Two secrets to world-class investing

As the founder of Micro Cap Club, famed investor Ian Cassel has seen innumerable investment ideas and investor personas.

Mr Cassel and his team have separated the best from the mediocre in investing since starting the community in 2011.

When we saw his presentation titled “The Skills of Stock Picking”, we jumped on it, eager to learn about what it takes to be a world-class stock investor.

We were not disappointed.

The most memorable story shared by Mr Cassel was about John Danaher. Mr Danaher is widely regarded as one of the best coaches in mixed martial arts and Brazilian jiu-jitsu.

While explaining Mr Danaher’s success, Mr Cassel did not allude to oft-cited backstories such as growing up in an environment oriented to the combat arts.

Instead Mr Cassel explains that what contributed most was Mr Danaher’s deep knowledge and thought process that supported innovative thinking in the art of combat.

Mr Cassel spoke about a podcast episode during which Mr Danaher replied to the question “Gorilla vs Lion vs Bear: Who Wins?”.

His answer took 37 minutes and garnered 1.5 million views.

It was well-informed and deeply thoughtful.

He spoke about his framework for evaluating combat effectiveness based on skills, attributes, experience, and specific elements including degrees of risk aversion, initiation, disengagement, endurance, and kill efficiency. Next he discussed the effectiveness of each animal’s key strengths and weaknesses in different environments before he provided an answer.

The next unforgettable story was about John Madden, the legendary coach of the Oakland Raiders. Mr Madden still holds the title of having the highest winning percentage of NFL coaches who have more than 100 games under their belts.

When Mr Madden was an assistant coach at San Diego, he attended a coaching clinic held by Vince Lombardi, one of the most celebrated NFL coaches.

During the session, Mr Lombardi spoke about one play.

Just one play. For 8 hours.

Mr Madden could not even hold a conversation for 2 minutes on any topic (including football).

Since then Mr Madden embarked on deeply studying his profession to a near-fanatical degree.

The third story concerned Frank Perdue, the founder of Perdue Farms that is one of the largest poultry producers based in the US.

When asked how he became successful, Mr Perdue pointed to a quote on his wall:

We summarized the first secret to world-class investing:

Study profoundly to gain deep knowledge.

That means to focus on a singular subject with so much effort that you cross conventional boundaries of knowledge and become informed of every key and ancillary facet.

Like what John Danaher did with combat arts.

Like what John Madden did with football.

Like what Frank Perdue did with chicken farms.

The second secret to world-class investing stated by Mr Cassel was:

“There are 6 essential skills. You have to be good at all to be an investor. You have to be exceptional in at least 2 skills to be a world-class investor.”

Mr Cassel stated the 6 skills as:

Identifying: Finding actionable ideas before others do

Valuation: Determining intrinsic value

Buying: Sizing your conviction

Holding: Maintaining due diligence

Selling: Letting go

Survival: Never satisfied (ie relentless in pursuit of ideas)

We agree with many of Mr Cassel’s thoughts, though we may relate the concepts more intuitively so that they are easier to retrieve from memory (topic for another article).

Mr Cassel implied the skills to be multiplicative. You cannot succeed as an investor if you score a zero in any skill.

We will discuss each skill more deeply in the future. For now, Mr Cassel’s list serves as a handy scorecard.

Link to Mr Cassel’s full presentation.