Background for MFA portfolio investment January 2025
Investing in software
Welcome back to another exciting edition of the MFA portfolio, colloquially known as the “I chose to pursue making weird little scraps of art-stuff instead of making buckets of money. I am also trying to be a decent person. How the hell am I supposed to save for retirement?” portfolio.
(If you are new to Money for Artists, hi! You may want to go back to the beginning and get a quick overview.)
As always, we like to find things that are durable, cheap, not-disgusting,1 and which will grow over time, which typically precludes most things Big Tech, especially now that Big Tech is rolling over and groveling at the feet of the incoming administration.
And yet: this month we are really going to put some dough into a few shares of a freaking software company?!?!?
There are so many reasons for artists and regular people to steer clear of investing their hard-earned simoleons in software companies, among them,
Unlike, say, railroads, which are insanely expensive to build, such that the bulk of them were built a long time ago and cannot be replicated, software is cheap to make. You hire some smart young things freshly out of Stanford, give them an early ownership stake in your company, and let them go nuts. Why invest in something that can be so easily competed with?
It’s way too technical. Sometimes I will stumble across bits of software-engineer-speak, and it’s totally opaque to me: “UX” and “stack” and “git”—I don’t know what any of that stuff means, and I don’t have any interest in learning. Why invest in something you don’t understand?
Technology is not static, and is changing with dizzying/alarming speed right now, with consequences very much TBD. Little old software companies have a tendency to vanish from the face of the earth. Why invest in something that might be obsolete tomorrow?
Tech companies tend to fly pretty high in terms of valuation. The Reddit groupthink says “This puppy is going to the moon! I better hop aboard now!” In other words, you can pay what looks like a high price now because the valuation is actually cheap relative to future earnings growth. This is the same pattern of thinking that you see in all bubbles. It’s a form of gambling, and we don’t like to gamble. Why invest in something that is overpriced and unpredictable?
These are all reasons that we typically shy away from this entire sector. And yet, fam, it’s true: we are going to shave off a little hunk of dough and plop it right there, into a company that we think is indeed durable, predictable, not-disgusting, and a solid place to put money such that in twenty years it will help us to pay for our kids’ college tuition, or buy a nice kale salad at a restaurant, or contribute to other people’s weird little scraps of art-stuff, and generally not lie awake at night in the fear and dread of financial precarity.
Here’s the deal:
This month’s MFA portfolio investment is a company that makes mission-essential software for modern society. It’s been around for four decades, has tens of thousands of clients in 194 countries, makes a grip of money, pays a small but growing dividend, and isn’t going anywhere. The founders of the company are a single family with deep expertise in their field—true insider ownership—and they write intelligently about long-term thinking and taking steps to insulate the business against short-term vagaries and short-sighted thinking.
While the company is a little on the pricey side for us (it’s a hugely profitable recurring-subscription software company, so we would prolly have to be in a stock-market meltdown for it to be empirically cheap), the stock is currently selling very close to the 52-week low for what seem to be macroeconomic reasons that are irrelevant for anyone with a 20-year horizon.
I already have a tiny stake in the company, but am planning to add now that it’s at such a low. Paid subscribers, in the next few days I will send out a write-up of the business so you can consider it at current prices before I buy a few more shares for the MFA portfolio. Thanks for coming along with me!
Evergreen reminder that when you do the sane, sensible, obvious retirement move of putting your money into seemingly vanilla index funds, you are buying a tiny fractional piece of the fossil fuel industry, the military-industrial complex, the child-slavery-in-remote-places industry, the deforestation industry, et cetera. It should trouble all our sleep at least a little.
My sleep is troubled!