Some Thoughts on Investing, an Ongoing List. (Borrowed and not)

Collaborative Holdings is an investment advisory firm that is independent of Collaborative Fund.

Dont “invest in the present”; imagine the situation and narrative as it will likely exist 12+ months from now.

Most forecasts are over-reliant on current realities.


Market efficiency is not a fixed property of a market, it is the end point of a process. When identifying a security that is expected to generate super-normal returns, always ask, why? The market is a reasonably efficient machine, if you can not identify why potential super-normal returns exist in this investment….perhaps they don’t


Equity markets are bad at correctly pricing 40%+ revenue growth and negative revenue growth. Outside of substantial changes to profitability, they usually more efficiently price 2-10% revenue growth.


Confidence in a forecast may increase with the amount of incremental information put into it, but the accuracy may stay the same. As analysts, we are prone to gather more and more facts to build conviction around a particular investment. While incremental information is often important, it can also convince us that our accuracy is higher than reality. This can be just as dangerous as ignorance itself.


Growth investors can be a lazy breed, and thus are prone to investing based on stories and narratives. Simultaneously, underlying realities of businesses and industries may not be apparent for years. It is often as important to understand what current narrative rules a specific business or industry. Often that narrative differs substantially from the underlying business reality. Periods during which narratives change can create substantial opportunity and risk.


When modeling the future of dynamic growth businesses, be wary of the difference between precision and accuracy. The aim should be directional accuracy rather than decimal-point precision.


When evaluating new and complex technologies and the businesses on which they are based, as investors, we must be humble. We are not experts. When forming opinions on technologies, our task is to develop the correct view based, in part, on the true expertise of others. Believing that we have developed expertise on our own is a dangerous path, often leading to inordinate and misplaced conviction.


In dynamically changing businesses and industries, often great managers / businesses and experts are wrong because they were great / experts in a past version of reality. There was a time when Samurai would fight, protocol dictated a long speech to their opponent, and the opponent would deliver a speech in return. When guns arrived in Japan, the opponents would wait for the Samurai to give a speech, and then they would shoot them.


“Macro” is generally less important to the returns of a concentrated collection of securities over long periods of time. These returns will be governed primarily by security selection and the performance of the underlying businesses. Nevertheless, occasionally macro is all that matters. Balancing this dichotomy » avoiding both distraction and complacency, is important to longer term success.


In the world of investing, there are product-focused businesses and distribution businesses. If you are working within an investment organization, discovering which is critical. For those focused on a product, the product and its performance is all that matters.

For those focused on distribution, remember that the customer is the distribution channel itself rather than the actual end customer. Furthermore, you may actually be the product. This may lead to vastly different incentives / processes / personnel / skill sets / and outcomes. Some of the best product businesses over time become distribution businesses if/as they scale.


You cant always run from controversy, instead you need to find controversy and reject it. Super-normal returns in the public markets rarely live in pristine stories without any controversy or issue. If you have found one, returns are unlikely to exist there for long.


The end-state of a technology business is often fundamentally unpredictable and subject to a constantly evolving technological and competitive reality. It is easier to identify a currently mispriced business inflection versus attempting to predict a far-out future reality.


Dynamic growth businesses are never infallible. They are subject to execution missteps as with everything, likely moreso due to the difficulty of operating in highly dynamic realities. Be wary of situations in which execution risk is being priced to zero on the back of temporarily inflated management reputation.


Businesses with great unit economics, and winning as they penetrate a large TAM will almost always feel expensive on current operating metrics rather than cheap. Exponential growth of cash flows eventually can make the most “expensive” current multiples seem affordable.


Even the best stock-pickers probably only generate alpha ~55-65% of the time on individual securities. In a world of prediction in which “certainty” is rare, and “more often than not” is the norm, ensuring that one maintains the flexibility to change their mind, and the liquidity to execute on this is critical. Never changing one’s mind on an investment may feel heroic, but is in opposition to the underlying statistical reality. Sign a prenup with every stock you invest in.

Disclaimer: This Blog post has been prepared solely for informational purposes and should not be construed as providing any type of investment, legal, tax or other advice and must not be relied upon as such. Further, it does not constitute an offer to sell any securities, the solicitation of an offer to buy any securities, or a recommendation or endorsement of any securities or other financial instruments; nor is it offering investment advisory services with regard to securities. The opinions above reflect those of the author and there is no assurance that such opinions are correct or will prove, with the passage of time, to be correct.