I hope you all have come across these type of situations where the future outcomes and probabilities are unknown and unknowable and there is very little information of that event in past. It is like a black swan event - totally random and unpredictable. But, investors with special skills do get rewards from these UU situations in humungous way. Investors with heavy loss-aversion, exposed to hindsight criticism, speculators, arbitrageurs tend to stay away from these situations.
Main skills required for this type of investing is 1) Unusual judgement/complimentary skills, 2) Strategic Mind, 3) Long term outlook
Awareness of own biases mainly such as recollection bias, and overconfidence bias has a very important role and We must me willing to look fool and dumb, and of course lose some money which is inevitable
In this thread, I would like you guys to share and discuss your past experiences where you have navigated through those situations. The mental models you guys might have formed over the years.
Key questions: A) How to navigate investing in such situations
B) Key mental models
C) Portfolio allocation and how to scale your bet?
D) How to overcome our own biases?
Recent UU situations: - China tech crackdown, Russia-Ukraine war, Taiwan-China tension, US-China tension, Hyperinflation in Argentina and Turkey
Best UU investors :- Mohnish Pabrai, Buffett, Bill Miller, Li Lu, Howard Marks, Rajiv Jain
Key reads:- Investing under UU situations by prof Richard
Investing under UU by Motilal Oswal
Maxims of analytical thinking
Beat the dealer
Thank you!
I tried searching in older VP topics but couldn’t find any discussion on this one. Investing in unknown my mosl.pdf (837.1 KB)
Yep! Exactly, that is where I found Rajiv Jain. I tried to learn him from his investments, but there very little information of him on internet.
More examples, Buffet’s investment in Wells Fargo, Gieco, Satyam before takeover by Mahindra, Amazon’s purchase by Nick sleep, Petrobras investment by Rajiv Jain, there are many more.
Thanks a lot for starting this very interesting & UNIQUE thread.
Doing my bit of work.
Attaching the original paper in 2007 by Prof. Richard Zeckhauser
Geopolitical or other events that happen at the highest level concern with all the markets, ours included, and excluding certain absolute black swan events, ones which have not happened in decades, all other situations are history rhyming if not repeating. With some understanding, asset allocation, caution, time, patience and capital, I believe one can tread safely and possibly come out profitable.
Individual instances happen more frequently, particularly in our market, we have one or the other opportunity every now and then. Not that they all are quick profit making opportunities, but the occurrence is more.
So I think a retail investor has to follow a top down approach, in the sense that, if a world event has taken place, how direct benefit can he possibly have with the available choices, not immediately, but if there is a paradigm shift. So while I do acknowledge the cumulative understanding, and the gaining of some insights by learning about the big names in the business think and do, they are not us, because they play a different ball game, and in a different ground.
Mohnish Pabrai in his book also taught about investing under extremely uncertain times where the range of outcome is very wide, but in his teachings he have the probabilistic cash flows, which are near impossible UU situations.
“Heads I win, Tails I won’t lose much”
We are looking for potential upside with disproportionate/non-linear payoffs, but it should be coming with less probability of permanent capital loss.
One thing which I found is, it is like a pattern. Many businesses hammered down like valeant pharma, fannie mae and freddie mac, lehman, manpasand, tanla, 8k miles, bhushan steel, wirecard, FTX etc. These businesses usually do not have protected returns + They represent small part of the bigger picture + They are just nice to have in market + adding low value + and present in intensively competitive market.
Business which have rebounded and in which our super investors have taken the gamble like Google, Adani, Wells Fargo, Gieco, Petrobras, American express, Amazon, stelwart, Ajay Piramal bet on pharma in 2008, they all were representing a bigger part of value chain or market or they are adding real value to the market. It is like they have built a real moat, adding some value for other players and market as a whole.
In essence, all of those bets have little to loose, but big payoffs
