What can the bin Laden raid teach us about investing?

The Vanity Fair article The Hunt for “Geronimo” is a very interesting account of the decision making process behind the raid.

I will be the first one to admit that it is may be a stretch to draw an investing lesson from the bin Laden raid. But, since I am always thinking about investments, I can’t help it. I think it offers lessons in decision making in face of uncertainty and in midst of probabilities (the raid was described by Obama as a “50-50” proposition). The probabilistic thinking throughout the article is not too far from what great investors do every day, though it is also true that big calls are often made where probabilities don’t make any sense, and investment decisions are driven by certain axioms that the good investors can find and pivot on (recent real estate crash and Greece’s partial debt default are some examples where probabilities took a back seat to binary outcomes). Coming back to the bin Laden decision, given the political risk inherent in the decision and other implications, the outcome is very binary, but the decision-making was very probabilistic. I urge you to read the account.

Two pieces stood out for me in this story –

#1 – When the information about bin Laden’s hideout was first discovered, people weren’t sure that it was bin Laden’s hideout, and the man was presented as “Pacer”. For a good while, while more data and intelligence was gathered, the data always described him as “Pacer” who’s likely a high-value target.

I am certain that if the information were presented to anyone right away as pertaining to bin Laden, it would lead to many an emotional response and perhaps not as well-thought a strategy as was eventually executed. This led me to think that the way we currently pitch ideas to each other, with company’s description and industry first with valuation coming last, allows for several biases to creep in unknowingly. Maybe it’s a better idea to present the idea in reverse, with the person making the pitch describing the valuation metrics and revenue and cash flow profile first, then talking about revenue, cash flow and multiple drivers only later to support the valuation plank.

#2 – Somewhere in the mid-point of the article, it talks about Leon Panetta asking Obama “What would the average American say if he knew we had the best chance of getting bin Laden since Tora Bora and we didn’t take a shot?”

This highlights the cost of letting a good opportunity go by. Investors often talk about how a few good deals saved their entire investing year and often made for a good portion of their lifetime’s investing record. I have to admit that I have predominantly always thought about risk-reward profile of putting money behind a name, somewhere silently implying that letting an opportunity slip by is relatively costless. But, it is not. Catching on a good deal can save an year’s returns and in crucial times, may save an entire career or trajectory of an investment firm. I plan to do as much analysis on the investments that I have skipped and their cost as I venture further. I can guarantee that with my inexperience, I will miss several, but hopefully, as decades go by, I will get better at latching onto them.

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