Mispriced opportunities and diversification

Buyers and Builders,

Before we dive in: I recently noticed that Adam and Graham at East Rock Capital have raised an additional $2.8B since I last wrote about them. That seemed like a good reason to revisit the investment principles we discussed.

This piece was originally published when this newsletter had fewer than 2,000 readers.

We talk a lot about the lower middle market, profitable and cash flowing companies with an EBITDA of $1-10M.

Today,I want you to read something different, which will hopefully add a greater “range of tools to your investing and decision-making toolbox”.

It should make you a better thinker, investor, capital allocator, and overall better entrepreneur.

Michael Mauboussin says in his research paper (page 290), “the more ways you have to solve a problem, the more successful you’re likely to be. And if you have the identical tools as everyone else—the same business school education, TV channels, Wall Street research - you are very unlikely to gain insight.”

Which leads to a philosophy that Oaktree co-founder, Howard Marks, holds deeply… he believes markets are relatively efficient; you have a lot of smart people making decisions and deciding on prices, and for the most part they’re pretty accurate.

You cannot outperform them if you hold the same views as them - since their views are baked into the price already - and since their views are made up of widely known information, you must either disagree with their conclusions, or have better information at your disposal…

Information, right? That is why you’re here.

Now, to give you more tools (read: information), there is an investment firm called East Rock Capital, co-founded by Adam Shapiro and Graham Duncan in 2006, focused on managing the wealth across a select group of families.

Why read and listen to what Adam, Graham, and their team have to say?

- Started the fund at 31 years old
- Today $4.8B in aum
- Manages the capital for a select group of families and instituional clients

I want to divide this newsletter into two buckets: 1) some theory; 2) a lot of practical tips (which both require reading and listening).

1.A Brave Pep Talk Turns Fear Into Opportunity: An investor who made a difference and why founders and allocators need to know about (below is part of the letter, but I highly suggest you read the whole thing. Here is the link.)

2.Private Markets Investing: An Alternative Model (again, below is part of the letter, but I highly suggest you read the whole thing. Here is the link.)

3. A letter to a friend who may start a new investment platform - or any company or partnership, really (here you have two options: 1). You can read the original letter from Graham Duncan; 2) or you can go and listen to a solo podcast episode I did on this. By listening, you can work out, walk - multitask).

By the way… Is your spouse fully on board with what you’re building?

If you prefer to listen:

Here are the links to Apple podcasts, Spotify and YouTube.

That’s all for today.

Take care,
PrivateEquityGuy / Mikk Markus