Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them. – Andy Grove, former CEO of Intel
A good analyst operates like an octopus under a lantern most of the time. A dull light that shines broadly allows our tentacles to explore all of the opportunities around us. A lantern provides a relaxed setting to think creatively and determine how all of the pieces might fit together. If you shine too much light on an idea at this point, it may fade away into the shadows.
- Reading about a Coca-Cola bottler in LatAm, we learn of a new partnership with a Netherlands-based brewer. Our tentacles feel around to better understand how that might impact entrenched local brewers in Brazil.
- Listening to a pitch on acquiring minority interests in Major League Baseball franchises or rolling up private auto dealerships. Our tentacles grab those snapshots and feel around to understand what recent transaction data implies for current valuations of related assets in public markets.
- Performing due diligence on a private investment in an electronic nicotine company offers additional perspective into shifting market share across publicly traded tobacco companies.
The octopus is a necessary and important part of the process. But a strong investment process is more than casually feeling around at your leisure.
Once your tentacles grasp onto an idea worth pursuing, a good analyst knows when to shine a bright light on it. At this point, a good analyst operates like a shark with a laser beam attached to its head. The shark cuts out all other distractions and hunts down that idea until it has satisfied its hunger.
The tendency of markets to gradually rise over time means that we operate like the octopus more often than the shark. This is a safer place for most of us. It’s calm. It’s enjoyable. It’s rewarding.
In contrast, too much time hunting like a shark can take a toll on us. Too much focus can hamper creative thinking. Too much light can make it just as difficult to see as no light at all.
Occasionally, markets demand that intensity from us. A seemingly never-ending school of fish appears out of nowhere. When we are swimming in opportunity, there’s no time to casually feel about. We turn on that laser beam and hunt down one idea after another until the school is gone.
The first half of last year provided investors with the biggest school of opportunity we’ve seen in a decade. Most days, we turned on our lasers at 6 AM and kept them on late into the night. The thrill of the hunt kept the adrenaline pumping around the clock. But, the intensity of that laser beam means that it can burn out if left on too long.
Next week, we plan to shine some light on the lessons learned from swimming with the sharks.