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Inflation Tracker
Former hedge fund analyst turned private investor and GRIT content whizz by night, I bring you top-notch stock ideas in my weekly newsletter.
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Good Luck

Hello friends, my name is Jack Raines. I will be writing on Alpha’s platform once a week. Ialso write a newsletterYoung Money, where I cover all things investing, finance, and careers. You can check it out here. Hope you guys enjoy today’s piece! 

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Good Luck

In 1962, Yale economics student Fred Smith wrote an undergraduate research paper about the automation of society and the transportation of goods. Nine years later, after a stint in the Marine Corps, Smith took the ideas first outlined in this research paper to found Federal Express.

Initially funded by a $4M inheritance and $80M in debt and equity investments, FedEx quickly grew from an eight-plane operation to a logistics network spanning the continental US.

While business was booming, the company struggled to keep pace with rising fuel costs. Suffocating in debt, FedEx resorted to extreme measures such as pilots using personal credit cards for fuel and uncashed paychecks to stay afloat.

It didn't matter, nothing could stop the bleeding. In 1973, FedEx had just $5,000 left in the bank. Fred Smith pitched one of their investors, General Dynamics, for additional funding, but his appeal was rejected. FedEx wasn't going to have enough cash to fuel their planes for another week, and the business would soon shut down.

What does one do when they need to create thousands of dollars out of thin air?

Take a trip to Sin City and roll the dice.

Instead of flying home after his meeting with General Dynamics, Smith withdrew the company's remaining cash and headed to Las Vegas for a night.

His game of choice?

Blackjack.

Fortune favors the bold, and Smith had a hot hand that night. 24 hours and $27,000 later, Fred wired all of the funds back to FedEx's bank account, and they were able to keep the lights on for another week.

After his Vegas detour, Smith successfully raised $11M in additional capital, and they turned profitable in 1976.

In the aftermath of this Vegas trip, Roger Frock, a former senior vice president of operations at FedEx, asked Smith, "You mean you took our last $5,000 — how could you do that?"

Smith simply replied, "What difference does it make? Without the funds for the fuel companies, we couldn't have flown anyway."

44 years after his infamous trip to Sin City, Smith didn't regret a thing.

In an essay published by Forbes, Smith wrote, "No business school graduate would recommend gambling as a financial strategy, but sometimes it pays to be a little crazy early in your career."

Sources for the story can be found here and here.

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FedEx, a $60B global logistics behemoth, only exists today because 50 years ago, with his company's last $5,000 on the table, Fred Smith was dealt an Ace – 10.

Obviously, management execution played an outsized role in FedEx's success, but none of that execution would have mattered had Smith instead been dealt a 10 – 17.

Shocking, isn't it? That one small event, a single card drawn by a Las Vegas dealer, could be worth $60B 40 years later.

But this shocking anecdote is more common than you would think. The truth is, every massive success story is one lucky (or unlucky) draw away from failure.

Tesla, now the world's most valuable automaker, was a month away from bankruptcy while trying to mass-produce the Model 3 before they raised $2B in 2019.

In 1997, with Apple in deep financial trouble, Steve Jobs struck a deal with Bill Gates for Microsoft to invest $150M in its competitor. Gates likely only made this investment to appease the Department of Justice's antitrust inquiries about his company.

In early 2000, just one month before the Dot Com crash, Amazon sold $672M in convertible bonds on the European markets. Then-CFO Warren Jenson wanted a stronger cash position to hedge against suppliers requesting quicker payments. Had the e-commerce giant waited just two weeks later, it would likely be remembered as another Pets.com.

One hiccup in Tesla's production, a bit of pettiness from Bill Gates, or a week's hesitation by Warren Jenson, and we could live in a world with no Teslas, no iPhones, and no Amazon Prime. Instead, these three companies are worth trillions of dollars.

A lot of credit is given to Jobs, Musk, and Bezos, and that credit is well-deserved. But all three of their companies were one roll of the dice away from failure. From companies to individuals, luck and skill both play roles in success and failure. The problem is that we cannot weigh the importance of either trait.

The unknown importance of luck is overlooked when we study and emulate winners. Case studies on Amazon focus on Bezos's bias towards experimenting with different ideas. The former CEO called Amazon "the best place in the world to fail," as he believed that failures like the Fire Phone were an inevitable ingredient when you are swinging for home runs like Amazon Web Services.

And Bezos is correct, but none of those home runs would have been possible without a timely capital raise in 2000.

For the last 20 years, Tiger Global was championed as the king of venture capital, and Tiger earned that title. After all, they earned their investors a record-setting $10.4B in 2020. They were early investors in Alibaba, Facebook, Coinbase, Linkedin, and Spotify, among other tech giants.

Tiger Global's hedge fund also suffered a 52% decline in the first half of 2022 alone, after a lackluster 2021. Obviously, Chase Coleman and company are phenomenal investors; how else would they have done so well over the past two decades?

But Tiger's tech-heavy bets also coincided with a decade-long period of valuation expansion coupled with the mass global adoption of internet technologies. How much of their success was investor prowess? How much of it was a favorable market? Maybe their investor prowess allowed them to foresee the coming bull run in technology companies, but it didn't help them avoid the 2022 downturn.

On the opposite end of the spectrum, we have Benjamin Graham. The "father of value investing," Graham took a strict, value-heavy approach to investing. No position would be greater than 5% of his portfolio, and no position would be held once it outgrew his threshold for "value investments."

Graham broke this rule one time when an insurance company called "GEICO" became a 20% holding in his portfolio. And he held for a long time.

GEICO generated greater returns than the rest of his investments combined.

If the NASDAQ's average PE ratio doesn't climb from 9 in 2011 to 29 in 2022, how does Tiger Global perform? If Graham didn't hold an outsized position in GEICO, would we still be talking about him today?

Luck vs. skill. It's impossible to weigh the two.

Not every failure is one roll of the dice away from being a success, but every single success was, at one time, a single roll of the dice away from being a failure. When evaluating "winners," it is important to study what they did well just as much as what they luckily avoided.

The thing is, it's pretty hard to study what didn't happen, isn't it?

– Jack

If you liked today’s piece, check out Young Money here

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Grit Capital Corporation is a publisher of financial information, not an investment advisor.  We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.  

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME.  THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION.  INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.  

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable.  They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.  Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein.  The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities).  To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

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Gritcapital.substack.com (“Grit”) is a website owned and operated by Substack. Grit is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Grit in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Grit is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Grit does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the “Securities Act”) are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Grit does not verify the adequacy, accuracy or completeness of any information. Neither Grit nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Grit nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis.