It was a great pleasure to spend time with members of our community in Frankfurt, Germany, yesterday. The guest of honor was Dr. Hendrik Leber, founder of Acatis, one of Europe’s foremost value investment firms. Dr. Leber started Acatis more than two decades ago and has amassed an impressive track record while building a firm that employs both quantitative and qualitative tools to uncover compelling value investments. Dr. Leber is also publisher of the excellent book by William Green, The Great Minds of Investing.

The dinner discussion focused on the topic of mental models and mental tools, with each of the ten participants sharing the models and tools they have found most useful. Tools mentioned most often were checklists and investment diaries.

Participating in the discussion were Ufuk Boydak, Thomas Durlach, Philipp Ehreke, Gianluca Ferrari, Stefan Larcher, Dr. Hendrik Leber, Sebastian Steusloff, Jeremi Suchanecki, and Jean Philippe Tissot.

I thank Dr. Leber for his notes and am pleased to share the following insights:

If the company cannot be explained simply, it is not a good investment.
Avoid complicated chain-links where too many assumptions are chained together.
Invest in companies where you can get good industry data (eg long-term cycles).
Take a 10-year view – will this company be there in 10 years – then don’t worry about today.

Game theory:
Look at the agenda and incentives of the key players.
Who is the patsy, who is the loser in the room?

Decision making and reflection:
Investment diary with daily notes on decisions
– what went right? Luck or skill?
– what went wrong? Did I look only for confirming facts?

Think how you think – watch yourself in the thinking process (step outside of your body and watch yourself) – source: Götz Werner
Watch yourself – is system 1 (the reptile brain) or system 2 (the reflective brain) at work?

– Always go the extra mile – read every page. This is where your edge is.
– Always leave some slack (for yourself, for your assumptions).

Be a copycat, but don’t follow blindly.

Nice companies:
– Go for the low cost competitor in a commodity industry who is smarter and drives down costs more than his less intelligent competitors.
– Go for companies that take equally care of customers as well as employees as well as suppliers

Industries never to be touched again
– European mining
– Fashion
– Banks
– Project companies (like engineering companies)

Something that cannot go on forever will come to an end. Now this is always true!