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.”
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Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, a partner at Nightview Capital and the firm’s Director of Research. Follow him on X. In this evening’s email… Subscribe below. Quote of the week: “Value your time. It is all you have.” — …