Building a Fund Investment Thesis
Charlie Munger once said “All intelligent investing is value investing — acquiring more that you are paying for."
As Marc Andreessen puts it, you need to be right and non-consensus if you want to make money. If something is already consensus then money will have already flooded in and the profit opportunity is gone. We have seen this happening in classical value investing, HFT, venture capital and in trading.
The best investors, in our experience, can articulate in a clear and focused way what they’re looking for, why they’re looking for it and where they’re trying to find it. They have a well-defined and consistently applied process for research and analysis. They follow specific disciplines for buying, for selling, for diversification, and for managing risk. They are well-versed in the behavioral traps investors can fall into and take concrete steps to avoid them. Obvious as that all should be, we’re constantly surprised by the number of professional money managers who can’t credibly argue why and how they expect to outperform.
Defining your Fund Investment Strategy
What market inefficiencies will I try to exploit?
How will I generate ideas?
What will be my geographic focus?
What analytical edge will I hope to have
What valuation methodologies will I use
What time horizon will I typically employ
What types of assets classes will I own
How many companies will I own?
How specifically will I decide to buy or sell
Will I hedge, and how?
How will I keep my emotions from getting the best of me?