Am I Being Stupid?
Based on the number of people who wrote back, you all enjoyed reading about the u13 goalie’s novel penalty kick strategy (even if it doesn’t work all of the time). I heard from a couple of people who were going to suggest it to their own kids and kid’s coaches and from a few others who wondered if such an approach was gimmicky or could work at the highest levels. Given that professional goalies have started trying pretty much anything to disrupt a shooter’s routine (here’s a keeper in the Mexican league pretending to face backwards), I’d say someone will give it a shot. After all, edges, even little ones, get exponentially more valuable as stakes rise.
But Andrew also asked that I be a little more specific about how the concept of perceiving stupidity could be applied to investing (and offered to think on it as well). And that was fair feedback. After all, this whatever-it-is does masquerade as an investing thinkpiece from time to time.
As for how perceiving stupidity applies to investing, the answer is that it does, but somewhat in reverse. Because as we at Permanent Equity are out in the investing world thinking about deals, we don’t perceive others as being stupid when they are doing different things, but rather live in constant abject terror that we are the stupid ones missing the obvious.
This is because every investing trade or transaction you can make has a counterparty – the fancy term for the person with whom you are trading or transacting. The reason your counterparty becomes your counterparty is because they are seeking to achieve the opposite that you are (if you’re buying, they’re selling, for example). And a good question to ask when someone wants to do the exact opposite thing you want to do is: Am I being stupid?
This is why, in addition to analyzing investment opportunities, we spend a lot of time, energy, and resources on getting to know our counterparties. We want to understand why they are doing what they’re doing, what’s motivating them, and what a desirable outcome looks like. Because if one owns a truly valuable asset, the worst thing one can do with it is sell it, so if someone is selling a truly valuable asset, it stands to reason that either the asset is not that valuable or that there should exist a pretty compelling explanation for selling it.
And some people do have compelling explanations. One of the most, when it comes to a business, is that the prospective seller has taken it about as far as she thinks she can take it and would like to bring in someone else who can help. After all, in almost all cases it’s better to have a smaller piece of a bigger pie than its opposite.
That said, we’ve also heard more than our fair share of less compelling explanations, and we typically pass on those, even if the business seems otherwise interesting, lest we be stupid.
See you Friday.
– Tim
