On Fishing and Investing

I spent the last week fishing on Lake Winnipesaukee in New Hampshire with my family. Fortunately, the trip was productive. We caught over sixty fish, including several species of sunfish, bass, perch, carp, and even a small pike. Throughout the trip, I realized how much fishing has in common with investing. I will share some of these similarities in this post.   

Dad with a fish

Dad with a fish

Fish the structures

  • Some places are much more likely to have fish than others.

  • "Structures" a term my dad likes to use to describe rock formations, docks, etc. are more likely to have fish than open water fishing. When you fish a productive structure the results are just awesome, a well baited hook in the right spot will feel like you’ve struck gold!

  • Be intentional about how to spend time and only keep doing what works. Some parts of the capital markets are not amenable to active management, avoid those areas.

5 minute rule

  • If you are fishing in a spot for 5 minutes and don't get a bite, then try another place.

  • After one meeting, I can usually determine relatively quickly if another meeting is necessary. Usually a second meeting is not necessary. Occasionally, I prefer to tell a prospective investor, “I enjoyed our conversation, but I need another year of data to make a determination, lets talk again in a year.”

 Live bait works better than artificial lures

  • Live bait, while much more expensive, is a much more effective method for catching fish than using artificial lures.

  • In-person meetings are much more useful than phone conversations if you want to connect with a potential partner.

  • Phone conversations while cheaper than in-person meetings are meaningfully less productive.

  • Business leaders should encourage frequent travel to maximize the return on time.

Ask for help

  • When you travel to a new lake, ask your Airbnb host for fishing spot recommendations. Our Airbnb host informed us that his dock (fish the structures) was an excellent fishing spot in the mornings and evenings. With minimal effort, we caught north of 30 fish off the pier.

  • Remember, to ask the people you meet for introductions to other smart people they respect. Offer to make recommendations for them in return.

  • After your fishing trip, give feedback to those that helped you with fishing spot recommendations. Most importantly, if you found a new fishing spot that was effective, let them know too!

 Hook the fish, and then reel

  • It is tempting to reel furiously after you feel a fish make contact with your hook, but don’t do it.

  • Hold fast, be patient, jerk the rod, and then hook the fish. 

  • Once you've hooked it, reel steadily and get that fish on the boat.

  • In investing, the due diligence process is similar to that of hooking the fish. You should not reel in an investment until you're confident that the due diligence process has been done up to your standard of quality.

 Casting into a return distribution

  • Fishing is inherently probabilistic. The lake is a probability distribution, some parts of the lake have many hungry fish while other parts have no fish. Our job as a fisherman is to develop techniques, and routines to maximize the probability that we catch a fish within the time constraints of the trip.

  • Whenever we invest, we are buying a probability distribution, a range of possible outcomes. Like in fishing, investors can design processes to improve the probability of success.

  • When we identify a favorable return distribution, it is a strong signal that learning more may be a good use of time.