What SAS Soldiers and CIA Spies Can Teach About Investing
In The Australian Financial Review I consider what active investors can learn from the decision-making processes of soldiers from the Special Air Service (SAS) Regiment and the CIA team that tracked down Osama bin Laden (click on that link to read the column for free via Twitter or AFR subs can read here). I also discuss a new charity we have helped set up with VGI and the Bennett family to help fund merit-based scholarships for currently serving members of the SAS to undertake further education, which is believed to be a global first in the special operations community. Excerpt below:
"The extraordinary perseverance required to maximise your chances of winning in life necessitates unrelenting thinking or never giving up in intellectual terms. Dwelling on the problem 24/7 and slowly unravelling it from every possible vantage will help you find the highest-probability solution(s). Or as a friend of mine in the Special Air Service Regiment (SASR) says, "When the lazy man of fatigue and stress speaks to you, strike him down and trample over him towards your mission success." With this in mind, I try tcontinuously to engage with top-notch investors to learn about how they formulate their decision-making. Most roads lead back to the intensity of your due diligence, or the work undertaken to understand the asset class and unearth those difficult-to-find gems that yield rich rewards. The question is how far you are willing to go — where does the work finish? One investor, whom I will not name, is my benchmark in this area: he recently took his entire investment team overseas to be trained by an intelligence agency's highly experienced interrogators. The goal was to enhance their ability to parse the information purveyed by companies. There are many parallels between the best active investors and the work of spooks: both possess an insatiable appetite for insight that helps them identify targets — mispriced assets and threats, respectively — that meet their mission objective (alpha generation and risk mitigation). There is also much to be garnered from centres of excellence in other fields. I have, for example, been stunned by the quality of the human capital serving in Australia's elite SASR, which is our premier global hostage rescue, counter-terrorist and asymmetric warfare unit. These guys are the tip-of-the-spear "problem solvers" that are the first port of call for the Prime Minister when there is a security crisis that affects Australian interests anywhere in the world. The small number of "operators" who make up the SASR are not just blessed with courage and resilience — those that I have dealt with are also remarkably intelligent. One operator who led the SASR's high-performance cell focusing on developing soldiers' physiological and cognitive assets says much of the regiment's success lies in its maniacal focus on finding the right people. "I have seen many acts of extraordinary commitment, perseverance and creativity," says Sergeant X, who completed over 10 combat tours. (He cannot be named for security reasons.) "Individuals holding ground in support of assault forces whilst being wounded by enemy gun fire; operators jumping from a blacked-out aircraft into the night on to mountains deep behind enemy lines; and countless episodes of bravery." This was exemplified by Victoria Cross recipient Mark Donaldson leaping out of his ambushed vehicle while taking AK47 fire and racing 80 metres to save the life of a badly wounded Afghan interpreter. Sergeant X, now a registered performance psychologist, suggests that the SASR's proprietary selection and training processes might explain why there appears to be a lower incidence of post-traumatic stress disorder in the unit, especially considering the much longer combat exposure of these individuals compared to normal soldiers. "Remarkable durability becomes commonplace in populations that have been deliberately established with this goal in mind through what is one of the most gruelling selection processes on the planet," he continues. "The overwhelming number of injuries and deaths we sustain is during this training. Yet there are no apologies for the way in which we build this competitive advantage. Just like an aircraft is over-engineered to withstand extreme stress, we seek to 'over-match' an operator's physical, psychological and social traits." Donaldson introduced me to Sergeant X, who had the inspired idea of establishing a new initiative, the Wanderers Education Program, to offer merit-based education scholarships for SASR operators, which is a global first in the special operations community. One of the biggest challenges this Praetorian Guard faces is assimilating back into civilian life after a decade or so of service despite the fact that they possess astonishing skill sets and top decile intelligence burnished by a world-class work ethic. Through Wanderers we are funding a dozen soldiers to pursue the degree of their choice, including several MBAs, which mitigates the risk they do not fulfil their post-service potential while also investing in their cognitive capabilities for completing their role as Australia's life insurer of last resort. Spouses and children feel safer knowing that their men have vocational options after years of putting their lives on the line for the public. The first round of tax-deductible fund-raising was led by VGI Partners, the Angela Wright Bennett Foundation and my family, and has been subsequently backed by a number of business leaders. (If you want to get involved, shoot me an email.) Exposure to this shadow world has furnished unexpected learnings..."
Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...