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Letter #109: Ryan O'Connor (2020)
Founder and Portfolio Manager of Crossroads Capital | Our Own Link to the Past: A Personal Note
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Today’s letter is an excerpt from Ryan O’Connor’s 2019 Investor Letter Our Own Link to the Past. I highly recommend reading the letter in it’s entirety, which you can do here, but I wanted to highlight this particular section. This particular section is the conclusion, titled A Personal Note. In it, Ryan shares why he referenced Warren Buffett in the main letter so much—as it turns out, Ryan’s grandfather sold Warren his first typewriter! And taught him how to use it, too. This interaction resulted in Ryan’s grandfather becoming an original Buffett Partnership LP, which he then rolled over into Berkshire Hathaway, and still holds to this day. It’s also what kickstarted Ryan’s investment journey. This note tells a personal story that shows, in a nuanced way, just how big of an impact Buffett has had and continues to have.
Again, I highly recommend reading the letter in full, as well as Ryan’s other letters. It’s one of the letters that I most look forward to reading every year. Unlike many of the letters that are relatively high level, Ryan lays out his thinking in a way few others do, or perhaps can. You can get a sense of his thinking and rigorous research process through his 2018 and 2021 letters, where he writes about Nintendo (note that this is not an endorsement for Nintendo).
Ryan is the Founder and Portfolio Manager of Crossroads Capital. Before founding Crossroads, he was an analyst at several value-centric investment partnerships. And prior to his life as a securities analyst, he was a financial advisor for AG Edwards & Sons (now Wells Fargo), and an options trader on the Chicago Mercantile Exchange (I don’t know of many value investors with trading backgrounds, which makes him all the more interesting).
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CONCLUSION: A PERSONAL NOTE
I’ve talked a lot about our admiration for Warren Buffett in this letter, and how we modeled Crossroads after his early limited partnerships. But I actually began studying Buffet’s methods long before founding Crossroads, and that’s because of my own personal connection to Buffett and his early LPs: my grandfather, Bill O’Connor.
Bill was an IBM salesman and, as it happens, an old poker buddy of Buffett’s. His eternal claim to fame at IBM was that he’d managed to sell the famously tight-fisted Buffett his first typewriter. He was smart, ambitious, thrifty, hardworking, and above all, willing to learn. A few classes at the University of Nebraska’s Omaha campus under Buffett’s tutelage ensured he would not only learn a lot about investing, but also that he was hooked (I’m sure quite a few of you reading this now can relate).
He embraced the concept of a margin of safety, the miracle of compound interest, and the power of contrarian thinking. He was fascinated that it was possible to buy shares in a business at massive discounts to their readily ascertainable intrinsic worth. He didn’t agree with Buffett about everything, but when it came to investing, he regarded him with nothing but admiration, bordering on awe.
As just one example, I can still remember the light in my grandfather’s eyes when he talked about Buffett. He would regale me with stories of how Warren would make all kinds of brilliant connections, boiling down abstract financial topics into simple concepts anyone could understand. I was in early high school the first time he told me those stories, but one of the things that has always stayed with me was the sincerity in his voice.
Naturally, he jumped at the chance to become an early investor in the Buffett LPs, eventually rolling over his partnership interest into Berkshire Hathaway. It’s a story that’s familiar to all of you to one degree or another. But what some of you may not know are some of the details that underpinned my grandfather’s decision to invest. For example, he had to sell his stock in IBM (the Apple or Google of its day) in order to meet Buffett’s $25,000 minimum investment threshold – roughly $100,000 in today’s money. He came up quite a bit short, at about $18,000, but Buffett graciously let him in anyway.
It was a bold decision. My grandparents, who had six kids at that time and would eventually add four more, were committing their entire saving to a new partnership run by some young kid no one had heard of. Buffett was an unknown then, even in Omaha, a socially awkward twentysomething. His shirts were wrinkled and ill-fitting, with fraying cuffs. This was a pre-toastmaster’s Warren, long before he became the master of the crowd he is today. Safe to say, from the outside looking in, the optics of investing looked positively insane. After all, there was no way to tell that he would eventually become known as arguably the greatest investor of all time . If there were ever an instance where optics and reality were two very different things, this was it.
 My grandfather at the time was quite young himself. He was just a few years Buffett’s senior (and was much younger than I am now, which blows my mind). Perhaps their transaction could only have taken place between two people like themselves, who both still had the heedless optimism, if not the outright recklessness of youth.
To drive this point home, note that when my grandfather told my grandmother Jean he was planning on liquidating their savings, which had been earmarked for their kids’ college tuition, my grandmother broke into tears. (Don’t worry! Things turned out just fine!) While she eventually became one of Buffet’s biggest fans, it’s hard to blame her for that immediate reaction. At the time, IBM was the bluest of blue chips, not just a tech leader, but essentially the technology industry itself. Selling IBM it to go all-in with an unproven new fund manager was virtually unimaginable.
So, for those reasons alone, it was a move my grandfather didn’t take lightly. He believed in IBM. But he believed in Buffett too, and for him that was enough. As for what people around him thought about his decision, he couldn’t have cared less. Indeed, one of the many things that stands out for me in our discussions over the years was how he felt going with Buffet was ultimately an easy call.
All of which is to say that if my grandfather got his first real lessons in investing from Buffet, I got mine from him. They started as far back as I can remember. His early lessons were simple and full of “the acorn grows into a tree”-style metaphors; eventually we moved on to the Rule of 72 and more advanced topics. I heard them all more times than I can count. For my tenth birthday, he gave me a copy of The Richest Man in Babylon. I could go on. My point is merely to highlight that it’s no exaggeration to say that if my grandfather hadn’t befriended Buffett long ago, I wouldn’t be here running Crossroads today. I am lucky beyond measure, of that much I am sure.
Years later, when I was fresh out of college, I asked my grandfather why he had never diversified his investments away from Buffet’s LPs and Berkshire Hathaway. What gave him such incredible confidence? After the umpteenth doubling of his money, why hadn’t he taken some profits off the table? Why hadn’t he listened to the dozens of solicitous investment advisors who told him year after year, decade after decade, that it was well past time to start diversifying his portfolio?
His answer couldn’t have been any simpler.
“Ryan,” he said, “if you knew Warren, you wouldn’t ask that question.”
In that moment I realized my grandfather had just given me one more lesson on investing, and this one was perhaps the most important of them all. It was a lesson on what real, earned conviction looked like, on how hard it is to find investments – or people – worth sticking with for the long haul, and on how important it is to actually stick with them if you do. How many people who bought Walmart back in the 1970s (or Microsoft in the 80s, or Amazon in the 90s, or Netflix in the 2000s) had the foresight and wisdom to hold on for a decade or more?
As an investor, I’ve learned that while it can be hard to know when to buy and when to sell, it’s hardest of all to develop the conviction that allows you simply to hold – and that’s how the real money is made. You have to develop insights, connect the dots, and see the runway, all while never giving in to self-doubt, boredom, or even the ever-present temptation to simply do something – as if this were a discipline where results are determined by activity or effort, rather than by just being right . It’s a formidable challenge, but whenever I feel my resolve start to weaken, I need only think back to my memories of my grandfather for inspiration .
 This wonderful piece by Chris Cerrone at Akre Capital hits the nail on the head: https://www.akrecapital.com/the-art-of-not-selling/
 The one time he did cash out a small amount of his Buffett investment, my grandfather laid the groundwork for yet another investing lesson – this time, about opportunity cost. About 35 years ago, he sold some stock and used the proceeds to add a deck to our family’s lake house in Iowa. It’s a nice deck, but the shares he sold to build it would today be worth over $10 million. Ouch.
The importance of that lesson – of sticking with good people through thick and thin – is why the September 2000 letter on the following page, which hangs next to my desk at all times, is hands-down my favorite piece of Buffett memorabilia . It’s a reminder that 35 or 40 years from now, I’ll be a lucky man indeed if I am still working for the same people who have placed their trust in me today. What better reminder could there be of what this “job” is all about? It’s not about image or status or making myself rich. Rather, it’s entirely about serving others, and making them wealthy enough to make a material difference in the same way the Buffett LP’s (and Berkshire Hathaway) did for mine. In other words, it’s about the chance to have a real, even transformational impact on their lives – not just today or tomorrow, but over decades. How many people get to do that?
 Another piece of Buffet memorabilia in my collection is shown on the cover page of this letter. It’s a map of the street on which I now live – and it was made long ago by the Sanborn Map Company, one of Buffett’s early “control” investment successes.
However, that letter isn’t just a reminder of the duty I have to those who’ve entrusted Crossroads with their hard-earned savings. It’s also a reminder of the sheer magnitude of the task at hand. It never fails to humble me when I’m feeling particularly clever or proud. In fact, it usually keeps me from feeling clever or proud in the first place. We’ve had an incredible first four years here at Crossroads, but four years is nothing when stacked up against Buffett’s 60-plus-year career. We’ve still got a job to do – and the reality is we’ve barely even gotten started.
Still, it’s true that Crossroads has done well in these early years. Starting over four years ago with approximately one million dollars and the backing of a single family, we now manage over $17.5 million for nearly a dozen investors. We’re doing what many people said could not be done: scaling a fund to sustainability with essentially zero marketing and building a track record that’s second to none. Our future as a firm has never been brighter or more secure. Indeed, our best days are yet to come.
I say that without any special insight into how long COVID-19 precautions will continue to hamper the economy, or whether the market is headed up or down. But I firmly believe it doesn’t matter. At Crossroads, we’ll continue to build our portfolio one exceptional idea at a time, designing it to hold its own in any market environment. If we can continue to execute, and I believe deep down in my bones that we can, we’ll do just fine.
I’d like to end this letter with a quote from a friend and fellow fund manager I’ve long admired who became one of our major investors this past year:
“As volatility arises, I will attempt to take advantage of the opportunities it creates. We will continue to invest with a long-time horizon, and we will continue to invest like it is our own money – because it is. Thank you for the opportunity to grow your family capital alongside mine.”
We couldn’t have put it any better. Thank you for your continued support.
With our best regards,
Founder and Portfolio Manager
Crossroads Capital, LLC
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