Quote · My First Million
The "Idiot Index": the simple math that made Elon Musk billions
Where this was said
Nick Sleep letters
At 21:22 · chapter starts 18:28
Sam Parr introduces Nick Sleep as a kind of anti-famous investing legend — someone who won so comprehensively that he just shut his fund down. His method was almost embarrassingly simple: own a tiny number of obvious, high-conviction stocks like Amazon, Costco, and Berkshire Hathaway, and hold them forever. The game wasn't more complicated than that. Sam then reads from one of Sleep's shareholder letters, which makes a striking structural observation: roughly two-thirds of Sleep's portfolio was invested in companies that actively shunned conventional advertising — Amazon and Costco didn't advertise; Berkshire and Games Workshop didn't issue earnings guidance; Amazon, Costco, and others passed margin back to customers rather than spending it on promotion [1] — Sam Parr "Nick Sleep ran one of the best-performing funds in history by owning four stocks — Amazon, Costco, Berkshire, and one other — and holding t…" 18:48 . The counterexample is devastating: General Motors, with the largest advertising budget of any company in Sleep's reading pile for multiple consecutive years, was spending $5.3 billion — or $630 per car — on ads in 2008, which Sleep noted would have retired half the company's debt [2] — Sam Parr "GM ad spend: $5.3B / $630 per car (2008): General Motors spent $5.3 billion on advertising in 2008 — equivalent to $630 per car shipped — w…" 21:20 . Shaan pushes back noting that GEICO (a Berkshire subsidiary) is actually a huge advertiser, and that Apple does brilliant advertising. Sam acknowledges the nuance — it's about proportion, not absolute spend — and uses it as a bridge to Elon Musk's idiot index.
Nick Sleep ran one of the best-performing funds in history by owning four stocks — Amazon, Costco, Berkshire, and one other — and holding them for years. When he'd made enough money, he just shut the fund down. The game isn't complicated.
General Motors spent $5.3 billion on advertising in 2008 — equivalent to $630 per car shipped — which Nick Sleep used as the quintessential example of an 'empty vessel making the most noise.'
The idiot index is the ratio of a finished part's price to its raw material cost on the London Metals Exchange. Elon found the space industry's index was 100x-plus, meaning NASA was paying idiot prices. SpaceX's entire premise was that it didn't have to.
