Warren Buffett once said, “Interest rates power everything in the economic universe, and they have some effect on the decisions we make.” I decided I wanted to learn more about interest, so I bought a few books.

This week I finished reading The Price of Time: The Real Story of Interest by Edward Chancellor. Chancellor’s main points are that interest is necessary to allocate capital to its best uses and valuing assets would be impossible without interest. He provides historical content on interest, going back to Babylonian times. I enjoyed how Chancellor detailed the interest-rate environments of various time periods and the impact they had on society and the economy at the time.

I’m glad I read the book. I highlighted many sections I want to revisit someday.

Today a friend texted me about a company I follow and sent a screenshot of a news headline. He wanted me to be aware that the company may be going through hard times. I read the headline and laughed.

The headline included company financial figures that were wrong. I know they were wrong because I’ve read the reports issued by the company. The writer clearly didn’t understand the company and had confused the details. I pointed this out to my friend and shared the correct financial figures, which show the company’s doing fine.

This exchange was a reminder of the value of getting first-source data. When you rely on other people’s interpretations, you run the risk of basing your conclusions and actions on incorrect interpretations.

More interesting details came out today in an article about Reddit’s potential IPO. A few points reported by Bloomberg caught my attention:

• Revenue increased more than 20%, from $666 million in 2022 to over $800 million in 2023.
• The company is unprofitable. Adjusted EBITDA is negative $69 million.
• Its listing is closely watched and a bellwether for tech IPOs.
• It’s expected to unveil a public IPO filing as soon as this month.
• It could start marketing its IPO as soon as March.

These assertions can’t be confirmed as accurate until the company files its S-1 with the SEC (reporters, being human, can make mistakes).

Assuming the info is accurate, I have a few thoughts:

• This IPO will likely be a bellwether given Reddit’s brand awareness among tech and non-tech investors and the timing—if it happens, it will be the first tech IPO of 2024. This means it will be watched closely by VCs and founders. Its performance will influence other companies considering an IPO in the first half of this year.
• Last year’s fall IPOs of Instacart and Klaviyo haven’t performed well to date. Both are still trading below their IPO offering prices, even as the NASDAQ is nearing all-time highs (more on that here). What about Reddit’s offering will be different and get enough investors interested in purchasing shares?
• Reddit is most likely free cash flow negative and burning cash—I’m not sure at what rate or how close they are to being cash flow breakeven. But I wonder how this will impact public-market investor receptiveness to this listing. Instacart and Klaviyo both reported positive free cash flow for the 2023 quarters proceeding their IPO, and those listings haven’t performed well.
• I suspect public-market investors are rethinking revenue multiples for technology companies. I’m curious to see how investors value Reddit given that it’s likely consuming cash.

I’m looking forward to Reddit filing its S-1 so I can dig in. If the company decides to proceed with the listing, I’m really curious to see how investors receive this company.

Today I read in an article that Reddit picked the New York Stock Exchange for its initial public offering. Reddit is a social platform that allows users to create digital communities based on niche user interests. It’s probably best known to mainstream America for the events of 2021, when a community named WallStreetBets played a role in the GameStop saga. I visit Reddit periodically and find it helpful. I enjoy being able to get the unfiltered, crowdsourced views of others on specific topics.

Reddit is a well-known tech company. Picking an exchange is a sign it’s seriously considering going public soon. But anything could happen. The company could decide not to list (as it did in 2021). If it does go forward with a listing, that could be helpful in gauging public-market investor appetite for new technology companies. If it lists and is successful, other companies might follow its lead.

Today I read an interesting fact. In the 1860s, there was a unique group of successful stock market investors. They went against the grain and were thought of as outsiders by their investing peers. They were called “panic birds.”

Here’s what they did that was so different from what other investors did:

• You had to physically visit Wall Street to buy or sell stock then. Most investors were on Wall Street daily, regardless of whether they were buying, selling, or just observing the market. The panic birds, though, stayed far away from Wall Street when conditions were normal. They didn’t want to get caught up in the prevailing group think or speculative mindset that prevailed among investors on Wall Street. They wanted to be able to see things clearly and think objectively.
• They went to Wall Street only when the market and other investors were in a panic or desperation was rampant.
• They bought only when two conditions were met: prices had crashed and liquidity was scarce (i.e., they were getting the bargain of a lifetime).
• When they did buy, they didn’t buy broadly; instead, they bought carefully in only the highest quality companies.
• They held their investments long term. This wasn’t common—people regularly bought and sold in those days.

This list describes some successful investors alive today. For example, Warren Buffett has a panic-bird investing style. He’s had outsize success, and he’s well respected on Wall Street. Yet he lives in Omaha, Nebraska. He buys only when companies are trading at a material discount from what he believes their intrinsic value is. He’s been known to buy large positions in a handful of companies during times of crisis, and he usually holds those positions for a long time.

I found all this interesting. It showed me that most good ideas aren’t new. They’re borrowed from people who came before us, figured things out through trial and error, and went on to achieve outsize success. I suspect that Buffett and other successful investors studied history and borrowed from the most successful and timeless ideas as they formulated their investing approaches.

I’ve been learning about business models in different industries for a few years. SEC filings of publicly traded companies have been great for companies I’ve wanted to take a dive deep into, but I wanted an additional resource. One that would help with discovery of companies and industries I’m less familiar with. One that could help me efficiently learn about new business models at a high level.

This week I found the Business Breakdowns podcast and have enjoyed listening to several episodes. It breaks down public and private companies, which I really like, and covers a broad range of industries. Some of the companies profiled I would have never thought to research, or wouldn’t have been able to because they’re private. The episodes I’ve listened to have been helpful and have gotten me thinking more about various ways of charging for the value you provide to customers.

If you’re interested in learning how different companies generate revenue and think about their business, consider giving the podcast a listen.

A few months ago, I started thinking about what traits founders/CEOs who take a company from idea to public-market company worth billions possess. It’s a small group of people, as the number of companies that reach hundreds of millions or billions in annual revenue is small relative to the total number of companies founded.

After spending time learning about people who’ve accomplished this, I see one clear trait. These people were obsessive about a single problem. They weren’t entrepreneurs who wanted to build a company but weren’t sure what problem they wanted to solve. Rather, they’d been thinking about a problem intensely and decided they wanted to solve it.

It's hard to scale a company to billions and take it public. Along the way, founders will usually get an offer to sell if the company is doing well. To reject the offer and the financial windfall associated with it and take a company public is a hard decision. To continue as a public-company CEO and endure all the scrutiny from public-market investors isn’t for the faint of heart, either. This requires a vision and level of commitment that founders aren’t likely to have if they weren’t obsessive about the problem they’re solving.

I’ll keep looking as I study more founders/CEOs of public companies, but I’ve yet to find a founder of a public company who was a founder in search of problem before starting their company.

I recently caught up with a friend working at an investment firm. He’s been wondering when venture capital will escape its downturn. Many factors are contributing to the downturn. I shared two things I think need to happen: venture capitalists need to be able to sell companies to public market investors, and those companies need to be received well by public markets.

IPO activity and performance are important. Venture capital investors need (1) overall stock-market sentiment and direction to be positive (investors are in a buying mood) and (2) technology IPOs to perform well (not tank). If these two things happen, we’ll likely see more IPOs, and the venture capital industry could be on an upswing again.

As of the writing of this post, stock market sentiment is positive, and the direction of the market has been up (disclaimer: this could change at any moment). The NASDAQ Composite Index, as of today, is ~15,500. For context, the all-time closing high for this index was 16,057 on November 19, 2021. So we’re ~3.5% below the all-time high. This is encouraging, especially when you consider that the index was ~10,500 at the beginning of 2023.

The missing piece, though, is technology IPO performance. I followed the most recent high-profile technology IPOs, those of Klaviyo and Instacart (see here and here). Both companies went public in September 2023. Today I checked to see how they’re performing. Both are trading near the lowest levels at which they’ve traded as public companies and below where their IPOs were priced. Both companies priced at $30. As of this writing, Instacart is trading at $24.80, which is 17.3% below the IPO price. Klaviyo is trading at $24.74, or 17.5% below IPO price. During that same period, the NASDAQ went from ~13,500 to ~15,500, an increase of 14.8%. The performance of either company’s stock could change anytime, but as of today it hasn’t been great.

This is something I’ll keep an eye on. I suspect these and other factors will be key to venture capital’s downturn changing course.

I caught up with a venture capital investor this week. We chatted about 2023 and what venture capital might look like in 2024. He follows the public markets and was glad to see them finish 2023 on a high note. But he wasn’t sure about venture capital in 2024. He noted that while public markets were positive in 2023, especially the last few months, the IPO market was sluggish. And the few technology companies that did go public were bellwethers and didn’t perform well. Public-market investor sentiment about newly listed technology companies wasn’t great in 2023, which turned off venture investors and founders from taking more companies public. Until this shows signs of changing, he isn’t optimistic about the venture capital industry.

I think public-market investors are reassessing how to value technology companies, which is slowing the IPO market. The revenue-multiple approach is resonating less with them because of interest-rate hikes over the last two years. But legacy valuation methods such as price-to-earnings multiples don’t always make sense for technology companies either, given their ability to reinvest in growth. When public-market investors settle on a valuation approach and venture capitalists and founders embrace it, I think we’ll see more IPOs received positively by public-market investors and, in turn, more companies going public.

Who knows when that will happen—but it wouldn’t surprise me if 2024 is the year a new valuation approach is embraced by public market investors, venture capitalists, and founders.

Last month, I shared that Warren Buffett and the Haslam family were embroiled in a $1 billion accounting dispute over Berkshire Hathaway’s purchase of Pilot Travel Centers from the Haslam family. A lawsuit had been filed. The trial of the case was scheduled to begin today.

Sunday it was announced that the trial had been canceled because the two sides had come to an agreement (i.e., a settlement was reached). The terms of the settlement haven’t been revealed publicly, but Berkshire may eventually have to disclose settlement specifics in filings with the SEC since it’s a publicly traded company. I’m curious about how they settled this dispute and hope the details are released publicly.

In the end, I suspect neither side wanted their top brass to have to answer questions under oath because their answers would be public record, so they opted to settle at the eleventh hour. That’s not unusual.