Becoming a Misfit Investor

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Jason’s Random Words

This is our second time featuring someone else’s (likely better) writing. In this case, something Tyler Crowe wrote as a follow-up to the first episode of “Misfit Monthly,” a new podcast feature we will be doing with Tyler, as the name entails, once a month.

Since Tyler is bad at promoting himself, I’ll do it for him. Check out his work at Misfit Alpha, and sign up through our link to get a discount if you like the free content enough to join for what’s behind the paywall.

With that out of the way, enjoy Tyler’s Words this week. I’ll be back with something mediocre next Sunday!

Jason

Tyler’s Random Guest Words

When Jeff & Jason asked me to try out this Misfit Monthly concept, I was beyond excited. Sure, I got to spend more time talking shop with them and be more than just the guy in the back of the classroom hucking spitballs at them on First Fridays. It also gave me a chance to work through some of my ideas in real-time with others with feedback from them and you. 

Jason and I wanted to go over what makes a Misfit stock in the first episode and explore what was in the secret sauce that turns seemingly boring and neglected companies into remarkable wealth creators for long-term, buy-and-hold type investors.

After we got done recording, it became abundantly clear that we neglected to explore the most important question.

“What makes a Misfit investor?”

Investing isn’t a rote process where you determine the order of operations and then plug and chug. If it were, there would be far more wealthy people in the world. Those who succeed in this world study the techniques, theories, rules, formulas, and frameworks that have worked in times past, and then learn when to throw all of it out the window.

I think becoming a Misfit investor distills down to 3 things:

Embrace contrarianism (no, not that kind, the other kind)

Contrarianism gets a bad rap. Often, when you hear, “Oh, that person is a contrarian,” it typically means they are a disagreeable and argumentative person who always seems to take the opposite view on any topic. 

(Jason and Jeff may argue I fall into this category anyway)

In my view, contrarianism isn’t about swimming against the current. It’s about finding the currents where no one else ventures. 

That line makes for a great slogan you can put up next to your “hang in there” kitten poster, but venturing into companies and markets no one touches can feel daunting. You don’t realize how much we rely on feedback loops from analyst ratings or financial writing until a subject is devoid of them. 

There is an added level of self-doubt when all you have is corporate filings, an industry report (if you're lucky), and a notebook. But, with enough reps, you may wonder why more people haven’t stumbled onto the gem of a 10-K you just finished.

Unending curiosity

As I write, there are 58,000 publicly listed companies around the world. Let’s assume 10% of them are worthwhile investments. What are the chances the first five 10-Ks you picked up are all in that group of ~6,000?

We could go through the mathematical proof for the answer, but Jason and Jeff told me to not do anything that would make you unsubscribe from their newsletter. So let’s just leave it at “pretty thin”.

If we step back and think about the available information we use to build an investment thesis, it is remarkably little. We (probably) don’t know anyone on management or the board personally. We don’t take tours of facilities or get to take the pulse of the office environment. We don’t know if management is maybe hiding something in the books. 

The only way to fight back against the paucity of information is to be a voracious consumer of what is available. That may mean looking at two or three more companies in an industry before concluding which one is the best in the business. Or, it may mean spending that extra few minutes scrutinizing all those related-party transactions. 

A healthy dose of self-reflection

Look, we all don’t need to be Philip Fisher. I don’t think there is enough antacid in the world for all of us to be at the same level of worry as the author of Common Stocks, Uncommon Profits. While Fisher was known for buying and holding positions for decades, he spent a nauseating amount of time investigating businesses and was (by his own admission) riddled with self-doubt.

We all need a sufficient level of self-doubt to be successful at investing. Bravado and hubris will easily be cut down by the next bear market. There’s a better-than-decent chance you missed something when building your investment thesis. Even when an investment is going splendidly, there is always something lurking that could derail the business and our job is to sniff it out. 

Perhaps even more important is to challenge your own beliefs and frameworks. We’re never going to perfect our process and always pick investments that generate outsized returns. That’s not the goal. The goal is always to improve your chances of identifying the good ones and minimizing your exposure to disasters. The odds are always changing, and your processes and frameworks will need to change with them.    

Tyler

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