One Bias at a Time Part 3: Nobody is perfect ...
Even though Lisa is pretty good at spotting biases, she also has hers, and this one is an ugly one.
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How it all started. The journey so far.
“Strive for continuous improvement, instead of perfection.” - Kim Collins
“If I waited for perfection...I would never write a word.” - Margaret Atwood
James and Lisa meet again to review their other investments. As they go through their portfolio, James brings up another startup, PetroProfits, which had recently experienced a setback.
“I think we should reconsider our position in PetroProfits,” James suggests. “They missed their revenue targets for the third quarter, and their new product launch for PerfectGas was delayed.”
Lisa hesitates. “But again. PetroProfits is led by Sarah, remember? She’s from our alma mater, and I’ve always trusted her. We should give her and her team more time.”
Now James raises an eyebrow. “Lisa, I guess now you are falling for a bias here. Just because Sarah went to the same school as we did doesn’t mean we should ignore the facts – three quarters in a row.”
Lisa looks taken aback for a moment but quickly recovers. “You really think that's what's happening here?”
James nods, sensing he has touched a sensitive point in Ms. Perfect. “It’s worth considering. We need to make sure we’re not letting personal connections cloud our judgment. I mean, nobody is perfect right?”
Lisa reluctantly agrees, but her expression suggests there’s more to unpack. Is Lisa’s confidence in Sarah's leadership rooted in rational analysis, or is she falling into the bias of in-group favoritism?
The next morning, Lisa and James meet in the office to systematically analyze PetroProfits and where the root cause could be. James pulls up the last three financial statements and market reports.
“Look at this, Lisa. Their cash flow has been steadily declining for the past three quarters because their short-term debt is increasing fast.”
Lisa glares empty but remains quiet as she hovers over the data. “And here, the delay in their product launch means they’re losing their competitive edge,” James continues. “Other companies are entering the market with similar products, and we’re risking our investment by holding on too long.”
Lisa sighs, clearly conflicted. “I hear you, James. But I still believe in Sarah’s vision. She’s always been a strong leader, even back in college.”
James softens his tone. “I get it, Lisa. I respect Sarah too. But we need to be objective. Let’s look at their team and strategy more closely. Are there other key players who can boost the marketing, or is it all resting on Sarah’s shoulders?”
After hours of analysis, they discover that PetroProfits’ internal structure is shaky. The team lacks experienced professionals in key areas, and their go-to-market strategy is underdeveloped because it’s mostly using outdated media formats. Moreover, their financial projections are overly optimistic given the current market conditions and only traditional newspaper ads in their marketing campaign.
Lisa finally nods, seeing the broader picture. “You’re right, James. You got me. My personal connection to Sarah was clouding my judgment. We can’t let this bias dictate our decisions.”
James smiles. “We all have our biases, Lisa. Nobody is perfect.” Lisa blushes.
James and Lisa decide to schedule a meeting with Sarah to discuss their concerns and potential steps for mitigating the risks. They outline a plan to closely monitor PetroProfits’ go-to-market progress and set clear expected profit milestones. If the company fails to meet these benchmarks, they’ll reconsider their position.
As they wrap up their discussion, James feels a sense of accomplishment, because this time Lisa was in the hot seat.
Just as they finish, James’s phone comes alive with an urgent email. It seems there’s a crisis brewing that requires immediate attention. James glances at Lisa, who’s already reading the email over his shoulder.
“Whaaat?!” Lisa mutters her eyes widening.
“I guess we should call them immediately,” replies James with a determined glint in his eye.
Don’t miss the next week as James and Lisa tackle the upcoming challenge where another bias might just be lurking around the corner.
Which brings me to my last week.
The Progress
I have completed the first part of the liquidity calculations, specifically the $500k per day, and the return is still good. After 26 years we are hovering around $6 million. The liquidity calculations for $2m are still ongoing, but as with the previous round, I expect a slight decrease due to increased attention and a more efficient market, which is in line with the theory. This means that there are still enough inefficiencies to capitalize on.
I have been studying the macro topic and its impact on stock returns. I still need some time to fully understand and interpret it.
The Plan
Start with the day-to-day calculations after the liquidity calculations are done.
What’s on my head
I've been in hospital a lot in the last few weeks because of my mum, which explains my reduced activity on Substack. Cancer is a bitch.
Nuggets
While I was waiting in the hospital, I watched this video about climate change. It's an interesting theory about other possible drivers besides CO2.
Hit that heart if you love your health!
Michael
Recommend The Economy Rocket to your readers and friends
I share my stock investment story without sugarcoating – you get the good, the bad, and those tricky ego trips. I'm developing a service with a mix of smart code and proven investment strategies, making stock analysis a thing of the past if you wish. Why? Because life offers so much more beyond the confines of stock analysis.
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.