Investment Diligence and the Cornelius Effect

1+ Earlier this week Ben wrote a note about the Curse of Some Talent. There is a related idea
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Mark Kahn
Member
Mark Kahn

The search for the super-genius investor versus “stick to your process” (not the super-genius’ investment process, but one’s diligence process) perfectly explains if you (individual or firm) got it right about Madoff. Back in the ’00s, I sat on the risk committee of a firm that considered including Bernie Madoff as one of our outside advisors. The pull was his impressive performance (all attributed to, let’s be honest, a belief in his super genius and overwhelming resume as his explanations of his process were just obfuscating blah, blah, blah) with the counter-pull being a series of red flags including a back-alley accounting firm, shaky record keeping and minimal-at-best controls. Our process – our “due diligence -” screamed “NO!” Our unspoken search for the super genius pushed us to find a way to “yes.” Fortunately, in this case (we got others wrong, just, luckily, not that spectacularly wrong), our process was competent enough, our fealty to our process was strong enough, that we said “no.” When it blew up, we all congratulated ourselves on a job well done, while also quietly breathing a sigh of relief that we fought off the pull of the super-genius cult. Not quite Rusty’s specific point – but definitely in the ballpark of building and always applying a thoughtful and experience-driven process versus abandoning it to an emotionally-driven quest for something (a super-genius investor) that blinds us to everything else. Of course, if we did go with our emotions, we’d never admit we were abandoning the… Read more »

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