Early days of my investment banking career was filled with analytics, Meetings, deadlines and Client calls. My work was supervised by a two tier hierarchy and passed on to clients, and at times we get Feedback from clients on a very small thing overlooked. That’s how sharp our clients at CITI were cutting through 4 eyes in our team they usually come out with a Small very minute thing to note.
What lesson did it teach me ?
My mind started racing with questions Why did I miss it ? How did my superiors miss such details ? What made them look for such details that I wasn’t aware of ?
I had only questions with no answers when suddenly out of the blue one day as i was speaking to my manager he revealed that all we need to look for is anomalies . I was curious to know more how can looking for only anomalies uncover details I missed ?
Adam Robinson Quotes about Sam Zell – Sam Zell always looked for things that didn’t make sense, one day When Sam Zell was sifting through the news paper he read that Starbucks was opened in Mongolia , well that didn’t make sense to him because Mongolia was not famous for such Grandiose ( All he looks is only for anomalies ) so he takes his private jet and flies to Mongolia to find out that mining has been resumed there and the country’s economic has started to improve.
As a investor when looking at Balance sheet , Cash flow Ratios what’s the first thing that attracts me now is anomalies .
Ex : When i started studying about Insurance industry a few months back i couldn’t understand the industry although all I knew is that the industry is a game changer , when I talked to peers most replies I got was ” I don’t understand ” or it’s too difficult to break it down . So thinking more led me to a conclusion that very few investors( Retail ) actually understand may be even due to that there’s a gap in investing amongst retail investors in insurance the retail participation is lower than the Institutional investors that gives me a opportunity to look at it ( unknown Unknowns )
When looking at cash flows or a balance sheet one thing is we look at what’s given and not what we should be looking at , We usually calculate what’s the sales growth ignoring growth in Working capital / Sales ratio which uncovers how much working capital is being invested from the previous year which is also an investment into the company which triggers further questions like Is the company not able to collect its sales ? Is there a slowdown in its product ? Does the company give more credit to attract customers from competition ?
When working capital / Sales ratio is growing more than Sales – There’s a anomaly which doesn’t make sense, which automatically triggers me to know why ? That’s how I started looking at things that didn’t make sense .
Using anomalies how can we identity between noise and the signal ? Identify the second order and 3rd order effects to a communication – How ? All I look for in what’s app communication is is the person thinking independently or borrowing his thinking from Warren Buffett or Charlie munger ? ( not bad to borrow their ideas, but then have to think through as to how you will fit it into your work) .
I avoid Self proclaimed veterans or geniuses ( Which is self evident it’s a charlatan ) when someone says I’m a wizard there something that doesn’t make sense why ? because the wizards don’t do that !
A good book- It’s earnings that counts – Hewitt Heiserman
It’s a model I have been long using to find ideas , look for problems In a balance sheet , cut down noise .
Look for anomalies and also what’s obvious.