Here are a few questions I’m thinking about. Feel free to email me or message me on X if you have a pointer to an interesting reading or a response to share.
What durable customer relationship is the market overlooking?
Newly recognized durable customer relationships are a fertile ground for investment ideas. Companies with these setups often create their own frameworks that look through GAAP accounting and showcase durable FCF. For instance, John Malone & the cable cowboys promoted homes passed & EBITDA to roll up cable distribution monopolies and leverage economies of scale. Likewise, subscription revenue models (both consumer & SaaS) began to command high multiples when investors internalized metrics like CAC, churn, and net dollar retention. What's the next big shift?
Why don’t more funds build their own research tools to find investment ideas?
The median number of software engineers at a fundamental investment fund is 0. Most funds run the same research stack -- software designed in the late '80s & databases that are cumbersome to work with. Funds that do write their own software often do so in a piecemeal fashion. Is the reason that most funds wouldn't see a strong payoff from better research software (e.g. only covering 20 stocks so no need for top of funnel), the risk that AI/ML tools will soon overtake firm-built tools, a short fund lifecycle, recruiting challenges, or something else entirely?
How should we build an investment firm to reduce key-man risk and ensure continuity?
Companies in most industries rely on their top 5 leaders and regularly survive executive changes. Many funds are at risk of collapse if any of their top 5 people leave. Citadel & Renaissance are probably the best counterexamples that have operationalized their investment businesses.
What is the missing key -- is it about culture, risk management, unique investment talent, or simply institutionalizing more than the typical fund does?
What is the best leading indicator for changes in customer wallet?
Changes in customer budget can create major market surprises. E.g. when SaaS customers are flush with budget, they're almost always willing to spend more software $ / employee -- but a seemingly high growth product may be quickly cut in a downturn. What is the best way to build an edge in forecasting these budget shifts before they happen?
What are the most misunderstood risks in public equity investing today, and how should we mitigate them?
Negative surprises can emerge from risks that are more severe than we collectively assumed. What do you think is most underappreciated today?
How can you tell that your investment ideas / frameworks have gone stale?
The half-life of facts dominates investment performance.
My biggest mistakes (both of commission & omission) have come when good ideas have gone stale and bad ideas weren’t discarded quickly enough. Some solutions we've implemented include re-underwriting ideas regularly, red-teaming the thesis (i.e. finding a short thesis against your long), and compiling an exhaustive checklist of investment mistakes we’ve seen. Who has the best process here, and what does that investor do differently from the norm?
How can we measure a portfolio’s risk through the ownership base of its holdings?
Some stocks have great setups due to their ownership base -- a growth-inflecting company underowned by growth investors, an underfollowed company about to turn FCF profitable, a durable FCF company working through a busted IPO process, a potential private equity M&A platform stranded in the public markets. Others are maligned because of their owners -- the private equity overhang, VCs distributing, a growth investor base stuck in a slowing company, a few large owners who effectively corner the float. One research approach here is to build relationships with large investors to understand their motivations.
What is the best way to systematize this? Should we categorize by fund LP base, fund factor exposure, fund VaR estimates + crowding (i.e. pod shop risk models), some proxy for vol exposure, asset duration, or another approach entirely?
How should we update the ECRI / Ed Leamer macro cycle framework? Is Fiscal Theory the answer?
The ECRI / Ed Leamer framework for the consumer credit cycle has guided macro analysis for years. How should we update it for today’s environment? Is Fiscal Theory as espoused by John Cochrane / Eric Leeper more helpful for today’s investors?
Is growth software now cyclical (i.e. in the distribution phase)?
In Technological Revolutions and Financial Capital, Carlota Perez argues that major technologies undergo two phases: an internally-focused boom & bust and an externally-focused distribution of the tech across the broader economy. If the dotcom era was the initial boom & bust, we are now 25 years into software's distribution phase. This implies that software businesses should become more exposed to the macro credit cycle. Will there be a tipping point at which software becomes significantly more cyclical? If so, how should we adjust our strategies?
How can we estimate single-stock price elasticity to $1 of inflows?
According to Gabaix and Koijen's Inelastic Markets Hypothesis, a $1 cash inflow is estimated to increase overall stock prices by about $5. How should we assess market impact and liquidity at the single-stock level?
Is "cash inflow" even the right metric? For instance, if a company reports bad news and buyers & sellers adjust their bids & asks to drop the stock price without executing trades, haven't we seen price impact without any dollar flows?
What is the right taxonomy of GAAP relationships?
Accounting represents relationships between economic actors, but GAAP makes it difficult to visualize these relationships. We should be able to see a network graph of businesses (nodes) and their relationships with one another (edges). Today we only see a single company report data in a siloed format. Network-based accounting would help us aggregate the micro into the macro and then run agent-based models of the economy. This essay contains my first shot at thinking this through -- any thoughts on a better taxonomy here?
Which underappreciated investment thinkers will change how funds operate over the next decade?
We're always looking for creative thinkers who will change how we build our firm. Who do you think is underrated?