Research Communication Standards

[moritz]

@Magaly I’ve separated that topic into a standalone topic as it is a more philosophical discussion about research standards and not exclusively related to Meta.

For reference see: Meta Platforms Discussions - #2 by moritz

### MagalyNH6 — Today at 8:30 PM.

But Meta PE ratio is now even higher than 2021 So for your bullish points, you do support your thesis, in things that could happen based on your theory, but not certain But to consider bearish reasons as real risks you do need data that shows you something is happening for sure. Is that a bias that you have? Or there is a real reason for that?

Short Answer: From my experience there are always tons of potential risks that are discussed. (I never saw any period in investing at which no worries existed. Interestingly enough i saw a video today of Ron Baron who stated something similar but his views might be a bit extreme in this regard.) Only by digging deeper into individual risks an investor will be able to find out which of the risks are real and which are not and most risks are no problem at all. (Maybe there is even a bias in the media to be overly pessimistic as fears sell better than normality)
I think right now we are in the process of building the building blocks for our macro understanding and assessment which will put us in the position of making more reliable future predictions.
For positive theories you need to have supporting data and evidence as well but i have a way better understanding and way more experience with companies than macro topics. (See long answer).

–
Very long answer: Great point! I appreciate it if someone spots inconsistencies in our Investment framework and helps to correct them or helps to improve our communication.

–
Theories
Here are my overall thoughts about the development of theories

1. In Investing it is critical to develop theories and forward-looking models.
2. If you just use current data/valuations etc. you miss critical changes and you will be hurt or you miss out on profits.
3. Every theory needs to be based on as many “proven” correlations, as consistent models and frameworks as possible. See also: Investment Philosophy - InvestmentWiki
4. Every theory has to be developed with as much effort as possible taking as much current data as possible into account. (Starting with the most critical data and “low hanging fruits” as possible, improving the theory over time together with a hopefully growing community to get more precise)

–
Issue Case 1: “Insufficient communication from my side”

My best theory for the root of the apparent discrepancy between my actions and the rigorous standards i am trying to impose comes down to decision-making processes and the communication that is needed to support it.

As decision-making on investment decisions is at the moment centralized and we do not have any external accountability factors in place like a community that is closely following us communication needs are asymmetrical.

That means there is a reduced communication need for me to communicate which steps I am taking in the background and how I am arriving at my assessments. As an example, there is some considerable time spent behind those meta theories both on research, and reflections as well on testing() .
Additionally, I am applying a lot of different research standards in my research which I try to set as good research practices in the investment community as well.
I also currently insufficiently explain reasons why I believe certain risks are not relevant in detail, so feel free to keep asking questions or challenge my assumptions as this is an important clarification process.

On the other hand, there is an increased communication need for you, as your research is public facing and the community as well as i need to be able to rely on the research as much as possible. Trust will be built over time and can be achieved by very good and clear methodologies, research standards, etc.

–
Issue Case 2: “Insufficient communication from you (the team).”

Another area for potential problems might be insufficient communication from your side. This scenario applies in case you feel I do not adequately recognize risks that you are certain about.

Here is how i think about it overall:
I think one of the challenges that all young teams and companies are facing is learning best practices how communication can be improved even further. This is especially true in our case given the complex nature of our research and the need to communicate it.

At Stage 1 of working together, the research was very factual and fact-based, which I consider a good basis layer. This is also reflected in our Wiki articles which are objective and allows the reader to form his own opinion. This way of working is important and will never stop as it provides others with valuable information and empowers them to take their own decisions.

In Stage 2 additional assessments become increasingly important. This comes due to the fact that it is impossible to communicate all information that one possesses perfectly and it becomes increasingly more efficient to rely on an expert’s opinion.

In order for me to do that though you need to lay out and describe your full assessment and support it with all the evidence you have, which I will then challenge and probe for weaknesses.

You need to bring me up to full speed on the most important correlations, data patterns, predictions that you are seeing and put me into a situation in which i am seeing the same picture you are seeing.

Me asking questions might in this case make as well. Additional experiments with formats (Loom, articles) might be useful.

–
Concrete steps if risks/opportunities are insufficiently understood by me

1. Are there currently any topics you feel I might not sufficiently understand right now? If yes please open new topics for them in Discourse.
2. Keep pushing topics you are confident that are important, until i get them or provide compelling counter arguments.
3. More?

–
What are your thoughts? I hope i did not completely fail to hit the topic and some of those foundational thoughts make sense.

[Magaly]

No, I think communication is the most likely problem. Because yes, from my point of view, your bullish assumptions are not based on much more than just a theory without much certainty and did not know/dont know your work behind them that supports them.

Would also be interested to understand your bearish points, what you are already considering, and the downside that you are willing to accept in a specific position.

I agree we need predictions/theories to be able to stay ahead of the curve. This is true for company fundamentals, as it is for macro.
However I think macro predictions, are usually more complex, and could be wrong more often, because the universe of information is very difficult to manage, and there are a lot of things we just still dont know.

So sometimes my worry comes from investment thesis that bet 100% going one way or the other, that 1 macro event could change it all. I am not sure what would be your protections in case something in macro goes wrong, especially in the current environment, if it were 2021, with QE at full speed, would be totally different
But this also also applies if you were to turn very bearish for example, and start betting only on that.
Maybe what I am trying to say is that I don’t see your approach being balanced, especially in an environment where there are risks of being wrong in every direction.

And also, this is expected from your personal interest, but I think you spend much more time trying to understand a company but don’t do the same for macro.
So, lately has been easier for me to understand where you maybe need additional info or arguments when I ask you questions of why you think X or Y, but I won’t be able to do that if you don’t share your assumptions more often, or if you don’t share your thoughts about macro topics more often too, even for the ones that are not imminent or only from important events happening currently.

[moritz]

You are absolutely right.

I definitely need to allocate more time towards communication, so that we can work together more efficiently in the team and communicate clearly to the outside what we are doing.

The best way to do this in my opinion is to eventually develop a very clear research and investment framework that gives us a good mental model and clear core structure which we can use to organize our thoughts and research in a coherent and easily understandable form. Once we have clear shared models of how we are looking at things it also becomes easier to spot differences in our opinions and discuss specifics we disagree upon. (Note: I’d like to map out those models using mindmaps in a first preparation step + will describe in more detail what I have in mind in a separate post in the coming months. See also)

Even before the development of those models we can already start discussing all kinds of fundamental topics in the forum as we have now the infrastructure for open discussions that are persistent and scaleable.

I will therefore create multiple topics that derive from this topic. Feel free to open topics as well if you feel they are important and help to clarify things. (Keep in mind that i worked approx. 6 years alone without any communication so i sometimes don’t even know which aspects are not clear to the outside + need feedback/questions on that + my descriptions might be unclear at time so always ask clarifying questions if things are not immediately clear.)

In terms of time allocation, I think I can allocate multiple hours a week on this as an ongoing effort, which should enable us to develop and ever-better shared understanding over time.

The focus at the start should definitely be on the most fundamental topics and the topics which could influence my decision-making the most (macro)
I might progress at one point also with documenting parts of my own research more. This is not a priority at the current stage though because I believe I can have a greater impact by focusing on understanding things, taking investment decisions, and developing the whole project further.