The purpose of this weekly is to sharpen my thinking by sharing thoughts about industries and companies that fit into powerful long-term investment themes. It is also a place to share insights into decision-making, takeaways from the past week, and random thoughts that arise. Thank you for reading this piece! Feedback is welcomed. 

This week: 

• Integrative Thinking: Investing in Transformational Change • Integrative Thinking: Golf 

Integrative Thinking: Investing in Transformational Change 

One of the best books I have read in my time in the investment business is Roger Martin’s The Opposable Mind. 

Here is his description of the book, found on his website: 

“In this primer on the problem-solving power of “integrative thinking,” Martin draws on more than 50 management success stories, including the masterminds behind The Four Seasons, Proctor & Gamble and eBay, to demonstrate how, like the opposable thumb, the “opposable mind”-Martin’s term for the human brain’s ability “to hold two conflicting ideas in constructive tension”-is an intellectually advantageous evolutionary leap through which decision-makers can synthesize “new and superior ideas.” 

I believe that tapping the capabilities of the mind to see what appear to be conflicting concepts as the potential for new ideas is powerful. This applies to investing in a few ways. 

It can be totally possible for a trend or technological change to be transformative and overhyped at times. As humans and somewhat rational market participants, we have a hard time getting the timing correct when it comes to important change.

Transformational change can morph and exhibit different kinds of opportunities than we envisioned at the start. Just because we cannot see what a company is trying to do to participate in transformational change doesn’t mean it isn’t a good idea. 

Here are a few things that we believe are good examples of this type of tension as it relates to the next decade: 

Generative AI tension: 

• Generative AI will be transformative and create change that we cannot imagine. 
• This type of change can take longer than we expect. 
• There will be periods of massive hype. 
• There will be periods of questioning if AI will have the type of impact we imagine. 
• Most ideas and companies created to capitalize on AI will not make it long-term. 
• Some companies will be big beneficiaries of Gen AI and create a lot of value. 

Computing Power tension: 

• Computing power will need to increase dramatically to handle AI demand. • This should benefit the semiconductor industry. 
• If history is true to form, there will be cycles in the industry. • A handful of players will create a lot of value for investors. 
• The ride may be bumpy. 

Investing in AI and Computing Power Tension: 

⮚ Gen AI and computing power beneficiaries will add much more value than the average company. 

o One year could be good for investment returns. 

o The next year could be poor for investment returns. 

⮚ The aggregate prosperity over several years will surprise many, as it did in prior eras. 

⮚ Determining which year and relying on timing can produce wildly differing and frequently disappointing results.

We wrote about this last time, referencing the semiconductor industry dynamic in the 1990s. We see a similar pattern, where there will be prosperity, followed by normal cyclical corrections. The result for the best-managed companies should be substantial value creation, that is long-term growth of revenue and profits. 

We have witnessed in prior eras that these types of tension are not appreciated. Investors, allocators, and especially the press look through the lens of “What have you done for me lately?” It is nuanced though, and as a result, we see the value in having what can be considered conflicting ideas be our opinion. For example, Gen AI could be a huge opportunity, but we are thoughtful and disciplined, following our process to find ways to benefit. This means letting go of opportunities where the growth could be substantial, but the economics of the business are not up to our standard. 

One of the best ways to think of what we will encounter in the future pulls from other periods of change. That is with transformative change comes substantial value add, but not for all. The ride to that destination is bumpy because human emotion is resident, and we are all challenged in our ability to predict timing. 

Appreciating that there can be what seems to be competing forces or tension can be as important as the identification of a trend or great company. We strive to think broadly, accept different opinions and views, consider the tension, and make the best decisions we can with the information we have. 

Integrative Thinking – Golf 

I just returned from a father-son golf trip to Pinehurst, NC. The trip was amazing on several levels, most importantly we got to spend time together doing something we both love to do. 

One of the courses there, number 2, will host the Men’s US Open this year. The tees that the pros will be playing from are so far behind where we teed off that it feels like a totally different game. Granted, they are very skilled, as are the pros from prior eras. The top officials in the game have decided that these players hit the ball “too far” for today’s golf courses. They have gone so far as to mandate 

changing the ball to specifications that inhibit the ability to hit it as far. This, they believe, will protect the game. 

Not to geek out on this too much, but this could lack integrative thinking on their part.

All of these could be true at the same time: 

• The best courses worldwide were built in a prior era when today’s distance wasn’t imagined and are not easily changed. 
• The pro players today are phenomenal athletes and train as hard as other professional athletes. This training enables them to swing at speeds that were never possible in prior eras. 
• The clubs and balls are better for hitting it farther than past eras. • Video technology and launch monitors enable real-time information for players of this era, enabling them to adjust more quickly and efficiently. • Statistics gurus (and the pros) have data that supports hitting it far over straight for better scores. 
• The notion that the game needs “protection” is an opinion, not a fact. • The game is hard enough for the average player. (This is most likely why I am raising this issue) 

Acknowledging that there are realities associated with distance in the game today, isn’t it always the case that players figure out the way to gain a legal advantage? 

The NBA has changed dramatically over the years. Players are now aware of the value of shooting more 3-pointers and, as a result, hone their long-range shooting skills. I hardly imagine that the NBA will raise the height of the basket because the players make it look too easy. 

My story 

I am an investor and entrepreneur, having started two investment companies. I am the Founder and CIO of ArrowSide Capital (http://www.arrowside.com), based in Boston, MA. I have more than 30 years of experience in the investment business, investing in companies geared toward innovation and growth. The blog is named 

The Zen Innovation Investor because I believe it is so important to remain calm and focused during the rapid pace of change in the world today. I am keeping a view of the long term while also keeping abreast of developments in the world of innovative companies. I view this as a place to sharpen my thinking and provide some insights that are thought provoking. 

Disclosures

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