Friday, Jun 25th 2021
“I’m not qualified to have an opinion on a subject unless I can state the arguments against my position better than the people do who are supporting it. I think that only when I reach that stage am I entitled to speak.” -Charlie Munger “You must struggle with your own beliefs if you are to make any progress in understanding… To do this adequately you must formalize your beliefs and then criticize them severely, arguing one side against the other, until you have a fair idea of the strength and weakness of both sides.” -Richard Hamming
One of the most competitive sports in the world is the sport of investing. The sharpest minds across countries and continents compete against each other for the ultimate prize of superior returns.
Fuelled by technological innovation, information has never traveled faster, nor been more accessible. But with that glut of data, information, and communication comes a deluge of speculation and opinion.
These opinions travel farther and faster than facts, running the full gamut of subjects. From business models to the next 100 bagger stock pick, you name it. It’s a steadfast rule of the modern age: if it exists, or can be imagined, someone has an opinion on it.
Napoleon Hill once wrote that opinions were the cheapest commodity on earth. But there are some individuals whose opinions stand out as distinctly valuable, against a sea of cheap, fast thoughts. The critical differentiator between those individuals, and the rest of the world’s opinion-havers, comes down to one key variable: we listen to the opinions of people who have done the work.
Framed a different way, let’s take a look at the two pictures below. One is a Texas Coral Snake and the other is a Mexican Milk Snake.
Both snakes have strikingly similar color patterns and a resemblance so close that even snake enthusiasts would take a second look. However, a snake bite from one (the Texas Coral Snake) would put you on the express lane to the hospital while a bite from the other (the Mexican Milk Snake) would require a band aid at worst.
How does this relate to investing? Those who have done the work know the difference.
Many of the most-discussed investments or stock pitches are notorious for being surface-level in nature, supported by little more than a few tag-line snippets taken from a recent WSJ article. At Titan, we strive to take a very different approach, as demonstrated by our recent piece explaining our investment decision on New Oriental Education (EDU), a holding in Titan’s Offshore strategy.
In that piece, we laid out both the supporting and counter-arguments for the stock. We also described our Bayesian Updating approach, detailing how we have been continuously monitoring real-time data points that either validate or invalidate our thesis, and how the insights derived from these numerous data points have driven our decision to hold the position despite regulatory noise.
Put more simply, we shared our analysis to show the hard work we have done, and continue to do, to increase our probabilities of making successful investments and generating great returns for our clients.
How do we minimize our odds of making investment mistakes? We stay within our Circle of Competence, making high-probability bets on areas where we have an in-depth, advanced understanding of the market structure, the competitive dynamics, the key drivers of particular companies, and so on. This helps to mitigate our downside risk.
Lastly, we are militant about seeking out areas where we could potentially be wrong. We work diligently to surface any key risks or downside scenarios we haven’t properly assessed -- and to then assess them with rigor.
When faced with a question we don’t have the answer to, doing the work helps strengthen our understanding. And when the snake is in front of us, we can trust our view, because we have done the work.
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