This past week marked the loss of one of the greatest investors of our time, Charlie Munger. Since reading Poor Charlie’s Almanack over a decade ago, I've not only admired his investing style but also his moral character.
In 2015, Buffet wrote that Munger taught him: “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
We don’t buy distressed assets often. Instead, we buy performing assets from distressed sellers … at fair prices. The loan portfolios we buy have such short duration that often the seller’s alternative to selling the portfolio is holding it to maturity. Therefore, we must offer a fair price for it to be worthwhile for the seller to part with the portfolio. And a win-win is always best.
In honor of Munger, here’s to living a principled life in business and at home.
- Jillian
If I were to give job advice to an eager young whippersnapper looking to get into lending, I would strongly suggest getting a job in small business loan collections for 12 to 24 months (at least one seasonal cycle).
I've been on the phone with several collectors this month and still learn something new every call after a decade of working with them. I wish I understood parts of this even better than I do. Collecting on commercial debt provides an incredible education in a variety of aspects of the lending world.
First, legal. Did you know that in a handful of states you can serve a suit to a family member or close relative instead of the debtor? Did you know that the statute of limitations for filing a suit is put on hold during a chapter 13 bankruptcy? Did you know that a payment starts over the statute of limitations, but it has to be voluntary? A repo’d asset sale, estate distribution, etc. do not count towards starting that clock over.
Next, psychology. If you get the debtor on the phone, is a payment more likely if you are friendly or adversarial?
Or, strategic detective work. If they missed their car payment, what else do you know about them? They have probably missed their insurance payment prior to that, which means they are taking more risk driving, but also driving more cautiously, which can point to the mindset of the debtor.
Importantly, credit. This should be obvious, but learning who are good payors and who are not shows up through these type of calls and collections.
Lastly, sales skills. If you're collecting on $50k of debt from a company, you don't just ask for $50k. You give them a deal, right? "You know what, I like you. If you give me $10k per month for 3 months, I can get my boss to forget the last $20k and we'll call it clean. I just need that first payment today."
Giving money away is easy. It’s getting it back that makes a lender.
- Conor
