Look at Your Fish
Why learning more about what you already own can produce value-enhancing insights
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After six years of working from home, I’ve come to enjoy my new commute, mostly because it’s given me a chance to listen to audiobooks.
I’m now on my third David McCullough audiobook - Brave Companions - having finished his The Wright Brothers (one of my favorite books) and Pioneers. On top of McCullough’s mastery in research and writing, it’s almost unfair that he also had the perfect voice for historical narration. You’ll recognize his voice from many Ken Burns’ documentaries, including The Civil War.
One of the people McCullough profiled in Brave Companions is the 19th century Harvard naturalist, Louis Agassiz. He told the story of how Agassiz would leave his student with a fish specimen and say, “Look at your fish,” before leaving the room.
The student would spend a few minutes looking at the fish and promptly conclude that they’d learned all that’s important to know.
Agassiz would return and ask the student what they saw. Unsatisfied with the answer, he’d simply repeat, “Look at your fish,” and leave again.
At this point, the student might get a little bored and put their head on the table for a rest. In doing so, however, they’d notice an angle of the fish they hadn’t considered before. Now there was something to explore.
They might next draw the fish or shine a light on it, producing yet further discoveries. Returning the next day, they might examine the fish and consider its anatomy.
In McCullough’s story, the student discovered that the fish had paired organs, the same on both sides. Finally, the student saw what Agassiz wanted them to see.
As investors, we often conclude too soon that we know what’s important about a company. Indeed, the more experience we gain, the more often that tends to happen. Pattern recognition can provide false comfort.
What I’ve learned is that the longer I’ve followed a company, the more nuances and angles I learn and appreciate. The most valuable insights didn’t come on day one or even month one of following a company. They more often come in year one or year three.
To illustrate, I’ve owned Costco for eight years, but it took me a few years to develop the insight that Costco gives frugal customers mental and emotional permission to spend their money. “Oh, that 80-inch TV? I bought it at Costco.” They didn’t splurge; they got a deal on it.
It also took me a while - thanks to an observant comment from my wife - to understand that Costco is a fundamentally different shopping experience than Amazon or Wal-Mart. This helped me hold through the 2017 sell-off when Amazon acquired Whole Foods.
In one of the first Flyover Stocks posts, we discussed position sizing and how conviction is part of the allocation decision. The better you understand a company - which comes only with time - the more you can develop the conviction you need to take a large position and hold through challenging times.
It’s understood that we need to do different things if we seek different results. One way to do this is to take Agassiz’s lesson to heart: Look at your fish.
Whether it’s due to short-term performance pressures coming from internal or external sources, or the fact that we are more excited about new rather than existing ideas (to be sure, I enjoy turning over new rocks), most investors prefer to look for the next idea rather than sit with and contemplate what they already own.
Yes, a company must be worth your time to follow, and yes, there’s the risk that you’ll miss a new idea because you’re following an existing one, but I believe there’s also opportunity for those who can delight in the mundane task of following the same companies for years. For that’s where conviction-building insights are found.
That strikes me as a game worth playing. Look at your fish.
Stay patient, stay focused.
Todd
At the time of publication, Todd and/or his family owned shares of Costco and Amazon.
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I enjoyed reading is one … sometimes only after already being invested in a company for a while , I get random thoughts or questions to myself (in my head) about the company/model/management/competitor/ etc but these much much deeper thought provoking questions only come after I been invested in a company for a while and sometimes they are nothingburger and yet sometimes they make the 💡 go and makes me question why am I invested I company xyz