“An inflection point for business is a really hard place for a business to be in – it offers great investment results if the problems are temporary, but may lead to a permanent capital impairment if you are wrong about the transition.”

– Adam Crocker, Logbook Investments


 

Adam Crocker, founder and Chief Investment Officer of Logbook Investments, shares his perspective on managing the investment thought process, and how to think intelligently about asymmetrical investment opportunities.  In an exclusive conversation with The Manual of Ideas, Adam discusses the art and science of the investment process, managing expectations during the investment process, and having low tolerance for unforced errors.

Below we select several highlights from the¬†interview, starting first with Adam’s perspective on his abacus-like investment diligence process:

Its art versus science, but there are principles. I like to think of my investment process akin to an abacus, such as where the business is in the quality spectrum, where the valuation is, etc. If you are seeing a lot of high scores then you are on to something.

 

Next, Adam takes us deeper into his investment process, emphasizing the importance of a diligent appraisal of a business:

As an investor, what we are trying to get to is what is business is truly worth. Principles differ by investor, but you probably want to gravitate towards compounders as it creates a lot less problems when you own them.

 

Further, Adam expounds on the risks of owning cheap but low quality businesses, as well as why he has low tolerance for mistakes made when investing in a low quality business:

It hard because there are so many issues you are monitoring, and investor base might be skittish, and the business may not naturally compound — finding it harder to find a natural way to make money.

 

Finally, Adam speaks about the risks and opportunities from investments in business going through changing industry dynamics:

When a good business gets cheap is usually because people get concerned that whatever the industry had been — is no longer. These are the hard investment problems, and are great opportunities if you get them right — but can be sources of permanent capital impairment if you get them wrong.

 

Adam’s unique perspective on investment principles, and being thoughtful and having a game-plan on when you diverge from an investment process are a highly insightful perspective on the fabric of good investment decision-making.