. This was before—

10-K: Wait, every single tweet?

Ben: Every single tweet that was by someone I followed. For the longest time on Twitter there wasn’t an algorithmic sorting and you just saw a real time feed of everyone you follow. Then you saw every single one of their tweets no matter if it was going viral or not. And you still can do this if you go to the top right and hit view latest.

When they switched it to algorithmic feed, I remember feeling like this is a violation of the product that I love, but my tendencies of, well I just want it to be like a very primitive service, that doesn’t work on my behalf, that I identify who I want to follow, I follow them and I want to see everything they’re tweeting in the order in which they’ve tweeted it, that is not a very accessible service. They’re not going to grow their user base that way. It’s very difficult to own a board. You have to stick with it for a long time.

Of course, now they’re going even further where not only is it an algorithmic feed of the most interesting stuff from the people I follow, but they’re showing you stuff that other people liked. I’m getting stuff now that’s like, it seems like you like cryptocurrencies, so here’s a trending tweet in cryptocurrency, which to me of course, I’m throwing up all over again because this is not why I use Twitter. But I understand why that’s a very good business decision for them.

10-K: Absolutely. They’re trying to maximize full engagement, that there are always two sides to that coin. I don’t have a particularly strong view on this.I’m reasonably happy with my feed and I’m happy with the people I follow. I still get a lot of value out of Twitter just by reading what shows up on my feed from time to time.

But you’re right. It feels a lot like serendipity. You just have to stumble upon things on Twitter. It’s almost like a visit to Costco. You just stumble upon something, you buy it, and you find a great product.

David: How do you consume Twitter now that you have this huge account for publishing? Do you use the 10-K Diver account to also consume Twitter, or do you have a different method of consuming?

10-K: Oh, no. I just use the 10-K Diver account. I follow a bunch of people. From time to time I check my feed. I come across some things that seem interesting. If I come across something but I don’t have time to review it, I put it into my bookmarks. Then I never read those bookmarks.

David: It’s like read later on Safari. I have no idea what’s in my read later.

10-K: A very long list of bookmarks that I mean to get to at some point. Two things have changed since I became this sort of content created on Twitter, how I use Twitter. One important thing that’s changed is I now use the DMs a whole lot more. When I was a lurker I wouldn’t DM anybody. Nobody knows who I am.

But these days, it’s so great that when I read something—if I read an excellent book by somebody or I read a very nice article written by someone—chances are that they are on Twitter. I can send them a note just from the 10-K Diver Twitter account. I can send them a note saying, hey, I really love this article of yours. What do you think about these two follow-up points? Something like that. And usually, people respond and we end up having a very nice discussion. It’s kind of a way to reach out to you guys after your wonderful Buffett marathon podcast series.

David: Oh, thank you. That’s how we connected. I just think one of the most amazing things about Twitter is that people do respond to DMs. I remember—Ben and I were talking about this—Tim Ferriss talks about how Twitter DMs are his primary way of getting podcast guests now. People won’t respond to email, but they respond to Twitter DMs. I would imagine 99% of people don’t use DMs, and yet it unlocks so much if you do.

10-K: In my experience it’s been a very, very powerful feature of Twitter.

Ben: Yeah, the way that we got in touch with our last guest on our last special—which I think will be out by the time we ship this Friday night—the co-creator of Mozilla and I think the chief architect of Netscape and the Brave browser now, Twitter DMs. There’s something about it where you’re much more likely to respond than if you get some long email or email that has the capability to be long, where you’re just like, ugh. Too much.

10-K: One main feature of Twitter DMs—I don’t think they intended it this way—you can mark something as unread. If you read it, you either respond to it right away or you forget about it.

David: Or it’s gone, yup.

10-K: That may actually encourage people to respond.

David: That’s so true. I think about that with Twitter DMs and with iMessage in text. I’m always like, gosh I wish there is an unread so I know, but you’re so right. I wouldn’t respond to it. I would be like my bookmarks folder; I never go there. You’re right. It actually encourages much more higher response rate (I think) with DMs.

10-K: Exactly. The other thing that has changed since I became a content creator is that I spend more time in notifications these days because I get a lot of notifications. Many of them are sort of if I write a thread, someone will comment on it mentioning something that I never talk about when I wrote that thread, and suggesting ideas for follow-on threads, or asking simple questions that I can then answer. So I spend more time on notifications than I used to.

Ben: How do you generate the ideas for the threads, and how do you manage which ones you’re choosing to go do work on right now to create as your next one?

10-K: I have a list of potential thread ideas on my phone. I read a lot. At any given time, I’m reading a bunch of books on investing or I’m reading some articles and several newsletters—the Wall Street Journal and 10-Ks and 10-Qs.

David: That’s the whole name [...].

10-K: So I read a bunch of things. As I go through all these different kinds of material, I keep an eye out for topics that could become future threads.

I also listen to podcasts. Whenever I’m consuming content related to investing, I sort of keep an eye out for topics that could become future threads. When I find such a topic, I add it to this list on my phone—that list is now very long—and when the time comes to write the thread, I usually just crawl through this list, pick one topic, and then write about it. It’s not a very scientific method, but it just works.

David: Do you have a regular cadence that you write on, or is it just when the mood strikes you?

10-K: I like to put out a thread approximately once a week. I like to put it out on Saturdays. Usually, I will have a plan for when I should write the thread. If I want the thread to be out on Saturday morning (say), by Wednesday something must be ready, and then by Thursday a certain number of simulations must be done. So I have a mental idea of what’s required for that thread.

Of course, life comes in the way and I haven’t started anything until Friday evening. So on Friday evening, here I am in this sort of panic mode.

Ben: Have you ever seen the TED Talk from…

10-K: Tim Urban.

Ben: Tim Urban, yes. The procrastination master.

10-K: That is me. The procrastinator and the panic master, that is me to a tee. That’s a wonderful TED Talk. I have always kind of been like this. Tim Urban articulated it so beautifully. As I was watching through that video, I sort of recognized myself in what he was saying. I hadn’t even thought about it in such clear terms myself. That is exactly who I am.

Ben: As I look through the topics of threads that you’ve done, it occurs to me none of these is a single deep dive into a 10-K. I remember when I first started you, that’s what I sort of thought I’d be getting. I was like, oh, there’s going to be a really interesting 10-K that comes out and this would be a good way to summarize it. Is that a common misperception?

10-K: I’m sure some people read the name of the account and think that this is what the account should be. I don’t blame them. If I read the name of the account, that’s exactly what I would think the account is about.

David: Almost like in a podcast about acquisitions. We’ve never even talked about acquisitions anymore.

10-K: When I started the Twitter account, I did not have a very clear picture of what I’d be doing with this account. One of the things that I thought I do with the account is just take a 10-K, look at some particular aspect of it, and try to draw out lessons from this particular aspect of the 10-K that are more broadly applicable.

For example, take the notes to the balance sheet. The notes to the balance sheet will have something about debt and the debt repayment should yield or something like that. Then talk about how much debt is okay for a company to have, when is the amount of debt too much, and so on. I thought, okay take something from a 10-K and then help drive it to a broader audience. That’s roughly what I thought the account would be. Then I figured out that it’s a lot easier to work with fictitious examples than with real examples.

David: It’s really hard to make 10-K content attractive.

10-K: One, it doesn’t get you into trouble because once you mention the name of a real company and the real 10-K, lots of people have all kinds of feelings about it. So you stay clear of all that if you just deal with fictitious examples.

The second reason is you can make the example as simple as you like. Whereas real 10-Ks, real companies are never that simple. If you want to highlight one particular concept, for example how much debt is it okay for a company to have, you can talk about cash flows and say, what are the cash flows of the company? How much is required in interest payments and principal repayments? And are the cash flows enough to meet these kinds of payments? If the cash flows are enough, then the debt is probably okay. If the cash flows are uncertain or very volatile, then it’s not okay.

If you wanted to illustrate this with a real company, there are so many things that go into the cash flows. How do you predict what a company’s normal cash flows in a normal year are? That is a completely different thread topic on its own. It’s very easy to get boggled in complexity when you’re dealing with real companies.

Whereas if you’re trying to use this account as an educational account, to focus attention on one particular concept, it’s a lot easier to work with simpler examples than real 10-Ks. There was a bit of a pivot there. I don’t dive into 10-Ks as much as my name would suggest.

Ben: I have another question related to your content, which is sometimes it’s a fundamentals of investing concept. You talked about not only the DCF calculation thread but then the reverse DCF calculation thread. Or you have one for 401(k)s and rebalancing of portfolios between stocks and bonds. These are fundamental investing academic concepts.

There are other ones that are more like Charlie Munger mental models, where you start to think about volatility versus risk, or decision fatigue, or—I’m looking through some of these other ones here—the concept of half-life. I’m curious which you enjoy more right now. What’s your favorite flavor? Or do you like flipping back and forth between those?

10-K: I like flipping back and forth, but I don’t think there is even one thread that I did not enjoy writing. The great thing about having an account like this is you don’t have to put out anything that you don’t enjoy writing.

David: Right. It’s anonymous and it’s not a business right now.

10-K: I generally enjoy wrestling with all kinds of different ideas. For example, I wrote a thread about escape velocity. On the face of it, it has nothing to do with investing on anything. It’s how much speed you should give an object so that it escapes earth’s gravity. That’s basically it. It’s a physics problem. I wrote a thread about it simply because I enjoyed delving into it.

Half-life is something that’s very, very similar. You have a radioactive compound. How long does it take for the amount of radioactive substance still dishing to 50% of what it was? These are all concepts that don’t have much to do with investing on the face of it. It all turns out that if you look at the math for how dollars lose that value through inflation, you can come up with something called the half-life of a dollar. How long will it take the purchasing power of the dollar to shrink to 50 cents, say? I find these ideas interesting.

David: A lot shorter now than a few years ago.

Ben: Oh, he’s going to make a joke.

David: Yeah, somebody had to do it.

Ben: It does lead me to the question of—and take a minute to think about it if you like—what’s an example of a Twitter thread that you did that led to a decision that you made in your own personal investing? And perhaps it’s due to an interaction with someone, where they chimed in and gave you new information, or pointed you towards a new concept or a new example. Or perhaps it’s because you decided to do a thread on something and then became fascinated with the concept and chose to invest in a company because of that. Do you have any direct examples where but for doing this, you wouldn’t have made a certain investment decision?

10-K: There are some threads that I’ve done and I have had discussions with other people following those threads. Those discussions sort of raised some points and led me to think about certain companies in a certain way that I would not have thought about in that way before.

I don’t want to talk about any personal investment that I’ve made, but I did invest in one subscription-type business. Normally when I invest in companies, I look for very stable cash flows and evidence that is a strong return on capital. I don’t like to invest in companies that are not turning a profit or that are cash flow negative.

I’ve written some threads about concepts like owner earnings, and earnings versus cash flows of a company. That is a particular thread that I wrote about LTV versus customer acquisition cost. These threads sent me into discussions with a bunch of people. I’ve had discussions on Twitter with people like Tren Griffin and Professor Michael Mauboussin.

Professor Mauboussin recently came up with this wonderful paper called The One Job of an Investor. In that paper, he articulates beautifully how modern companies have so much investment in intangibles. They invest far more in intangibles than in tangible assets.

This has two effects. One is all these investments that these companies are making are all expenses on the income statement rather than being capitalized on the balance sheet. This has the effect of lowering reported earnings. That is point number one.

The second thing is because these assets that the company is buying essentially through this investment, because these assets have not made their way through the balance sheet, if you calculate a return ratio like a return on assets—so return on invested capital—just off of the reported numbers, you will get much higher figures than what is actually economic reality.

The return on assets of a company might be 60% if you calculated it just off the reported numbers, but the assets may be understated on the balance sheet because all these intangible investments are not included in the assets.

David: And these intangible investments, these being things like customer subscriptions, or R&D, or engineering, or all sorts.

10-K: Exactly. This way of thinking about what the true numbers should be versus what the reported numbers are. This has changed my investing philosophy. I’ve invested in a subscription business because of this. Even a few years ago, I don’t think I would have invested in that business were it not for writing this thread, these follow-up discussions, and reading Professor Mauboussin’s work.

Ben: And is that because you look at the subscribers as an asset even though it doesn’t show up on the balance sheet as an asset; it shows up under customer acquisition cost as an expense on the income statement? Or maybe a little bit more concrete on how thinking about intangibles as assets instead of expenses might have impacted that decision?

10-K: Right. It’s as simple as what’s going through the income statement, looking at the sales and marketing figures, and the research and development—those two line items in the income statement. Previously, I may have just taken them at face value. But now, I sort of begin a little more and think about how much sales and marketing, and how much R&D that this company actually needs to do its current job, to earn its current cash flows, versus how much is it reporting on the income statement. The difference between the two is essentially what’s being spent on intangibles.

Professor Mauboussin has this example. He says that Facebook, for example, whatever money they’re making right now, whatever cash flow they are making out of the existing Facebook and Instagram platforms, they can probably do that with 50% of their work force or even lower. They don’t need to employ all these people and work on all this.

David: They can probably do that with 50 people.

10-K: They might very well be able to, especially if they’re able to replicate whatever model of robot Mark Zuckerberg is. Just create a few replicas. Isaac Asimov has this wonderful series of science fiction stories. Humans designed robots, but then the robots become so intelligent that they start designing the next generation of robots on their own. That really kicks off all kinds of innovations.

Michael Mauboussin has all these nice examples, and I would have never thought about a company like Facebook that way. If they stated, we spend so much on stock-based compensation for employees or something like that, I might have been much more inclined to take it at face value before reading all the stuff.

After encountering Mauboussin’s ideas, now I think a little bit about how much of this is investment in intangibles, versus how much of it is actual expenses that you need just to manage the show at Facebook?

Ben: It’s so interesting that when these roles were developed, it made sense based on the way that businesses were run, which was everything is tangible. All investments are tangible. But now, I think (to your point and to Michael’s point) the way in which you need to analyze the business’s intrinsic value and the way that it will make money going forward is not identical to the way that accounting standards say that you need to report, which is this fascinating era that we’re in where (as you’re saying) you now have to do the work. You can’t just trust the accounting figures at face value.

10-K: Right. At least for some businesses, absolutely that’s right. I think this always used to be true even in the past, that commonly accepted ways of analyzing businesses that are always businesses that don’t fall neatly under that type of analysis, and people who are able to spot those businesses early on and invest in them, tend to generate enormous amounts of alpha.

For example, this whole idea of Ben Graham’s that you look at the balance sheet first and foremost. You look at the assets the company has, the net tangible current assets, you look at the price and you try to pay less than assets for the company, essentially.

That is investing entirely through the balance sheet. But when Buffett bought something like See’s Candies, he was actually investing through the income statement, because he understood that, okay, here is a brand. It’s a durable brand. You don’t really care how much assets See’s Candies has. You care what it earns every year and how much of those earnings an owner can just take out of the business.

That was something going from a purely balance sheet–driven investment process to something that’s much more income statement, cash flow statement, owner earnings, and all these concepts. Buffett was very early on to catch on to the power of a brand. Coca-Cola as a brand, See’s Candies, and now Apple for example. Buffet was very early on to catch on to this new way of investing. When he bought See’s Candies, lots of people thought he had lost his mind. What are you paying? Whatever, six times book for a chocolate maker?

People who are able to come up with these fresh insights, if they’re right about those insights, stand to gain a lot. The landscape of investing has always been changing like this and this whole idea of intangibles and looking at the interplay between what gets reported on the income statement and what gets reported on the balance sheet, what is expense, what is capital, that might be the modern day equivalent to changing the way you think about companies and return on investing.

David: One thing I wanted to ask earlier but we lost the place I wanted to circle back to, I noticed you said you like to post on Saturday mornings. I’m curious what the reason is for that.

10-K: I posted my first thread on a Saturday morning. I don’t remember if it was a Saturday morning or a Friday morning of a long weekend. It might have been Friday but it was a long weekend, so Friday, Saturday, and Sunday were off. Inside that is basically that if you’re going to be posting not about the daily news, not something that is time sensitive, if you’re going to be posting about a general investing concept, you’ll get down to people’s feeds early in the weekend.

That generally boosts engagement because people at this point know what to expect from my account. It’s not going to be some breaking thing that they have to read immediately or that has an immediate relevance. It’s a broad set of concepts and people just have more time during the weekends to dig into that sort of thing.

David: This is fascinating. The reason I ask is because it seemed to fly in the face of what is the traditional, canonical, like release content on Tuesdays.

Ben: And frankly, it is objectively true that Twitter has less people using it on weekends, but to the extent that the people who are using it are looking for more of these wider purview topics at that point. It helps that to your point not get lost in the daily news but actually appeal to the people for the job to be done by Twitter on a Saturday morning for them.

10-K: Sure. That’s also the possibility that I’m doing it all wrong.

Ben: It’s true. Have you ever tried on Wednesday?

10-K: No, but maybe I should.

Ben: And maybe we should try releasing episodes on Saturday mornings.

David: On Saturday, yeah. That’s what I’m thinking.

10-K: Well, let’s switch for the next month or so, and then we’ll report back to each other what we find.

Ben: And we’ll come back and say, well there were a lot of confounding variables, so I don’t know if it worked or not.

David: The other thing you said when we were talking about the process of Twitter postings, you said you run simulations. What do you mean by that?

10-K: I’m mostly a Linux user. I don’t use Windows or MacOS. I’m doing this call on a Mac but it’s my wife’s Mac. it’s not my Mac. I don’t have Excel on my computer. I have a spreadsheet program but it’s not Excel.

My computer is a very, very basic thing. I’m one of those terminal, command line users, so most of my work I do by typing commands into a computer terminal. This is not the way most people use computers. When I want to say, okay, a company has a particular growth rate and a particular return on capital, what’s the present value of its future cash flows? Something like that. If I want to calculate something like this for a thread, I essentially write a computer program to do that. A spreadsheet is a computer program anyway.

David: And you can run simulations on Excel, for sure. But I don’t know many finance professionals who do.

10-K: I don’t either. Excel’s maybe a great tool for all I know and I know many people who swear by it for all kinds of things, but I find it a lot easier to work with a general-purpose programming language, maybe because I’m a computer scientist. I write all my programs for this particular Twitter account in Python.

Ben: I was going to say, it sure looks like somebody’s graphs that I’m looking at are some kind of Python graphing library?

10-K: Yes. I make heavy use of this library called Matplotlib. It’s a wonderful tool for all kinds of plots—bar plots and pie charts—basically any kind of plot you want in Python. Matplotlib is kind of the default library to go to because it’s got such a complete set of features.

Ben: And is all this handwritten stuff actually handwritten when you scanned it in?

10-K: Yes. It’s all handwritten but it’s not scanned in. I have an iPad and I have the evolutionary Apple Pencil that they have.

David: If you see a stylus we blew it.

Ben: And you get a really nice job, like whenever you have something like 1-I over 1+IR minus C, your color coding and staying consistent. And you have nice handwriting. I think we’ve all had math professors where we try to follow their work and we are like I have no idea how step one correlates to step two. You sort of show the variables flowing through nicely.

10-K: Thank you so much. Even with the great handwriting and good color coding, most people are probably inclined to skip the math. And if your handwriting is bad and you don’t make an effort to make it easy for others to understand, the math will almost certainly be skipped through.

Anyway, I’m so happy that Steve Jobs didn’t quite get to make this particular decision at Apple, so thank God they invented the Apple Pencil.

Ben: I think it’s apocryphal to say that Steve Jobs never would have come out with the Apple Pencil because a misunderstood characteristic of him, speaking as someone I’ve never met him, I’d have only just watched every single Apple keynote ever and read everything about him, everything a proper obsessed person would do.

10-K: I still go back time-to-time and watch the Macbook Air reveal.

Ben: So good, the envelope.

David: It’s just classic.

10-K: There’s this envelope that is just lying there seemingly for no reason at all, and then he pulls out this laptop from inside the envelope. The showmanship is just amazing.

Ben: And pioneering. Because everyone does these keynotes, I think we forget how revolutionary it was to care this much about making a show of these product introductions.

10-K: Sooner or later everybody copies Apple.

David: Totally.

Ben: I think it was a Steve Jobs strategy to insist that something should never be done until the moment where it made sense for Apple to have that in their product line-up, and then it was a full-throated, unabashed argument of why this is the best thing ever without ever acknowledging that it is contradictory to previous statements. It just works so well for him, it works so well for the company. I kind of love the ‘I don’t give a [...] of it.’ I don’t know. It’s unapologetic.

10-K: I think one of the hallmarks of a visionary is that they should be able to change their minds when they see a new piece of technology that they did not envision before. Steve Jobs was very, very good at understanding how new technologies could completely change the way people were doing things. Sometimes, he would make these unfortunate statements that this is never going to work, but then he’s always focused on delivering the best possible product. If that means changing his stance on something that he said previously, so be it.

As Gandalf likes to say in The Lord of the Rings, even the wise cannot see all ends. Even Steve Jobs cannot see all ends. But when he sees something really compelling, he changes his mind. I think that’s exactly the right thing to do, the right approach.

Ben: I love it.

David: As we drip to the end here, as Ben likes to say, you’ve got to be a very small population of FinTwit users who are composing tweets and threads on Linux. You write your own simulations and running command line interface. And yet, you are self-proclaimed a very conservative investor. Have you invested in tech over the years? And if so, how?

10-K: I have invested in tech, but it’s the kind of tech that I believe has durable competitive advantages. For a very long time, my use of Linux actually blinded me to what a great business Microsoft was. For the life of me, I could not understand. Here I was, Linux is this free operating system. I have pretty much everything that Windows does and probably better. So why are people still paying for Windows, and Excel, and Word, and all that? Aren’t there open source equivalents to everything? And you had all these viruses and this and that. This was a few years ago on Microsoft. I just couldn’t see what a great business model Microsoft was.

But since then, I have changed my thinking. I’ve tried to go out and understand what businesses in tech have durable competitive advantages. Something like Google (for example) today. It’s very, very hard to unseat a company like Google. I think they have six or seven distinct products with over a billion users—Google Search, Gmail, Maps, YouTube, Android, and Chrome. There are six different products, each used by more than a billion people across the world. They have a phenomenal franchise that just prints money.

I tend to invest in companies like Google, where I think they have very strong competitive advantages. But one thing I don’t like to see in such companies is that a lot of tech companies tend to share a few things that they don’t like. One of them is, it’s a badge of honor for tech companies not to give out dividends, but pile on cash on the balance sheet.

Now, I have nothing against piling on cash, but at some point you have to use the cash to do something interesting. To invest into ongoing operations, whatever, build a metaverse, acquire some other company. If you just keep piling on billions and billions of dollars of cash year after year, don’t give it out to shareholders, and also don’t invest it anywhere, that’s just a waste. I don’t like that particular trend among tech companies.

The other trend that I don’t like is a number of tech companies have these very generous stock-based compensation plans. They dilute existing shareholders to the tune of 5% or 6% a year. I normally shy away from those types of companies.

I do invest in tech companies, but I must be reasonably sure that they have durable competitive advantages. They’re not just going to be overtaken by a competitor overnight. They shouldn’t be overly generous with stock-based compensation practices. And they should be reasonably good about returning money back to shareholders. Not just piling up money for the sake of piling up money, but return money to shareholders or invest it into continuing operations in an intelligent way.

Once you list these three characteristics, that eliminates a very large part of the tech universe. While my portfolio does have some tech companies, I would love to have more because having some of these are very good businesses. But then, I also need to stay true to what my investing discipline and what my investing philosophy is. There aren’t that many tech companies in my portfolio.

Ben: 10-K, any closing words other than you should go follow 10-K Diver on Twitter? And we will definitely link to that in the show notes.

10-K: If these were opening words, I’d say get a cup of coffee. But these are closing words.

David: Oh, I meant to ask. Can you tell us real quick? When and how did you start having that be your trademark phrase?

10-K: That was something I stumbled on by accident. I was just about to write my first thread and put it out. It was a thread on this topic called the Kelly criterion. The Kelly criterion is a fairly involved mathematical subject. Twitter at the time, I felt that it may not be exactly the right medium for it because on Twitter, people like to just scroll through things. Here I was trying to tell people, you can’t just scroll through this. You need to spend some time here. Maybe spend 5–10 minutes on this topic, read it, and then you may get something out of it.

Ben: Sit down. The professor is about to spill some knowledge.

10-K: Right, exactly something like that. I wanted to find a nice way to convey this message. I thought ‘get a cup of coffee’ conveys this nicely. You’re going to be here a while, so make yourself comfortable and give me the next 5 or 10 minutes of your time however long it takes you to drink a coffee. And maybe at the end of it, you learn something. That’s how I started.

With this particular thread, somehow I got very lucky, mostly because there was this guy. He’s also famous guy on FinTwit. His handle is @borrowed_ideas.

Ben: MBI, yeah.

10-K: Yeah, MBI. He retweeted this particular trait of mine, and that sort of set the snowball rolling, as you will. This thread became very popular, so I thought, okay. Maybe there’s something to this after all. Maybe I should write a thread every week. So next week, here I am again on Friday night or early Saturday morning thinking what should I write about this week. Again, I have the same problem. I have to tell people that you’re going to be here a while.

The nice thing about computer scientists is, “A good computer scientist,” the saying goes, “never solves the same problem twice. He solves the problem once, and then the next time he needs to solve the problem, he reuses the solution that he has already developed.” And since I like to think of myself as a good computer scientist, I said, okay, I’ve already solved this problem last week, so let me just reuse the solution.

So I started this week’s thread with, “Get a cup of coffee.” And that became my habit. Now, there are plenty of people on Twitter writing threads, everybody’s telling everybody else to grab a cup of coffee.

David: I think the perfect place to leave this is, the next chapter for 10-K Diver—the persona—is you need to have a podcast called Computer Scientists on Twitter Getting Coffee, like the Seinfeld comedians [...].

10-K: Oh wow. That is such a great idea.

David: Or maybe FinTwit on Twitter Getting Coffee.

10-K: Since you are the venture capitalists, what do you think that idea’s worth?

David: $100 million, pretty money easy.

Ben: I thought you might say that. All right, listeners, with that, a huge thank you to 10-K Diver, a huge thank you to the sponsor of the LP, Tegus, like in the show notes, to go and try it out for free in a trial. David, I think that’s it. Listeners, we’ll see you next time.

David: See you next time.

10K: Thank you so much for having me on.

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