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Style-Boxing
So, back to that 2×2 style-box explicated in the story of Igor’s friend: Its Y axis (labeled “Company”) goes upward from “development-stage” to “mature,” and its X axis (labeled “Investor”) goes rightward from “focused” to “diversified”…
Igor’s friend was a “focused investor” investing in “development-stage companies,” otherwise known as a recipe for disaster. There are other choices in that matrix. For instance, there’s a ton of money in big index funds today that track indices like the S&P 500. Those are obviously “diversified” investors — highly so — concentrating their capital in “mature” companies. That’s the very opposite of the matrix from Igor’s friend. On the other hand, venture capitalists invest in development-stage (or at least, earlier-stage) companies, but they diversify. That’s the box I identify with.
But that’s just one type of style-box.
You can invent your own. Morningstar did, and became a billion-dollar enterprise, in part, because of that. Famously, Morningstar created a 3×3 matrix for stock funds, gauging the size of market cap on one axis (small, midsize, large) and what it terms a fund’s “investment style” on the other (“value,” “blend,” or “growth”). While I often inveigh against “value vs. growth,” we certainly can’t argue with the overall helpfulness of Morningstar’s innovation. It’s ubiquitous, and has made the whole complicated world of investment choices a lot more intelligible.
As I say, you can invent your own style box. An entire industry of business consultants has done it, and the cliché is that often you want to be in the upper-right box, “the good one.” The Myers-Briggs women did it, building an industry of their own premised on 16 personality types.
And in my own way I have done it too, a simple 2×2 matrix that explains simply and clearly what makes the Rule Breaker investing approach tick, and why it wins. Creating simple style boxes is a worthy and illuminating exercise! So put on your Morningstar; summon your inner Myers-Briggs. And tune in next time for the secret style box of Rule Breaker Investing!
(Any guesses, dear reader, as to how my two axes are labeled?)