Investment edge that money cannot buy 

In my role, I naturally get pitched lots of research-related investing products: Credit card transaction data, satellite imagery to track retail parking lots, anonymized e-mail receipt—and so on. Some of these tools may have utility (particularly for early stage investors or short-term traders) but for the long-term investor, there’s ultimately two sources of edge that money simply cannot buy: time—and passion for the research itself. 

Selecting Companies to Research, a short yet compelling essay by The Rational Walk, explores these themes. “If you are more concerned with the size of your portfolio in 2030 than at the end of the third quarter of 2022, it logically follows that your research process should be different than for someone who needs to beat the S&P 500 over the next ten weeks,” he writes. “The main point I am trying to make is that individual investors have the luxury of considering themselves to be primarily business analysts. This attitude creates long-term optionality because it allows investors to act quickly and with conviction when opportunities arise.”

“Perhaps most importantly, taking the approach of a business analyst allows the investor to follow companies that he or she finds intellectually interesting. I firmly believe that it is almost impossible to successfully study or follow a business that one finds mind-numbingly boring. If you are an analyst working at a fund, you might be given a sector of the economy to cover. It doesn’t matter if you find that sector interesting or not — it is your job to cover it. Individual investors with a long-term mindset have no such constraints. You can look at what you find interesting and select companies that you will be motivated to follow over the long run.”


The mental model for holding a generational winner 

“When holding a generational company, a big winner that you expect to multiply in value over the coming years and decades, it is in my view pointless to develop a terminal value scenario and present value this to today.” This excerpt from Fallacy Alarm’s long-form essay about Tesla (yes, we own it—did you not know?) is a smart articulation of what it truly takes to hold a generational compounder—and not get shaken off along the way. One of the most painful mistakes as an investor is to sell something too soon, simply because the price went up (or down) a lot in a short amount of time. 

“If you valued Amazon in 1999, could you have foreseen AWS? If you valued Apple in 2005, could you have foreseen the rise of the iPhone, the most disruptive product of the 2010s which has an insane innovation cycle that is still unfolding? A big winner will look very different 10 years down the road than one you can envision today. The good thing about Tesla is that they have laid out their next 10y plan extremely transparently already which makes it much easier to build conviction than for Amazon for instance, where it is impossible to say whether they have another AWS in the cards or Apple where it is impossible to know how they will compete with Meta on augmented reality hardware.”


A few more links I enjoyed: 

“The central problem is that the world we have built has, over time, become an increasingly complex system prone to all kinds of stochastic behavior, non-linear relationships and ‘fat- tailed’ distributions. When I am asked about the future path of inflation, or war, or plague, my answer does not begin, ‘It’s complicated.’ My answer begins, ‘It’s complex.’”
“I have no idea how to find the perfect balance between internal and external benchmarks. But I know there’s a strong social pull toward external measures – chasing a path someone else set, whether you enjoy it or not. Social media makes it ten times more powerful. But I also know there’s a strong natural desire for internal measures – being independent, following your quirky habits, and doing what you want, when you want, with whom you want. That’s what people actually want.”
“We designed this example so that the level of investment, return on investment, and growth are identical for companies A and B. But the accounting differs because one invests in tangible assets and the other in intangible assets. The concepts are the same, but the communication is different. This is accounting aphasia. The central point of this report is to distinguish between ‘GAAP-losers’ and ‘real losers.'”

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.