Evolving, improving, and #friendship (part 1)

Tl;dr: Yesterday I posted podcast #333 (Perfecting the investing craft with Caro-Kann’s Artem Fokin); in addition to that podcast, Artem and I did a follow-up webinar with AlphaSense on using expert calls and AI that you can listen to here. Artem is not only one of the most popular guests on the podcast (our keynote at Planet MicroCap got rave reviews), but he’s also a great friend and just an incredibly thoughtful person. I guarantee you will learn a ton¹ if you listen to that podcast / webinar; in fact, I learned so much that I wanted to do a follow up post or three talking a little about them (and further highlighting them to make sure you saw them!). (editor’s note: part 2 is live here)

I use sports metaphors a lot when thinking about investing². Obviously there are limits to the comparisons, but high level I think the metaphors make a lot of sense because ultimately both investing and sports are extremely competitive games where the competitive bar and optimal strategy is always evolving. I think examples might show this nicely:

• Competitive bar: The winning time for the Boston Marathon was 2:32:39 in 1950. That result would barely get you inside the top 300 in 2025!

• Strategy: In the 1981 NBA season, the average team took two 3-pointers per game (and made just 0.5/game). The Clippers lead the league with five three point attempts per game, making 1.6. In the 2021 season, Steph Curry made 5.3 3-pointers per game (on 12.7 attempts/game). That’s right, Steph Curry made more three pointers per game than the leading team was attempting in 1981. Yes, that is a long way back… but you only have to rewind ~10 years (to the 14/15 season) to find teams that were making less three pointers per game the Steph Curry on his own makes today!

So it should come as no surprise that sports is a competitive business and the bar to be excellent is always getting higher and harder…. but, if anything, markets are more competitive. Football has famously been described as a game of inches, but successful investing today can actually come down to milliseconds.

How has the bar raised in investing over the years? In the 50s and 60s, you could make good money simply by buying companies that traded for low multiples, and if you were golfing buddies with a company’s CEO he could tell you “buy my stock, we’re going to get acquired” and you could (probably!) legally trade on that info³ (I believe until the late 60s insider trading only applied to insiders who were trading!). Today, the later would obviously get you sent right to jail⁴, while the former has just been completely picked over by quantitative hedge funds. Markets have gotten competitive to the point where hedge funds are hiring CIA analysts to analyze CEO body language and physics PHDs find it more interesting (and lucrative) to work on finance problems than physics research!

I’ve always talked about investing process and improving as an investor on this blog, but my writing / thinking on process and improving has accelerated over the past year. There are a lot of reasons for that increase, but I will tell you the two big ones: fear of getting left behind and opportunity in the inflection.

Let me start with the negative one: fear of getting left behind.

I’ve talked to a few investors who had insanely good runs two decades ago but have been really left behind the past decade. And they’ll often complain about how the markets “no longer make sense.” I can definitely understand that sentiment! It’s kind of nutty seeing DATs trade for huge premiums, and the insane focus on quarterly earnings and pod shop knife fighting on positioning seems just completely contrary to the fundamentals of investing.

But, for the most part, the investor isn’t saying “I don’t get DATs” or “man volatility is really high around earnings.” What they’re really saying is “twenty years ago my process was finding a ton of winners, and for the past ten years every stock it turns up is a loser.”

The unfortunate fact of any competitive process, whether it’s investing or sports, is that they evolve, and that evolution means that strategies that used to work get left behind if they’re not constantly evolving. For example, strategies in football that were considered revolutionary thirty years ago would be primitive and get demolished in today’s NFL. Why should investing be any different? Why should one single strategy be guaranteed to “win” (make risk-adjusted alpha) forever in what is the world’s most competitive game (investing)?

The answer is, of course, that no strategy will work forever. And that’s one of the reasons I’ve been focused so much on process improvement recently: I don’t want to be one of those people who sits around decrying how unfair markets are while sticking to the same strategy / research process and getting my head beat in year after year.

Markets evolve; my process and strategy need to evolve with them.

Now, there’s such a thing as going to far. I don’t think a value investor should suddenly just start day trading meme stocks because value has been left behind and meme stocks have ripped for the past few years. The key is to stick to your principles (“I am a value investor; I buy stocks for less than they are worth”) but evolve your strategy (twenty years ago, the most undervalued stocks might have been trading at 8x trailing earnings; today, the most undervalued stocks might have no trailing earnings but insane unit economics and huge moats that suggest tomorrow’s profits are going to be explosive).

So that’s point one of why I’ve focused so much on process: I’m scared of getting left behind, but I want to make sure I continue to evolve my process in ways that make sense and stick to my underlying principles.

I’ll follow up with part 2 (opportunity in the inflection) tomorrow. See ya then (and don’t forget to subscribe to make sure you get the post!)

1. You’ll learn a ton from him! From me…. probably not so much, but I am very handsome if you want to watch the youtube and marvel at how one man can be so handsome and talk so quickly!

2. See, for example, last week’s piece (“A mid-life fitness crisis and improving as an investor”) and my June “Thib's firing and investing (weekend thoughts)”

3. I can’t believe I need to disclaim this…. but obviously my 60s hypothetical isn’t legal advice. Go check out the full disclaimer here.

4. Again, not legal advice…. but I do feel pretty confident saying you shouldn’t trade on golf course tips from public company CEOs!