Be the House – NOT the Gambler<\/a>, which VASTLY improves our chances of winning on every trade – and also teaches us which trades to avoid – because the numbers, very simply, don’t work.\u00a0<\/strong> \u00a0<\/p>\nWhat follows are 30 principles \u2014 hard-earned in boardrooms, on factory floors, and in the markets \u2014 that guide how we choose the \u201cbest of the best<\/em>\u201d for PSW portfolios.<\/p>\n
\nSection 1 \u2013 Thinking Differently & Seeing What Others Miss<\/strong><\/h3>\nPSW Core Principle: \u201cWe seek value where others see noise.\u201d<\/em><\/p>\n
\n1. Be a Skeptic<\/strong>
\nAt PSW, skepticism is not cynicism \u2014 it\u2019s discipline. Every investment story has weak points, and our job is to find them before committing capital. We approach due diligence by asking: Where does this break?<\/em> This is Graham\u2019s margin of safety<\/em> applied not just to numbers, but to narratives. In a market addicted to consensus thinking, skepticism is your best form of risk control.<\/p>\n
\n2. Volatility Isn\u2019t Your Enemy<\/strong>
\nVolatility is the market\u2019s way of telling you something\u2019s on sale or in danger. Investors who equate volatility with risk miss the deeper truth: true risk<\/em> is permanent capital loss. Howard Marks reminds us, \u201cYou can\u2019t predict, but you can prepare.<\/em>\u201d We use volatility as an entry point, not a reason to run.<\/p>\n
\n3. Focus on the Tail<\/strong>
\nCorrelation is overrated until the tails wag the dog. Being \u201cuncorrelated<\/em>\u201d in quiet markets is fine, but being uncorrelated during a crash is transformative. This is why PSW maintains tail-risk hedges \u2014 insurance you hope never to use, but that buys you the freedom to take risk elsewhere. Dalio built a career on \u201cprotecting against what you don\u2019t see.<\/em>\u201d We agree.<\/p>\n
\n4. Have the Courage to Make Mistakes<\/strong>
\nRisk management is about eliminating unnecessary<\/em> risks, not eliminating all risk. As Buffett says, \u201cYou only learn who\u2019s swimming naked when the tide goes out.<\/em>\u201d Mistakes will happen \u2014 the key is to make them survivable, and to make them for the right reasons.<\/p>\n
\n5. Just Say No<\/strong>
\nMost of your worst trades will come from saying \u201cyes<\/em>\u201d when you should\u2019ve passed. The regret from a missed opportunity fades; the regret from an avoidable loss sticks. Patience is not passive \u2014 it\u2019s a position.<\/p>\n
\n6. Basis Kills<\/strong>
\nTwo positions that look different but move together can double your risk without doubling your reward. We\u2019ve seen \u201chedged<\/em>\u201d portfolios get gutted because longs and shorts were effectively the same bet in disguise. Understand correlation before correlation understands you.<\/p>\n
\n7. Don\u2019t Be Afraid to Run Into Fires<\/strong>
\nSir John Templeton famously said, \u201cBuy at the point of maximum pessimism<\/em>.\u201d Market dislocations create the best deals, but only for those willing to step in when others run away. The caveat: go in with a plan, not bravado.<\/p>\n
\n8. It\u2019s Only a Great Investment if You Can Hold It<\/strong>
\nThe best idea in the world is worthless if you\u2019re forced to liquidate at the wrong time. Stress test the business<\/em>, financing<\/em>, and counterparty risk<\/em>, not just the trade. Many 2008 casualties were right on the thesis but wrong on the liquidity.<\/p>\n
\n9. The Opposite of a Long Isn\u2019t a Short<\/strong>
\nGreat short sellers think differently. They don\u2019t just \u201cinvert<\/em>\u201d long ideas \u2014 they hunt frauds, fads, and structural failures. Expecting a skilled long-only manager to run a winning short book is like asking a sprinter to win a marathon.<\/p>\n
\n10. Don\u2019t Make Logical Decisions Based on Flawed Information<\/strong>
\nThe inputs determine the outputs. In market extremes, the noise-to-signal ratio skyrockets. Take the time to verify data quality and be aware of your own biases. As Soros warns, \u201cMarkets are almost always wrong in the short term \u2014 the trick is knowing when they\u2019re wrong enough.<\/em>\u201d<\/p>\n
\n\nThis is the mindset layer of investing \u2014 the lens through which every idea is viewed. It\u2019s not about what\u2019s hot; it\u2019s about what\u2019s true<\/em>. Every point here is a guardrail that keeps us from being seduced by market narratives and ensures that, when we act, it\u2019s with clarity and conviction.<\/strong><\/p>\n
\nSection 2 \u2013 Mastering the Art of Due Diligence<\/strong><\/h3>\nPSW Core Principle: \u201cWe don\u2019t just buy stocks, we buy the business \u2014 and we\u2019ve been in the boardrooms.\u201d<\/em><\/p>\n
\n11. References Matter \u2014 Even in Public Companies<\/strong>
\nIn M&A and corporate turnarounds, I learned that what management says in the boardroom is often very different from what the rank-and-file experience on the ground. We apply the same principle to stock selection: analyst calls, industry contacts, supplier chatter \u2014 these \u201creferences<\/em>\u201d tell us if management\u2019s narrative holds up in reality. It\u2019s not just investor relations spin we\u2019re after; it\u2019s operational truth. \u201cTrust, but verify,<\/em>\u201d as Reagan said.<\/p>\n
\n12. Culture is King<\/strong>
\nI\u2019ve seen great companies implode because of bad culture. “Culture eats strategy for breakfast<\/em>” is how Peter Drucker put it. Toxic leadership eventually seeps into customer service, product quality, and decision-making. At PSW, we scan for cultural health in ways the market often ignores \u2014 turnover rates, Glassdoor reviews, employee litigation, whistleblower activity. A strong culture can survive market storms; a bad one will sink the ship from within.<\/p>\n
\n13. The Truth is Out There \u2014 If You Know Where to Look<\/strong>
\nIn turnarounds, I’d find the truth in the least obvious places \u2014 talking to warehouse managers, junior accountants, even competitors. When we research a stock, we dig into trade publications, supplier reports, and local business press. You\u2019d be surprised how much of a company\u2019s real trajectory is hiding in plain sight, just not in the earnings release.<\/p>\n
\n14. Control the Meeting Before It Controls You<\/strong>
\nWhen I meet management \u2014 whether in the past as a consultant or now as an investor \u2014 I set the agenda. I want to hear about the weaknesses, the risks, the things they don\u2019t<\/em> want to talk about. In stock investing, this translates to going into earnings calls and investor days with a prepared set of red-flag questions \u2014 and listening as much to what\u2019s avoided as to what\u2019s answered.<\/p>\n
\n15. Read Between the Lines<\/strong>
\nIn a turnaround, you get good at decoding corporate-speak. \u201cRepositioning our product line<\/em>\u201d might mean \u201csales are collapsing.<\/em>\u201d As investors, we parse 10-Ks, earnings transcripts, and guidance changes with the same suspicion. Markets take statements at face value; we read the subtext.<\/p>\n
\n16. Don\u2019t Buy the Portfolio, Buy the Process<\/strong>
\nTurnaround work taught me that current results can be misleading \u2014 sometimes a good quarter is just cost-cutting that isn\u2019t sustainable. At PSW, we evaluate how<\/em> a company makes money and whether that process is durable. A temporary bump is not a long-term thesis. \u201cProcess beats talent when talent doesn\u2019t follow process.<\/em>\u201d \u2013 Nick Saban<\/p>\n
\n17. Focus on the Prize<\/strong>
\nCharisma doesn\u2019t equal competence. I\u2019ve met CEOs who could sell ice to Eskimos and still run their company into the ground. In stock selection, we separate presentation skill from operational skill. We care about execution, not charm.<\/p>\n
\n18. 1 + 1 = \u00bd<\/strong>
\nIn corporate structures, divided leadership is a warning sign \u2014 no clear accountability means slower response to crises. As Lincoln said “A house divided against itself cannot stand<\/em>.” When analyzing companies, we avoid those with murky reporting lines or power struggles at the top. The market underestimates how dangerous leadership gridlock can be.<\/p>\n
\n19. Avoid Casinos<\/strong>
\nI\u2019ve watched companies gamble on fads or over-leveraging themselves, mistaking short-term luck for long-term strategy (MSTR springs to mind at the moment). We avoid businesses chasing hot trends without a competitive moat. If a company\u2019s growth is a roll of the dice, it\u2019s not going in our portfolio.<\/p>\n
\n20. Confidence vs. Hubris<\/strong>
\nThe best executives \u2014 and the best investors \u2014 can admit when they\u2019re wrong and change course. The worst double down on bad ideas until it\u2019s too late. We look for management teams that pivot intelligently. And yes \u2014 even after all our digging, we still get some wrong. But we cut our losses when the facts change.<\/p>\n
\n\nOur members know that every stock in our portfolios has been through the same scrutiny I once gave to companies we were buying, fixing, or selling. We aren\u2019t just chasing numbers \u2014 we\u2019re looking at the whole organism: leadership, culture, competitive position, and operational resilience. It\u2019s the combination of hard data and on-the-ground instincts that helps us build portfolios of \u201cbest of breed<\/em>\u201d companies \u2014 knowing full well that even the best process doesn\u2019t guarantee perfection, only the best odds.<\/strong><\/p>\n
\nSection 3 \u2013 Evolving With the Market<\/strong><\/h3>\nPSW Core Principle: \u201cAdapt or die \u2014 the market doesn\u2019t wait for you to catch up.\u201d<\/em><\/p>\n
\n21. Dinosaurs Go Extinct<\/strong>
\nAs a Corporate Consultant, I watched strong companies fade into irrelevance because they didn\u2019t adapt to changing markets. Technology shifted, customer preferences evolved, and their edge eroded. At PSW, we apply this same lens \u2014 a company without a plan for innovation is a slow-motion bankruptcy. We prefer businesses that invest in R&D, reinvent products, and anticipate disruption before it happens. \u201cIt is not the strongest of the species that survives, but the one most responsive to change.<\/em>\u201d \u2013 Charles Darwin<\/p>\n
\n22. Success Can Be Dangerous<\/strong>
\nTurnarounds taught me that companies often stumble right after big wins. Complacency creeps in, decision-making slows, and competition catches up. In our stock selection, we\u2019re wary of companies resting on their laurels \u2014 especially market leaders with no clear plan to defend their moat.<\/p>\n
\n23. Climb Through the Side Window<\/strong>
\nIn the corporate trenches, solving impossible problems often meant finding non-obvious solutions \u2014 a new distribution channel, an overlooked market segment, a restructured deal. The best public companies do the same: they innovate around obstacles. We like CEOs who can find unconventional paths to growth when the front door is locked.<\/p>\n
\n24. Don\u2019t Sweat the Small Stuff<\/strong>
\nStephan Covey said: \u201cThe main thing is to keep the main thing the main thing.<\/em>\u201d In turnarounds, you learn quickly to focus on the big levers \u2014 the changes that actually move the needle. We do the same in our portfolios. Rather than obsess over every quarterly wiggle, we watch the structural drivers: market share trends, pricing power, debt structure, capital allocation. Those determine the long-term winners.<\/p>\n
\n25. Write the Playbook in Advance<\/strong>
\nCrisis management only works if you\u2019ve already thought through the moves. Before recessions or sector shocks hit, we\u2019ve already discussed how each position might respond and whether it\u2019s a buy, hold, or sell. This preplanning comes straight from corporate crisis playbooks \u2014 the goal is to act fast without panicking. \u201cBy failing to prepare, you are preparing to fail<\/em>.\u201d \u2013 Benjamin Franklin<\/p>\n
\n26. If You\u2019re On Time, You\u2019re Late<\/strong>
\nThe best deals in M&A were the ones we found before the rest of the market woke up. In stock investing, we aim to identify emerging opportunities early \u2014 before the valuation gets crowded. That means studying industry inflection points, not just company earnings.<\/p>\n
\n27. Maintain Your Competitive Edge<\/strong>
\nCompanies that can\u2019t define their edge are usually losing it. We ask: \u201cWhat can this business do better than anyone else, and can they keep doing it?<\/em>\u201d Drucker puts it “If you can’t measure it, you can’t manage it.<\/em>” If the answer is unclear, we move on. As investors, our edge is the ability to combine deep operational analysis with market insight \u2014 and we constantly refine that skill.<\/p>\n
\n28. Stay in the Room<\/strong>
\n\u201cEighty percent of success is showing up<\/em>.\u201d \u2013 Woody Allen. In dealmaking, relationships kept us at the table when others were shut out. With public companies, maintaining access means following management closely, participating in calls, investor days, and sometimes quietly visiting facilities or trade events. You can\u2019t influence management as a shareholder, but you can understand them far better if you stay engaged.<\/p>\n
\n29. \u201cEveryone Has a Plan Until They Get Punched in the Face<\/em>\u201d \u2014 Mike Tyson<\/strong>
\nIn business turnarounds, we called it \u201cthe Monday morning problem<\/em>\u201d \u2014 the thing you didn\u2019t expect that forces you to rewrite the week. Public companies face the same shocks. We focus on management teams with the composure to pivot under pressure, because their resilience becomes ours.<\/p>\n
\n30. Learn From Other People\u2019s Mistakes<\/strong>
\nIn M&A, we\u2019d study why a similar company failed before buying into a new one. With stocks, we track sector blowups, accounting scandals, supply chain failures \u2014 and then check our portfolio for similar vulnerabilities. The cheapest lesson is the one you learn from someone else\u2019s disaster. \u201cSmart people learn from their mistakes. Wise people learn from others\u2019 – <\/em>Me<\/p>\n
\n\nMarkets evolve, industries transform, and yesterday\u2019s winners become tomorrow\u2019s cautionary tales. The difference between long-term success and slow decline is adaptability. At PSW, we combine the Operator\u2019s instinct for spotting change with the Investor\u2019s discipline in acting on it \u2014 ensuring our portfolios aren\u2019t just built for today, but for the market that\u2019s coming.<\/strong><\/p>\nAt PSW, we aren\u2019t traders chasing heat. We are Analysts, Operators, and Investors who evaluate a stock the way an M&A team evaluates a company: deeply, painfully, honestly. These 30 principles aren\u2019t just rules \u2014 they\u2019re habits that shape everything we do.<\/p>\n
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