On April 12, 2016 my relationship with the SEC began anew. I know the date because that day in Washington, DC  I gave a speech at the Cato Institute,  and the date appears on the title slide of my PowerPoint in the video. As I walked out of the Cato auditorium an exceedingly polite, sympathetic woman named Valerie Szczepanik approached me and handed me her card. It identified her as being with the SEC. She told me that she was in charge of a group at the SEC which was hoping to have an open dialogue with me about blockchain and its role in capital markets. She invited me to get in touch, visit her team at the SEC, and open up a solid, professional relationship where they would stay informed on and help guide us as we developed tZERO. She could not have been nicer or more genuine, and it remains a great regret of mine that after thanking her and walking away, I gave the information to someone then in a leadership position of tZERO, along with a lawyer for tZERO, and extracted a promise from they would follow up with her and build a relationship.

I did that because that talk was my last professional commitment: as I explained in another recent post, I had entered a window where there was roughly a 50% chance I would have organs being cut out of me by May or June. That morning I had announced another medical leave of absence, and I was walking away from everything that very day. If they were going to start cutting out more body parts in May or June, I did not want to be working in the office up until the last second, so I had decided to enjoy life a bit, and I took a medical leave to wait things out.

I say that it is a regret because, while the person and the outside lawyer promised me that they would do so, and while I subsequently asked numerous times whether things were going well with the SEC and was assured at least half a dozen times that they were, that the relationship was great, that they were being informed every step of the way, I was to learn two years later that they were flatly lying to me. In fact, my colleagues at tZERO and Jones Day had gone into porcupine mode, and were doing everything they could to stymie interaction with the SEC. That led us to blow what would have been a great opportunity to build a productive relationship with the SEC. I only learned the truth in 2018. Notwithstanding other sources of friction, when I had the opportunity to do so I apologized profusely on that score, and I meant it. I still shake my head at the idiocy of missing that opportunity. The SEC had asked for precisely the relationship of which I had dreamed. And Ms. Szczepanik has gone on to be named the so-called crypto-Czar within the SEC, the person overseeing everything blockchain within the SEC.

But I get ahead of myself.

By August, 2016 I was back at the helm of Overstock.  We turned in another GAAP profitable our Retail business, making $32 million pre-tax (and over $50 million EBITDA), while our main competitor (Wayfair) lost ≈ $200 million. Yet we were faced with a dilemma: Wayfair, backed by Goldman and Bank of America, was a darling of Wall Street, and seemed to have access to the same pool of virtually unlimited cheap capital that our competitors have always tapped, but which has been denied to Overstock (for lots of reasons explored in the many essays, such as the willingness of some people with immensely deep pockets to pay interests rate averaging 90%, and as much as 350%, to maintain short positions that keep OSTK from budging, along with other reasons that were covered extensively in Part I of this story).

In early January 2017 I decided to try something that we had never done before: I decided to try a Wayfair strategy. We announced to Wall Street that we were going to accelerate but lose a lot of money. My hope was that we might start seeing the kinds of valuations that our competitors always had enjoyed, and might be able to resupply our coffers and switch to that more conventional Internet strategy for good.

The strategy failed. We succeeded accelerating, and our traffic got up to ≈20% growth, with revenue accelerating just behind it, but the market did not care. Again, trading in OSTK seems to follow rules unlike the entire rest of the market for eCommerce stocks (as was explored in Part I of this story). We had shown we could grow, we had shown we could make money, we had shown we could do it on a thimble of capital compared with everyone else, and the price of OSTK never responded.

In July of 2017 I wrote my Rabbi one of my long letters, and went out to see him for his advice. The basic dilemma I presented was this: we had shown we could make tens of millions of dollars, but for (then) 18 years we had faced a seemingly endless string of competitors who just burned through hundreds of millions of dollars, or even billions, which made it impossible to earn the hundred millions or more that I had expected we would be earning by that point.

When I arrived in Omaha I learned that, as is always the case, though he had studied my letter closely, Buffett still had me speak to it for 45 minutes (while in public Buffett is always talking, naturally enough, most people might be surprised to know that in private Buffett is a great listener, as great teachers are). I expanded on this point and that, I filled him in on this dynamic and that (Buffett's understanding of the Internet and such matters as SEO is much more profound than people would guess). He asked me a few questions, primarily centered on this theme: what had we done differently that let us build something unique in our industry, a Retail website that made money, and do it on so little capital compared? I told him that it was a combination of two things: the business lessons he had taught me, plus a focus on agile technology development. We also explored the truth that had emerged by then, that brick-and-click is the winning model, due to its immense advantage over pure-brick or pure-click. This was and is especially true in the case of furniture, because of the impossibility of having reasonable real estate costs, high SKU-count, and local delivery, from a pure-brick-and-mortar retailer, or a pure online play. The advantages of doing furniture in a brick-and-click model exceeds perhaps any other brick-and-click model, and no one had done it yet (and to this day, they still have not).