Finding a great investment idea is not easy. But there’s a few patterns that emerge when you study some of the best performing businesses. Alix Pasquet, founder of Prime Macaya Capital Management, gave a lecture at Yale recently on the essential “ingredients” of exceptional investments. His presentation dives into company-specific traits—such as the notion of expanding moats—as well as the behavioral elements required to make concentrated bets.
“The investment business is tough. There are people out there staying up at night scheming of ways to take you down. They’re waiting for you guys to come because they know you’re not going to have the experience, and they’re going to want to compete against you. So be ready for this. I used to be a professional gambler. I wasn’t a very good one, but I made a lot of money. And the reason is I picked my spots. I competed against rich people that had big egos that did not know how to gamble as well as I did. That’s how you make money. You’re looking for the same thing in capital markets.”
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“Failure is woven into the fabric of success”
Success is a tricky concept because it obscures a fundamental reality: All success—both in investing, and in life generally—comes only when you learn from previous failures. Dr. Gio Valiante, a performance psychologist who works with top athletes and entrepreneurs, spoke with Shane Parrish recently for an in-depth conversation on this subject—and much more. “One of the things that we know is [that] people think of success and failure as opposite things—that the more I succeed, the less I fail,” he says. “But that’s really sort of a modern conception of success and failure.” He continues:
“The fact of the matter is [that] failure is woven into the fabric of success. It’s not ‘How do you avoid failure?’ That’s the wrong question. The right question is, ‘How do I fail, or how should I fail in ways that lead to the type of skill development and belief system that allow me to succeed long term?’… In snow skiing, you want to teach kids how to fall so they don’t get injured. You want to teach students how to keep trying and pushing themselves as hard as they can. And the question is, ‘What do they do with the failure?'”
“To do any task on a computer, you have to tell your device which app to use… In the next five years, this will change completely. You won’t have to use different apps for different tasks. You’ll simply tell your device, in everyday language, what you want to do. And depending on how much information you choose to share with it, the software will be able to respond personally because it will have a rich understanding of your life. In the near future, anyone who’s online will be able to have a personal assistant powered by artificial intelligence that’s far beyond today’s technology.”
“The more time you spend researching a company and building conviction, the more prone you are to overweighting the ‘inside view.’ The stars seem to align, the information you gather only appears to support your thesis, and it becomes more apparent that this time is different. If a thesis rests on a company generating exceptional sales and profit growth in the coming decade, seek the ‘outside view’ through base rates. How have companies of a similar size and growth profile performed over the subsequent five and ten years? If the outcome you expect is improbable per the base rates, look for alternative viewpoints and take them seriously.”
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.
Reflection doesn’t come naturally to me, but writing—especially for others—makes it non-negotiable. These aren’t just lessons. They’re pieces of a year that shaped me.
