A Backdoor Way To Find Information

One of the things you do when you invest in startups is diligence.  You look at financials and a lot of other things.  I always like to try and find a backdoor way to do some diligence.  Sometimes it works, sometimes it doesn’t.  When it does you can wind up learning some things that you wouldn’t find in normal diligence.

None of this is sneaky.  It’s just looking for a canary in a coal mine.  Diligence helps you understand the potential of a business, but it also helps you understand where the downside might be.  The canary might not be anything, but if you find it then it is a good thing to run down and talk about.

Here is a totally unrelated example of what I am talking about.

Suppose you see all kinds of data about people moving out of the state of Illinois to avoid the really bad public policies that are in place and being proposed.  Like me, you might go to parties and hear your friends talk about leaving the state.  Like me, you might have had quite a few friends leave, but both of those things are anecdotal to me.  Maybe I don’t want to believe the data that’s come out in various newspapers and maybe I think the data is biased.  It happens with political polls, so why not this sort of thing?

You can look at places where people would be likely to go and examine the real estate market there.  For example, Nashville prices are up significantly over the last few years and seem to be bid today.  Same with Austin, Texas.  Market times are short.  However, that might not be a function of people moving there from Illinois.  Maybe a large company moved there or maybe a long standing company in the local economy took off.

How would you do a backdoor way of seeing if the data you read about and the anecdotes you are hearing about might be real and part of a larger trend?

One way is check U-Haul rates. It’s roughly five time more expensive to rent a U-Haul to take from Chicago to Dallas than it is to take one from Dallas to Chicago.  You could check real estate listings to see if prices are dropping.  (They are). You could look at market times on real estate to see if they are expanding or contracting.  They are expanding.

The really interesting backdoor stuff is harder to tease out and sometimes it happens by chance.  My wife was having a conversation with a person who manages a lot of estate sales.  She’s busier than ever.  It costs a lot to move many furniture items and people would rather dump them.  The consignment shops in the Chicago metro area are full to the brim.  Salvation Army is getting a lot of donations.

Why would that be?  If you were in Florida, you’d say a lot of people were dying.  That’s not the case in Illinois, especially Chicago and the suburbs.  In Illinois, the canary is dead and there is a good reason for it.