Mr. Zapata is founder and general partner of Sententia Capital. He received his B.S. from Texas A&M University and was commissioned as a Naval Officer in May of 2001. Throughout his time in the Navy, Michael served as a Navy SEAL officer and deployed seven times during the Global War on Terrorism. Following his last command at the Naval Special Warfare Development Group, Michael transitioned out of the military to attend Columbia Business School in 2011. There he was accepted into the Heilbrunn Center for Graham and Dodd Investing and earned his master’s degree with a focus on investment management. Upon completion of his MBA, Michael formed Sententia Capital Management.

– Institutional Investor

I recently had the honor to meet Michael Zapata at his desk in New York City:

  • Firstly, and most importantly, to express gratitude for defending our nation’s freedom
  • Secondly, to share wisdom from his extraordinary set of experiences

In the highlight below, Mr. Zapata reflects on the subject of Risk:

[link-to-moima-standard url=”http://www.manualofideas.com/interviews/michael-zapata-investing-insights-from-a-former-navy-seal”]

From a military side, from the special operations side: My first commander, Tim Szymanski of Seal Team 2, the first team that I was at, discussed ‘stacking the odds in our favor.’ He looked at it from a combat perspective which is (i) operationally, (ii) tactically, from our preparation, and (iii) technically, whether that is night-vision or air-assets.  People think that special forces operations are dangerous and high risk — we didn’t see it that way.  We saw it as incredibly low risk because we stacked the odds in our favor.  We used all these advantages to our benefit and I would much rather have been in our position — conducting our operations — because we de-risked a lot of it.

 

When I think about value investing: people don’t like to talk about value stocks because they’ve been beaten up. There’s something is wrong with these situations.  They’re under-valued, they’re mis-appreciated, they’re under-appreciated.   In my mind, that is like the darkest time.  The darkest time, in my previous profession, was the darkest night when the moon was down.   That is the scariest night to go out, in most people’s minds, but for us that was the most advantageous time — because we had technical, tactical, and operational advantages.

 

In the previous profession, we went out at the darkest time because we de-risked a lot of it and in the value investing spectrum I see it the same way: Where prices are down, the price has been beat up, the stock has been crushed — the job is to say, ‘How do we go in there?  Is it de-risked now that the price is low?’  In general the answer is ‘yes’ — but — that’s only the first layer.  The next step is to really go in there, to study the situation in depth, to understand it in-depth — because, at the end of the day, you are putting capital to work.  In the profession of investing — it is capital from investors.  In my former profession — it was human capital.

 

Before sending guys out the door to conduct an operation — let’s say something happens: you can’t mitigate all the risk.  What happens if you lose a guy?  What happens if a guy gets injured? You want to be able to go back and say, ‘Did we do everything that we could have done in order to mitigate the risk?’  If the answer is ‘yes’ — that’s a good place to be.  But, also knowing that, even then, there could still be something that goes wrong, something that is out of our control.

(Slightly edited for readability.)