by Jacob Taylor
The Rebel Allocator
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By Jacob L. Taylor
Copyright © 2018 by Jacob L. Taylor
All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form without prior written consent of the publisher, except in the case of brief quotations. For permission requests, please contact the publisher.
Library of Congress Cataloging-in-Publication Data
Name: Taylor, Jacob, L. author.
Title: The Rebel Allocator / Jacob L. Taylor
Description: Folsom, CA, 2018 | dba Five Good Questions
Identifiers: ISBN-13: 978-1-7326883-2-2 (paperback) | ISBN-13: 978-1-7326883-3-9 (ebook)
Subjects: Business, commerce, capitalism
Classification: HF, HB501
Contact: [email protected], @farnamjake1
Printed in the United States of America
Imprint: 5GQ
Book design by Jacob L .Taylor
10 9 8 7 6 5 4 3 2 1
First Edition
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From the Author:
In his 1987 letter to Berkshire Shareholders, Warren Buffett wrote:
“The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration, or sometimes, institutional politics. Once they have become CEOs, they now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered. To stretch the point, it's as if the final step for a highly talented musician was not to perform at Carnegie Hall, but instead, to be named Chairman of the Federal Reserve.”
Capital allocation is the process of deciding how money is spent inside a company. It’s easy to forget how critical it is to the success of any business. Yet somehow after years of searching, I never found a definitive resource for learning about effective capital allocation. Many outlined the problem, but few offered solutions for the practitioner. It was a glaring omission I was determined to fix. “Obsessed” might be the most apt word.
This book started life as a nonfiction. I invested years researching everything tangentially related to capital allocation, going down more rabbit holes than Bugs Bunny. I wanted to write a book about capital allocation done right. And if I’m being honest, my ego wanted me to write the book. I crafted a nonfiction book proposal and entertained offers from publishers who agreed this was fresh territory. Yet something wasn’t right. Around the same time, a good friend who was my age died in a freak hiking accident. I was forced to reimagine what kind of book I would want to leave for my two young boys if I were to disappear tomorrow. That sobering thought changed everything.
A thousand little nudges from the universe convinced me I had to tell a story if I wanted this work to have a lasting impact. There’s an idea that emotion is the glue that makes any lesson stick. I explored the emotional mechanics of storytelling, heroes’ journeys, even screenplay writing. Thoreau said that the price of anything is the amount of life you exchange for it. If that’s true, this has been an expensive book.
I can already hear you saying, “A fictional story about a dry subject like capital allocation? What a terrible idea.” I got a healthy dose of raised eyebrows when I shared the concept with friends. “Just write a damn nonfiction book like everyone else,” their eyes told me. Yet I couldn’t ignore Ralph Waldo Emerson’s words in Self-Reliance:
“There is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, for worse, as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of ground which is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he has tried.”
This book is the plot of ground that I had to till. I hope the story helps you retain the lessons and broadens your understanding of an important subject. That would be success to me.
Your humble author,
Jacob L. Taylor
August 2018
P.S. This work is decidedly fiction. Although I’ve borrowed elements from my own experiences for color, I took plenty of literary license. If we meet in real life, please don’t psychoanalyze me--I’m married to a Ph.D. psychologist, so I get enough of that at home already.
PROLOGUE
I creep into the hospital room and place the overpriced get-well flowers I just bought in the downstairs lobby on a table. I silently take a seat next to the bed. Medical equipment beeps metronomically in the background. How does anyone sleep around here? His face is sunken and more ashen than last time I saw him. He’s going downhill fast. The inevitable seems right around the corner, and I can feel my throat harden with emotion. I blink a few tears from my eyes.
I reach toward the bed and gently touch the back of his hand. His skin feels like parchment paper, loosely stretched over his bones. His breathing is at least steady, but labored and rattling. I can’t help but take a few deep breaths of my own to compensate, like when you watch someone trapped underwater in a movie.
Without opening his eyes, the old man says in a gravelly voice, “I thought you’d never make it.”
I let out a cathartic laugh. “You ruined my vacation,” I say.
“I know, I’m sorry. But we still have one lesson left.”
You’re probably guessing this old man is my grandfather. He’s not; we aren’t even related. Yet he’s one of the most important people in my life. Before I explain how I came to be in a hospital holding his hand in the last days, perhaps hours, of his life, let’s rewind the clock...
CHAPTER 1
I grew up middle class with “granola” parents. They met in college at an environmental protest. Saving the whales? Or was it the rainforests? Doesn’t matter. It was love at first sight. They were high on righteous indignation. Probably more. I guess there are worse places to be conceived than the back of a Westfalia?
There was a lot of talk around the dinner table of the man and how he was keeping everyone down and callously destroying the planet. We were taught that capitalism was evil, man at his predatory worst. The nightly news brought daily reminders of crooked corporations into our living room.
My father was an attorney, which should have made the family financially comfortable. And it would have, had he not taken on so many pro bono cases. Environmental damage or unfair labor practices--he was a sucker for a sob story. He took them on free of charge.
Maybe you get what you pay for because he certainly didn’t win them all. He’d torpedo his case by not letting go of an irrelevant point. Self-sabotaged, windmill-tilted, unable to get out of his own way. We never starved, but we were a long way from Park Avenue.
My mother was a dedicated volunteer for various environmental crusades. In the best case, this involved her working the phones to raise money. At least she could do that from home. Too often she was pulled to out-of-town rallies and protests. Causes always trumped bake sales and Little League games. She loved us, but her passion was clearly for saving the planet, not motherhood.
It would be too dramatic to call my brother and I feral, but we were no strangers to the latchkey. I
became adept at forging my parents’ signatures. Not out of malfeasance, just to grease the wheels of educational bureaucracy. I made a lot of excuses for their absences over the years.
My father and mother were both exceptionally principled. Yet there was a selfishness to their moralism. I’m sure they felt like they were trying to leave a better world than they’d found. A casualty of their principles was the missed blocking and tackling required for good parenting. I felt like a statue that was half-carved on the shelf while the artist worked on more pressing projects.
The carving they did do made for a square peg in a world of round holes. I unconsciously adopted my parent’s inflexibility, getting into many easily-avoided conflicts at school. There’s taking a stand, and there’s just being obnoxious. My parents never really distinguished the two; I didn’t either. (Maybe a first-grader shouldn’t throw away another student’s tuna sandwich because it wasn’t from a dolphin-safe source?) I often felt like I didn’t understand the world around me. I couldn’t shake the gnawing feeling that I didn’t belong.
I did okay in school. The academic side wasn’t crushing, though I wasn’t in the same universe as those truly gifted. My struggles were mostly social, and I lacked self-discipline. I was the kind of kid who spent countless hours holed up alone in his room creating a frame-by-frame reenactment of The Battle of Hoth. Echo Base needed saved from the Empire for the thousandth time way more than I needed to study for a big test. Priorities, right?
Upon graduation, I went to the closest state school that would take me. My grades qualified me for better universities, but I lied and said I liked the state school’s campus better. It was objectively worse by any measure, except that it allowed me to maintain the level of mediocre effort to which I was accustomed. I didn’t want to have to compete with more talented classmates. If I hamstrung myself, I’d never have to compare the real me to my peers and find myself lacking. Better to just limp around the JV track and leave the foot-race of life to the swift.
The way the financial aid shook out, the price tags wouldn’t have been that different between the better schools and my “safe” choice. They were all going to require a crippling amount of debt. There are over one trillion dollars in student loans in the U.S. and I think I’m on the hook for about half of that. Like all people my age, I was assured I’d make it up through better pay the rest of my life. This social contract was an American birthright and as good as gold. I bought it hook, line, and sinker. What a sucker.
CHAPTER 2
I chose journalism as my major. The Fourth Estate was a noble calling, sure to earn my parents’ approval. Their protests were about raising awareness of problems--wasn’t that a journalist’s prime directive? At least I’d have a better idea what the hell they were crusading about.
My sophomore year, one of my professors got me a job writing for the school’s paper. It was your standard left-leaning university rag, written by self-important students too young and naive to grasp the complexity of what we were writing about. I loved it. For the first time, I felt like I belonged.
The paper’s staff was a collection of castoffs and misfits like myself. We would stay up until all hours of the night, debating issues over greasy food, sporting even greasier hair. It was an echo chamber of “enlightenment.”
Early in my sophomore year, my father landed a big case. A large medical manufacturer had produced faulty surgical meshing that harmed a lot of people, including one of my mother’s close friends. After a lengthy trial and despite their obvious culpability, the company got off on some technicality. I was livid. All of the suspicions I was raised with about the grotesque nature of capitalism were confirmed when I saw real people being hurt. Why wasn’t there anyone who could protect the little guy from these greedy corporations? Is this the universe’s idea of some sick joke?
I hatched a plan. I added a business minor as a trojan horse to mask my infiltration of the system. I would be invited in as a business journalist to praise the self-proclaimed Masters of the Universe. It’d be too late when they realized I was there to expose their seedy underbelly and destroy the beast from within.
I pitched the newspaper editor on a regular column of exposés taking down nefarious companies. I was a modern-day muckraker shining a disinfecting spotlight on greedy, cigar-chomping executives. I called it, “The Evils of Capitalism.” I know, not very original. There wasn’t much of a travel budget for primary research, but you’d be surprised how broad the window into evil can be cracked open with simply the internet and a telephone. My regular columns became very popular with my fellow students who recognized the same corporate malfeasance and were happy someone was speaking up. It wasn’t like I was Woodward or Bernstein, but I started to get a reputation on campus. I was proud to be known as fighting for the little guy.
My parents never taught me much about finances. Like all students, I would get daily credit card offers in the mail. I really wanted a big screen TV and the new video game system that had just come out. All the credit card companies wanted was an address to send the card to. Match made in heaven! I was working hard in school, didn’t I deserve some niceties? I racked up a pile of consumer debt to sit atop my mountain of student loans. But you can’t have a nice TV without surround sound. With a center channel. And a subwoofer. Everyone knows that life-truth.
CHAPTER 3
In the time leading up to graduation, I diligently worked my contacts and trolled job boards for a journalism opening. I just needed to get my foot in somewhere. My lack of prospects was comically bad. I didn’t expect the New York Times to be knocking down my door, but there was nothing. I thought about starting my own website where I continued my muckraking articles, but I had no idea how to make any money off of something like that. Plus, I was the last person on the planet who would want to start their own business. In a panic, I researched grad school options as a way of deferring the harsh realities of life.
Debt repayment would have to wait as well. I was already receiving threatening phone calls and constant harassment through the mail from the credit card companies. They didn’t just want my address to send a new card in the mail. They wanted a pound of my flesh known as minimum monthly payments. It didn’t matter if I had a job or not, they weren’t shy in asking. I was afraid to answer my phone and my stomach churned whenever I checked the mailbox. I couldn’t make myself log in to see the crushing school loan balances and proposed payment options either. Deep down I knew it was my own fault, but I still felt taken advantage of by the credit card companies. Has anyone ever read all of the fine print and disclosures before signing? I certainly wasn’t going to be the first.
A few weeks before graduation, there was a job fair on campus. I figured there wouldn’t be much for a journalism major--who’s ever seen the WaPo recruiting, at a measly state school no less? I had nothing better to do, so I wandered amongst the thicket of booths. The corporate pushers were there, dressed in snappy suits and fake Colgate smiles. Businesses needed the blood, sweat, and tears of new recruits to keep the machine lubed. The beast’s maw gaped for fresh meat.
One booth had a comely woman working out front. She was striking in her pencil skirt and perfectly coiffed hair, a real head-turner. I made my way over and pretended to peruse the company’s brochures, hoping she’d talk to me. It was her job after all. Instead, I was intercepted by some jock frat boy working the same booth. His was no doubt selected to lure in the students of the finer sex with his trapezoidal physique. Was he even a real employee or just an out-of-work model doing the devil’s bidding? Sure, I’d love to hear more about your company, Chad. Thanks for asking.
“What’s your name?” Chad inquired.
“Nick.”
“Hi, Nick. What’s your major?”
“Journalism.” Chad tried to hide his good-luck-with-that face. To his credit, he quickly recovered.
“Well, Nick, have we got an opportunity for you. This company is ahh--mazing. You’re going to love it.”
“Wha
t is it?” I asked.
“It’s a private equity firm called Big Rock,” he said.
“I’m not sure that’s for me,” I said. I didn’t tell him I didn’t really know what private equity even meant.
“It wouldn’t hurt to at least apply, right? That is, unless you don’t want to make $100,000... per year,” Chad said in a hushed tone, like he was letting me in on a secret. “That’s the starting salary for an analyst. Imagine how quickly you’ll be able to pay off your student loans with that kind of money.” Ugh, it had been a pleasant seven minutes since I’d last panicked from the crushing gravity of my student loans. Chad had clearly made this pitch before and knew the exact pain point to squeeze.
“One hundred… thousand?” I said. Is it even legal to make that much in a single year?
“Yep, and it goes up from there,” he said. “Big Rock is legit and everyone knows private equity is the future.” His pearly whites flashed with promise.
“Hmm… I guess it wouldn’t hurt to just put in my resume, right?” I said. “What’s the worst that could happen?”
“Exactly,” Chad said.
It’s funny how we don’t recognize many of life’s little forks after we’ve sailed right through them.
CHAPTER 4
I filled out Big Rock’s application, expecting a better chance of being chosen by NASA to pilot the first craft to Mars. To my amazement, the phone rang not long after and it wasn’t a debt collector. It was an HR rep from the company, and she wanted me to come in for testing and a possible interview. I about fell over.