A Letter From Abraham Lincoln To His Son’s Teacher

My son starts school today. It is all going to be strange and new to him for a while and I wish you would treat him gently. It is an adventure that might take him across continents. All adventures that probably include wars, tragedy and sorrow. To live this life will require faith, love and courage.

So dear Teacher, will you please take him by his hand and teach him things he will have to know, teaching him – but gently, if you can. Teach him that for every enemy, there is a friend. He will have to know that all men are not just, that all men are not true. But teach him also that for every scoundrel there is a hero that for every crooked politician, there is a dedicated leader.

Teach him if you can that 10 cents earned is of far more value than a dollar found. In school, teacher, it is far more honorable to fail than to cheat. Teach him to learn how to gracefully lose, and enjoy winning when he does win.

Teach him to be gentle with people, tough with tough people. Steer him away from envy if you can and teach him the secret of quiet laughter. Teach him if you can – how to laugh when he is sad, teach him there is no shame in tears. Teach him there can be glory in failure and despair in success. Teach him to scoff at cynics.

Teach him if you can the wonders of books, but also give time to ponder the extreme mystery of birds in the sky, bees in the sun and flowers on a green hill. Teach him to have faith in his own ideas, even if everyone tell him they are wrong.

Try to give my son the strength not to follow the crowd when everyone else is doing it. Teach him to listen to everyone, but teach him also to filters all that he hears on a screen of truth and take only the good that comes through.

Teach him to sell his talents and brains to the highest bidder but never to put a price tag on his heart and soul. Let him have the courage to be impatient, let him have the patient to be brave. Teach him to have sublime faith in himself, because then he will always have sublime faith in mankind, in God.

This is the order, teacher but see what best you can do. He is such a nice little boy and he is my son.

Besides this letter, I like the story that Charlie Munger gave about Lincoln refusing a client who wanted to rightfully claim his dead partner's liabilities through his wife and children.

 Lincoln saw that they were incapable financially, and told him he was an entrepreneurial man, he would soon be able to make this amount back. He won't accept praying on the weak and timid. How many people are like this today?

 Also another favorite quote of mine is Charlie trying to emulate his life according to what they said about his great grandfather, “nobody envied the success so fairly won and wisely used."

Rockefeller's Letter to his Son

December 24, 1897

Dear John:

The words from smart people are easily memorized. There is a good saying from a wise person, “education contains many aspects, but it itself doesn’t teach you anything!” This great person had shown us a truth: if you don’t take any action, even the most useful, beautiful and available philosophies are useless. I always believe that opportunity is created by opportunity.

Any seemingly excellent plan has disadvantage, though it is just a common plan. However if you would really implement it and keep on, that should be better than a good plan which has been given up halfway, because the former is fighting all the time, but the latter is wasting all previous efforts.

As I mentioned above, there is no secret of success. In order to obtain positive results in life, owning exceptional intelligence and special skills is certainly fine, but even without it, it doesn't matter.

As long as you work vigorously, you will also approach success. The sad truth is that most people haven’t remembered this warning, resulting in making themselves mediocre. 

Have a look at ordinary people, you will find they are living passively, because what they have said is far more than what they have done, only speaking without doing anything.

Every one of them is good at finding excuses-- he would find all kinds of excuses to postpone until it has been proven that he is truly wrong or incapable to do anything or too late to do it.

To most people, it seems that I achieved success only because I am a bit smarter and more cunning.

Gates has praised me as a willing and active actor. I happily accept this praise, for I haven’t let it down. Acting vigorously is another characteristic of mine. I never like to be an armchair strategist, because I clearly understand no acting is without consequence. There is nothing in the world you can get without thinking out many ideas and making them into reality.

As long as you are alive, it is certain that you must act. Many people admit that without the foundation of wisdom everything is useless, but the sadder thing is that even if you have got knowledge and wisdom, without acting, everything is still useless. Humans should learn to stop where they should stop. Prepare enough, but if you do not act all the time, in the end you are wasting your time. 

In other words, everything must have a limitation.

We can’t get into the trap of constant practicing and planning, but accept the reality: no matter how precise a plan is, we still can’t exactly predict the last solution. 

In later years Rockefeller said: "I have small faith in the man who plans elaborately on paper. I once asked a landscape gardener to undertake the improvement of 2,000 acres of land. He set to work on an elaborate scheme which I saw at a glance was impossible. He was not practical. He planned too much on paper."

I can’t deny that planning is very important, but that is only the first step. Planning is not acting, and impossible to replace acting. Just like playing golf, without getting into the first hole, it is unlikely to get the second. Acting can resolve everything.

Without acting, nothing occurs. Anyway, no one can buy the insurance of absolute security, but what we can do is to be determined to implement our plans. All those who lack of action have a bad habit in common: they like to keep everything as it were now, and refuse any change. I think this is a foul habit full of deceit and self-destruction. Because everything is changing like human’s living and dying.

But because of their internal fear about future, many people resist changing, even though their situation is not satisfactory. Seeing those who should have succeeded, but gained nothing valuable, you would find it difficult to resist the temptation not to pity them. Yes, it is true that about unknown future everyone would feel more or less worried or scared, or question whether to do or not when making some pivotal decisions.

But those who like implementing soon would ignite soul with determination, and then think out all kind of methods to accomplish their dreams, and meanwhile prepare enough courage to conquer difficulties. Many people lack of actions are naive and like letting everything go by nature. They naively assume that others would care about them. In fact, nobody is interested in their troubles except themselves, for people only fancy their own things.

Like business, the more profit we could get, the more active we would become, for whether to succeed or fail doesn’t matter to others. At such time, we’d better work hard more. If too lazy or scared, results would undoubtedly be disappointing. As long as a person can rely on himself, he won’t let himself down, and will add more opportunities to control his life. The clever only think to make something happen.

The most frustrating thing in life has always been over thinking-- which not only eats into your time time left to accomplish the task, but makes you worry too much about numerous steps in the process and leaves you shocked, scared. Therefore all actions are actually in vain. 

We must admit that no one can accomplish all things. Clever people understand not all actions lead to good results, but only wise actions can bring about significant consequences. As a result, they only do the works which are most relevant to target and bring the greatest positive effects. Therefore clever people make the most valuable contribution, and get the best return.

To eat an elephant, you must bite mouth by mouth. So does work! 

Trying to accomplish all everything will inevitably waste many opportunities. 

My motto is: Rockefeller doesn’t treat emergency fairly. Many people make themselves passive, for they don't do anything until all conditions are met. Life is full of opportunities, but none perfectible.

Passives have one thing common all their lives-- they always want to get everything prepared before they do something. 

This is bloody idiot’s way! 

We must compromise life to believe that the opportunity we have in hand right now is what we really need, which can help you avoid the swamp of forever crazily waiting before implementing.

We are pursuing perfection, yet, in real life, human have never got perfect situations or things, we can only more approach perfections. A perfection of means, a confusion of aims, seems to be the chief problem.

Only doing something until everything is ready, will lead to waiting forever and will give opportunity to others. Those people can never leave their parents. 

To become the kind of person “I want to do now”, stop all day dreams and always think of what to do right now. Those words, like tomorrow, next week, future, etc. are familiar with the word: impossible.

Everyone has experienced the days when losing all confidence and doubted self-ability, especially in failure or setback. However the person who knows the art of implement can overcome barricade with strong willpower. He would tell himself everyone can fail, sometimes very tragically; he would tell himself: no matter how much I have prepared or predicted, in real doing, it still can’t avoid failure.

The sad truth is that passives never consider failure as an opportunity to study and grow up, but all the time they tell themselves: maybe I am really not able to do it, which leads to failure due to over implementing. 

Most people believe: think and you will succeed, but I treat it as a lie. You can buy a dozen of good ideas for a mere cent. Good ideas are just the first step of a series of actions, and you still need prepare and then plan the next step, and then the third. In this world there isn’t short of the person full of good ideas, but extremely short of the person who not only can think out a good idea but implement it until success.

To judge a person’s ability is not based on how many things are contained in his brain, but how many actions he has implemented. 

Everyone trusts the person patient and diligent to take a work, thinking: this person can speak and act, so he must know how to do it well! I have never heard that a person gets praise before disturbing others or having not implemented or only implement when getting order. Those leaders at industry, government and army are all capable and 100% self-starters. Those who always watch and never implement can never be leaders.

No matter whether you are active people or reactive, they are both up to habit. Habit is like a rope. If we could weave one every day, it would finally become a very thick one which is strong enough, impossible to break. Habit rope leads us to mountain peak or low ebb, which depends on a good habit or a bad one. Bad habit can control our success or not, which is easy to get, but difficult to serve. Good habit is hard to cultivate, but easy to persist. My son! Life is like a great campaign. To win, you must work harder, harder and harder, forever hard, in which case that can guarantee your safety.

Merry Christmas! I believe there is no better gift than this letter at such special moment.

Love Dad!

The last part of this letter reminds me of the quote "the chains of habit are too light to be felt until they are too heavy to be broken."  Bad habits can control us and decide whether to fail or succeed, which are easy to get used to, but tough to get rid of. Succeeding by executing a good idea is worth more than only thinking out a thousand excellent ideas. Thomas Edison said "genius is 1% inspiration and 100% perspiration", I think to get good insights you have to work hard and once in a while you will find inspiration or success. 

Rockefeller - How he viewed business (excerpts from God's Gold)

Rockefeller has always been a man who was hated and admired. I thought 2 great books written on him were “Titan” by Ron Chernow and God’s Gold.

One interesting thing to note was that both industrialists Andrew Carnegie and Rockefeller both started their careers by either studying accounting or starting off as a book keeper. Later, Rockefeller started his own firm for selling dry goods and foods and later went into oil refining before exploration, since he deemed oil derivatives to be the safer play.

 The fact that we have Vaseline, gasoline, plastics, etc, these all come from drilling (now there’s even fracking) for crude oil. Rockefeller decided that refining was the sure win businesses before he went on to exploiting the entire business and monopolizing it and calling it standard oil. He even had a rebate from railway/train companies, so his competitor’s couldn’t match his price since he was the largest customer for railways/train. It was interesting how early on, Rockefeller used so debt to his great advantage in expanding. Eventually, when the railway/train companies caught on and wanted to raise their prices, Rockefeller bypassed this through oil pipelines.

I want to list some anecdotes/quotations below from God’s Gold and Rockefeller’s letter to his son below:

Chance is made up of those unforeseen elements which the planner leaves out of his calculations. To defeat chance is to look closely at all possible combinations which others overlook. To plan minutely, to see more than anyone else, is to reduce the control of chance over one’s fortunes. This is what Rockefeller did. But he was far from the modern efficiency man making elaborate charts and tables and laying out precise schemes on paper.

In later years he said: “ I have small faith in the man who plans elaborately on paper. I once asked a landscape gardener to under-take the improvement of 2,000 acres of land. He set to work on an elaborate scheme which I saw at a glance was impossible. He was not practical. He planned too much on paper.”

Rockefeller planned in his mind. His mind was a living plan. He made everything show up for some use or else he rejected it. “It has always been my rule in business to make everything count,” he told an old friend in Owego. “To make everything count something. I never go into an enterprise unless I feel sure it is coming out all right. For instance, a promising scheme may be proposed to me. It may not altogether satisfy and is rejected. My brother Will would probably go into it and make $10,000. Another equally promising scheme comes along. He goes into that and loses $10,000. The result is he hasn’t made any advancement in these two ventures and is actually losing time. Meantime in some surer enterprise, I have made, say, $5000 in the same time the other fellow has lost twice as much. But mine counts and his doesn’t. I believe the only way to succeed is to keep getting ahead all the time.”

This is why Rockefeller was often accused of being timid. It is why it has seemed difficult for some critics to reconcile his timidity in some things with his apparent audacity in others. He was not timid. He refused to enter upon operations where he could not see the project all the way through. But having satisfied his mind and gone in, he hesitated at no sacrifice, no cost, no measures, however vast and even cruel, to drive through his objective.

-          From the Chapter The Hostile Camps in the Book God’s Gold, page 131 (Von Mises Institute)

This goes back to the concept of being in businesses with high predictability. Looking at Rockefeller’s ventures and his brother Will’s, it can be seen that Rockefeller was actually not greedy. He just wanted a surer return even if it was less. The concept of not losing money as rule number 1 and thinking about the probabilities about how you could fail is of utmost importance.

The fact that Rockefeller was so cruel to drive his objectives is that in most industries, it is winner take all. Be number 1 or 2 or OUT. For software, when IBM couldn't or wouldn't make a deal with Gary Kildall, Microsoft bought what became MS DOS from Seattle Computer Products for $50,000 and licensed it to IBM. It was written by Tim Paterson, who mimicked CP/M's application programming interface. This eventually allowed Microsoft to get into the stranglehold of being the high priest in computing by owning the operating system and necessary office products— they got to decide which hardware manufacturer wins or not.

In the same fashion, Google bought Android and became the dominant player/ the high priest in cell phone apps. This blimp cost Microsoft at least 400 billion in market capitalization and allowed Google to control which hardware manufacturers get to play. Look at what happened to HuaWei. They may circumnavigate and find other hardware suppliers, but the O.S is going to be bloody hard to replace. There is a whole eco-system of developers making good apps for Android using Java as a base. Ultimately, under Moore's law, all hardware depreciates in value fast, and the only competitive advantage created is through software. Why is Apple so valuable? It locks you into through their software. If they only had high-end hardware phones, they wouldn't be selling so much and retaining so many customers. Also, technology has planned obsolescence, the software programmers force you to switch to a new phone. 

On a side note, Bill was quite good with programming. He had one of the fastest pancake sorting algorithms at Harvard. People say Ballmer is a dunce. But look at who scored higher at the Putnam math  competition, it was Steve, not Bill. If you read his first partner's biography, Idea Man by Paul Allen, he was quite cut throat when he tried to dilute Allen's shares when he was sick. Same for Sergiy Brin, if I remember correctly, he scored really high on the Putnam math competition.  But it’s Larry who called all the shots back then and was the better leader and businessman.

First Post/ My Background/ Little Freddie/ Hillhouse

This is the first post for Sediment Capital. This blog is used to post my views on certain businesses/companies or general ideas. Please feel free to contact me or comment.  

Previously I joined an investing club a few years ago in Hong Kong and found the group deteriorated a lot. We went to the 2018 Daily Journal and we went to 2017 and 2018 Berkshire Hathaway and Markel annual general meeting. We also went to Bob Mile’s Berkshire system summit in 2018, which I can post later.

It seemed like as the HK investment group got larger, more presentations were based on consensus and there weren’t any insightful discussions or contrarian views. Diversity is not only about an acceptance of people with different looks, but it is also about accepting people with differing views and backgrounds; especially if they offer constructive and objective comments. I found the moderators to be quite stuck up in this regard of not letting members with alternate ideas to present their ideas and deciding who would be “worthy” enough of joining their next dinner or presentation. Some other members were disqualified due to their “titles”, and people who disagreed on a presentation on technical analysis were too afraid to call the presenter out. 

 I felt like the moderators were using the group as a networking tool rather than discussing great ideas. Really disappointing.I was quite happy to encounter a new group in Shanghai and was really impressed with a presentation on duty free shops. In fact I went on a trip with them to visit China’s liquor/Baijiu factories and distributors.

Just a brief background on myself- I studied materials engineering at RPI and sold municipal water pumps as my first job coming back to Hong Kong and worked at calculating tendering fees for a landscape contractor. I also took a 4 day class with B.G at Columbia which I found only moderately useful, but overly expensive. Then I became a distributor for infant/baby fruit pouches/shampoo/diaper creams and couldn’t calculated that we would have enough cash flow to last our company to breakeven. I worked for Infinitus, IPAM, mainly to get my license to register my fund in the future in HK.

In retrospect, I think I learned a lot from this experience as an infant distributor, and if I were to start over, I would now know that the best category to do would be fruit pouches after failing in baby’s clothes, infant formula, snacks, etc. I would have started with my own brand instead of distributing, and I would have found investors instead of using my own money. Investors who already have retail experience and some network would help a lot more than just providing the money.

If you take a look at Pepsi, because of its association with Yum brands, it is in KFC restaurants in China. Pepsi also managed to enter the magic kingdom, Disneyland, in Shanghai by being a partner of Tingyi Cayman Islands Holding Corp (0322.HK) and owning their shares.

Suntory, a Japanese beverage and liquor company acquired asc fine wines to get into China. Starbucks franchised out their stores to Uni-President Enterprises Corp (UPE, 統一企業) and when a milestone was achieved, they bought the shares so they owned their own stores.

When I was in the infant fruit pouch business, I was distributing a German brand. But one brand that stood out was Little Freddie. Little Freddie has a white matte finish for its pouch with a little green monkey as its logo. They use to have it produced in the U.K, but perhaps due to costs—they had it eventually manufactured in Eastern Europe. If you try Kraft Heinz, Gerber, or HIPP, they taste horrible. Perhaps their only advantage is scale. It seems like they haven’t made any effort to improve their products.  It is no wonder Hillhouse Capital invested in Little Freddie. As a distributor, I understood that for food products, the margins are lower but the turnover are faster. For baby’s skin/hair care, these products have a higher margin, but a lower turnover and takes about a month or more before parents buy their next box of lotion.

Organic fruit pouches, only use ascorbic acid or a more natural “variant” or preservative, which makes the shelf life last only a few months. Normally organic fruit pouches last 6-8 months maximum. This means that once it is out of the factory, it takes one month or more to ship to China and at least a month or two to get into stores. You really only have 3-4 months to sell it. If you don’t sell it by 2-3 months, you really have to lower the price or throw it out. Most baby’s retail stores would rather throw it out than poison a baby.

The genius in Little Freddie was (excuse me if some of the facts are wrong, this is from what I remember) that the founder was French, but his wife was from Hong Kong, so she spoke Chinese, and his dad was working for General Mills or Conagra. This gave him the contacts to food factories, and his wife could act as a sales representative by contacting people in China. Not only this, the founder was in banking before, so when he started, he had investors to back him up, and he started in 2014-2015. It has taken off like a rocket. How long will this trend last? When will bigger, more bureaucratic brands catch on to the fact that they have shitty tasting products? We will see. It’s also interesting to see all these big brands use a pouch maker GualaPack (https://gualapackgroup.com/).

You really develop an in depth knowledge when you are at baby fairs and stores all the time of who the winners and losers are in the industry. Sometimes the winners are justified, some winners do it in a manner which are dishonorable or use a sleight of hand.

Another brand I distributed was an American baby’s shampoo/lotion/bodywash brand. They got acquired by Mustela. I spent many, many hours, days, promoting their brand at retail stores and helped them enter J.D and Tmall(Alibaba’s brand store). I got cheated in the end but decided not to sue. I signed a letter which said that I would be the distributor for China for a certain amount of years.

In retrospect, I was foolish for bringing my American supplier to China. I had no idea that the Alibaba trading partner I contacted, which was just a boss with a 20 person office would trick us into visiting Pigeon’s owner. Pigeon was a Japanese infant brand and their distributor was a Chinese person who claims to have 900 employees and 3 factories. He blatantly knew I was the distributor and said that he wanted to be the new distributor. I knew my resources and connections weren’t as great as theirs and I thought my American distributor would honor our contract. 

I was naïve enough to let them (my supplier and the Alibaba trading partner) come in contact. I spent 2 years trying to get this Alibaba contract. I was not properly compensated for my efforts after this brand got acquired by Mustela, but it was a learning experience. It was very tough on me, and I even lost my girlfriend, but this was truly a learning experience that was felt up front instead of vicariously. 

Looking back, I wouldn’t trade it for anything else. It taught me the importance of partnering with people you can trust, the need for good inventory and financial management systems, and good people and products. I can't blame someone for screwing me over if I've been so naive. I'm looking forward and not thinking about this, but this was a major experience. 

If you partner with bad people or associate with bad people, you can’t get a good result. We were forced to buy products with some suppliers at an minimum order quantity when we didn’t have the previous ones sold and they forced us to buy products near expiry. 

In business, someone always gets the short stick in the supply chain. For coke, its the bottlers. For Alibaba, they learned well from Amazon, it is the warehouse owners in which they own the shares of. Being a distributor for infant products is not a good position. 

Some even put expired products at the bottom of the pallet! And any contract written by someone else, always favors them. So take a lot of time to get to know someone before you get to do business with them or marry them. I hope I don’t repeat the same mistake again. It was costly and painful.