Thursday, January 23, 2014

What Does An Astronaut Has To Teach Investors? - Part I

Actually, a lot. First off, these guys spend their whole lives preparing themselves to go to a space mission - unfortunately, not always all of them go on a space mission (just like an investor studying a company until it finds out it isn't suitable for an investment). Not only their lives alone, but also their families lives. They go through extensive physical and mental training, mastering their engineering skills, conducting pre-mortem and post-mortem analysis, learning how to be a team player and so on.

According to Col. Chris Hadfield,
“An astronaut is someone who’s able to make good decisions quickly, with incomplete information, when the consequences really matter. I didn't miraculously become one either, after just eight days in space. But I did get in touch with the fact that I didn't even know what I didn't know. I still had a lot to learn, and I’d have to learn in the same place everyone learns to be an astronaut: right here on Earth.” 
Who investors are after all but professionals making good decisions quickly and with incomplete information, mastering their knowledge base for years?

Thinking about how an investor has to be prepared through learning, here is Col. Hadfield take on learning:
“I was in an enrichment program that year and the next, where we were taught to think more critically and analytically, to question rather than simply try to get the right answers. (…) Really, we learned how to learn." 
Also, there's no boring investment case task:
“I viewed it as a plum assignment, one learning opportunity after another.”
Definitely someone must compare things when thinking critically and analytically, otherwise how could someone judge if it's either a good or bad thing? Col. Hadfield shares his experience on that:
“Astronauts have these qualities not because we’re smarter than everyone else. It’s because we are taught to view the world – and ourselves – differently. My shorthand for it is “thinking like an astronaut”. But you don’t have to go to space to learn that. It’s mostly a matter of changing your perspective.”
“Operational awareness – being able to see the big picture and focus on what could kill me next – is what kept me safe after I regained consciousness. (…) If you’re focused on the wrong things, you are likely to miss the very narrow window of opportunity to correct a bad situation.”
And yes, separating the signal from the noise comes with a large enough knowledge base, which comes with experience:
“Training in Houston, I hadn't been able to separate out the vital from the trivial, to differentiate between what was going to keep me alive in an emergency and what was esoteric and interesting but not crucial. There had been so much to learn, I’d just been trying to cram it all into my brain. During the mission, too, I was in receive mode: tell me everything, keep teaching me, I’m going to soak up every last drop.” 
“I spent a lot of time on PTTs looking at the symptoms of false alarms versus actual system failures: pressure regulation, atmospheric constituent controls, the rendezvous sensing system – the list is long. Through this process I started to figure out what to pay attention to and what to disregard, which risks were the greatest and which would trigger the most negative consequences, and then I was ready for the actual Soyuz simulator, to see what the whole picture looked like.”
In order to learn, naturally, investors need to be great questioners, even for the obvious ones since you work with incomplete/biased information:
“What were the best answers to the obvious questions?”
Many times investors are "1st-level-correlated" to money-making opportunists, although
“It takes years of serious, sustained effort, because you need to build a new knowledge base, develop your physical capabilities and dramatically expand your technical skill set. But the most important thing you need to change? Your mind. You need to learn to think like an astronaut.”
Simply change "physical" for "mental" and "astronaut" for "investor".

And when you get what's needed to go "all-in", have a sizable position in your portfolio in your great idea, it's when you know
“Knowledge and experience have made it possible for me to be relatively comfortable with heights, whether I’m flying a biplane or doing a spacewalk or jumping into a mountain of corn. In each case, I fully understand the challenge, the physics, the mechanics, and I know from personal experience that I’m not helpless. I do have some control. (…) But in order to stay calm in a high-stress, high-stakes situation, all you really need is knowledge.” 
Another interesting metaphor is how austronauts' (g)ravity is correlated to investors' (g)rowth. As the space rocket is coming down to space (a 54-minute long trip!), (g)-force receives a multiplier attached to it, so astronauts get dizzy and feel so weak they can't even stand up when they get down to Earth. After they arrive home again, they spend months with physicians monitoring their recovery. Isn't it pretty much how investors feel with high multiples attached to companies with strong (g)rowth prospects when they are de-rated? High-growth indeed is foggy.

There's a lot more we can learn from astronauts, which I shall share with you in the next coming post.

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