I found an asymmetric investment idea. If something goes wrong, the expected return is close to 0% — you don’t lose capital. But if a “normal” future scenario plays out, you could multiply your capital two or three times.
Excited about the idea, I have to present it to an investment committee where it gets analyzed from every possible angle.
There’s just one catch: this idea has to fight its way into a portfolio that already holds 45 positions. Not because 45 good, asymmetric ideas were found. But because the fund tracks a benchmark with 90 positions.
In the committee, everything gets discussed: why the opportunity exists, what I might be missing, the business model, unit economics, return on invested capital, management quality and their capital allocation track record, board composition, incentive structure, competition, industry dynamics, regulation, growth opportunities, different valuation methods, and a long list of et ceteras.
After extensive deliberation — sometimes requiring multiple committee sessions — the idea gets “approved.” But given the stock’s characteristics around size, liquidity, and statistical behavior, the decision is to allocate 0.5% of the portfolio.
As Mohnish Pabrai would say: “Heads I win, tails I don’t lose much.” Except that with 0.5% of the portfolio, I don’t win much either when heads comes up.
Was I playing the right game?
The committee acted exactly as the system demands. That system is designed to preserve capital. Not necessarily to grow it.
And that started to create a void in me.
I love studying, learning, and teaching. I was lucky to start my professional career in the financial industry — because for 15 years, that’s exactly what I did: search for the next great investment idea. But it was reading the letters of Nick Sleep and Qais Zakaria about their Nomad fund that made me truly understand I wanted to play a different game.
While Nick wrote about the importance of his investors’ “aggregated patience” as a competitive advantage, I was managing capital against a 90-position benchmark, with nervous investors, and zero skin in the game.
Nomad and my fund both ran deep analyses on companies, both searched for the next great investment idea. But the rules of the game were completely different.
I decided to leave the industry. Because you only live once, and it’s worth trying to live it on your own terms. I know that if I don’t try now, I will regret it when I’m 80. Moving to another country with my wife and daughter helped make the decision. But the decision had already been made.
Now I invest my own capital. I can analyze any company in the world, concentrate when it’s worth it, and do nothing when it’s not. Old school. Nothing sophisticated.
That’s how Portico was born.