…way a PM / team can help is by asking good qus. Eg:
- How are you thinking about this new datapoint?
- Why is the co going down this strategic path?
- Are results & strategies of competitors consistent with what mgmt are saying?
- How does this expert view impact our thinking?
Has to be done in a kind, supportive, collaborative but intense way with full buy-in from everyone that that is how it works. If it is aggressive, it burns people out & makes for a less durable culture over time. What should be deep conversations about ideas just become fights.
PS questions should be seamlessly integrated into a culture. Should happen in meetings, across the desk / by the water cooler, on team / collaboration apps, over a drink etc. Time is scarce so people asking the questions should really try to focus on the important ones.
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1/ Give people the freedom to innovate: hierarchy helps predictability & control, but when you seek to “recruit the most intelligent, innovative, talented people on Earth, telling them to sit at a desk and do what they’re told obliterates 99 percent of their value.”
2/ The customer is first: “Every company will tell you that “the customer is boss,” but here that statement has weight. There’s no red tape stopping you from figuring out for yourself what our customers want, and then giving it to them.”
Douglas H. Bellemore’s six characteristics for success as aggressive investors…
Source: The Strategic Investor, 1963
Patience
“The aggressive investor should not expect quick results… Success depends, in large measure, on the ability to select undervalued situations not presently recognised by the majority of investors and to wait for expected developments to provide capital gains…”
Courage
“The investor must have solid convictions and the courage and confidence emanating from them - that is, courage, at times, to ignore those who disagree…Decision-making ability…is vital to success in investing…[this] assumes judgments are right more often than wrong.”
The foundations of the philosophy of Scout Capital were the investment values of:
1. Quality 2. Misunderstanding 3. Self-knowledge
Key aspects of quality:
- Unit economics
- Returns on capital
- Appropriate leverage
- FCF conversion
- Market share
- Margin resiliency
- Moat
- L-T growth potential
- Management
Why a quality focus? Reduces the frequency of blow ups & these types of biz often have tailwinds.
Misunderstanding:
“However appealing the business, if it’s widely recognized as such by others, that will be reflected in the share price. That’s why misunderstanding has to play a role.”
It is important to learn the right lessons from both mistakes [commission & ommission] & things that go well. I often find people focus their learning on mistakes & less on the latter or learn the wrong lessons or see patterns that don’t exist
Some thoughts on trying to learn...
1/ Missing out on something with a high optical valuation... the lesson is usually not ‘be willing to pay any price’ or ‘quality at any cost’ it is ‘why were your numbers / expectations too low’, ‘what did you miss about the business’
2/ When you lose money because something bad happens to the fundamentals, try to break things down:
- Was there a mistake of analysis before buying?
- Did you miss a change after you bought?
- Was it a portfolio mgmt error in not cutting & putting capital elsewhere?
- Bad luck?
15 things that I think about when trying not to sell a good L-T idea:
1. Be prepared to give up P&L in the S-T, L-T winners are often volatile
2. Monitor consistency between narrative & fundamentals. Imagine the destination & the key drivers. Use patterns to help navigate
3. Understand why something is persistently mispriced (confidence in a mispricing means you are less likely to sell)
4. Have a well balanced portfolio of great cos, never let a position become so big it owns you / can take you out of the game
5. Form independent views and rigorously test your thinking by yourself, a lot of people will have opinions about the future without knowing much about a situation, you need a strong filter... sometimes not listening is a good thing...