Investing in Ambiguity
How to Identify Mavericks?
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Investing In Ambiguity
Investing in Mavericks is an art.
But what is art?
At its core, it is a form of human expression. Art uses imagination and skill to translate our actions, experiences, emotions, ideas, and observations into forms that can be shared with others.
Recall that companies who approach their industries in a completely new way are what I call Mavericks. Mavericks, if successful, can gain massive scale, size and efficiencies, and in the process create enormous value for its customers, employees, shareholders, and the world at large. Mavericks are companies that have the potential to become the greatest companies of our time. Mavericks in and of themselves are art, as expressed by the entrepreneurs, executives, and employees building these companies.
Investing in Mavericks requires thinking through ambiguity. Let me explain: If you’ve watched the movie Inception, you might recall the ending where Leonardo DiCaprio returns home to his children, he spins a spinning top (his "totem") to check whether he is still dreaming, but the film cuts to black before we can see if the top stops spinning. This leaves the question of whether he is truly awake ambiguous. We can’t ever quite tell whether he was awake or still dreaming. We are challenged to think it through, and to make up our own minds.
Similarly, when tasked with evaluating a company, we must decide whether we believe the company is indeed a Maverick. Then we must ask ourselves, what stage is it currently in, Stage 1: A Disrupter, Stage 2: A Contender, or Stage 3: A Leader? These are all things that require thinking through ambiguity.
Take Bitcoin for example.
I believe it’s a Maverick, in fact I believe it’s a Leader. It has been a 10-Bagger since I first mentioned it in Feb 2020. But bitcoin is quite a divisive topic. Bitcoin maxis are at one extreme, while Charlie Munger called it “massively stupid”. So one must come to their own conclusions about it.
Way back in 2017, Fred Wilson, one of the best VCs of our time, said this about Bitcoin
To Fred, it was obvious Bitcoin was a store of value.
Meanwhile, if we fast forward to today, many people still don’t view it as such.
The point is, when it comes to investing in Mavericks, there is no mathematical equation. There is no definitive answer. Instead, it is instinctive, inexact, biased, subjective, individual, perhaps even irrational. It is art.
As investors, we must be comfortable with this.
How To Identify Mavericks?
Here are 5 questions I ask myself in deciding whether a company is a Maverick:
How is this company changing the status quo?
Remember, in business, every industry does things a certain way. These “industry conventions” are determined by the leaders of that industry.
For new businesses to survive, and more importantly, to thrive and eventually lead, they must avoid following these pre-existing conventions, or be doomed to a future of mediocrity.
To prosper, innovative companies must change the game entirely and create new ways of doing things.
Companies who approach their industries in a completely new way are what I call Mavericks.
If such a company is early in its life, I’d consider it a Disruptor. Nextdoor is an example.
On the other hand, if we ask ourselves, who sets the unofficial rules industry participants must live by, these are likely Leader Mavericks. Take Google for example, it forces everyone to buy ads via keywords and auctions. This benefits Google, and Google is a clear Leader.
Is The Company Run by Visionary Management?
Mavericks are changing the status quo, and by definition are creating something new in the world. To be successful, they need to be led by visionaries.
Take Tesla for example. There is no question Elon is a visionary.
Yes, some investors will never invest in Tesla, but it is rare to find someone who doesn't respect what Elon has accomplished.
Will They Write History Books About This Company One Day?
This is a personal and subjective question.
But if I answer yes, I find it can be a great “tell” as to whether a company is a Maverick.
Many times someone has already written a book about them. Remember The Everything Store: Jeff Bezos and the Age of Amazon? That came out way back in 2013.
Another potential example is Nubank. I’ve heard many smart investors praise this company. I don't know much about it. But I recently learned about the book “Nubank Purple Revolution: The Story Behind The Fintech That Transformed Banking.” I am looking forward to reading it, and hopefully get a sense of what makes this company tick.
Another book worth reading might be The Nvidia Way: Jensen Huang and the Making of a Tech Giant. Funny story, I had an opportunity to join Nvidia back in 2006, but I chose instead to join Microsoft. Hmm, I wonder how that would have turned out…But as we know “Life can only be understood backwards, but it must be lived forwards” - Soren Kierkegaard
Who’s Number 2?
Oftentimes we can identify a Maverick if we can’t think of its competitors. That is, if we can’t think of who’s number 2 in a category.
In such cases, the company who’s number 1 may indeed be a Maverick.
Take for example, The Trade Desk, Reddit or Duolingo: Can you think of number 2?
Do they have a Soul?
Another subjective question.
If the answer is yes, it might just be a Maverick.
What we might poetically call a company's "soul" could be understood as its fundamental character and driving purpose. This can manifest in several observable ways. For example:
Treatment of Stakeholders:
How does the company behave toward employees, customers, suppliers, and communities when no one is watching or during crises? A company's true character often emerges in difficult moments.
Long-term Decision Making:
Does the company make choices that sacrifice short-term profits for long-term value creation and societal benefit? This might indicate a deeper sense of purpose.
Cultural Continuity:
Do core values and behaviors persist even as leadership changes? This suggests something more fundamental than just management directives.
In Conclusion
Of course the above 5 questions aren’t comprehensive, but just a glimpse into the types of questions I might ask myself when evaluating a potential Maverick.
Investing in Mavericks is about investing in ambiguity. This requires subjectivity. It requires judgement. And as you’ve probably noticed, there is a lack of numerical precision. It is very much an art, in fact, I’d argue that it’s probably a lot more art than science.
To some, the above questions may be too “wishy-washy”, but to me, they are an integral part of the investment process.
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