Notes From the Beauty Contest
The NFTBC User Guide
Dear Friends of NFTBC
I launched this blog with the Regeneron post back in February. It was an experiment and I was curious to see where it might lead.
In my NFTBC introduction, I explained the basis for the name of the blog - the ‘Keynesian Beauty Contest’. I talked about how the Beauty Contest dynamic appears, to me, to be at the centre of the particularly violent and sudden share price moves we see under current market conditions. I discussed my lack of interest (or indeed competence!) in playing this game, setting out what I would be looking to write about instead. In particular:
My principal focus is qualitative and especially around the credibility of management. Keynes viewed ‘faithfulness’ as a rational response to uncertainty and I think this is one of the reasons why - if investing is inherently uncertain, who is better placed to know what lies ahead than those most involved. So I believe that if you can find competent and credible management teams, you should take them seriously - especially when others do not.
This remains true today and an important compass bearing for NFTBC. Yet in the intervening months I have had the chance to iterate, experiment and to gain greater clarity on what I want to do with NFTBC. I have also had the chance to speak to a number of you, which has been very helpful as well as an unexpected perk of starting this project.
In what follows, I will set out my updated thinking on what NFTBC is and should be, and how I would like to differentiate it. If I can get it right, my hope is that some of you will find NFTBC of sufficient value to want to join me in taking it forwards as a self-sustaining paid newsletter. Don’t forget to check out the free samples section if you haven’t yet.
These are the questions that I would want to know the answers to (let me know if you have others):
Who are you?
I spent the last decade or so as a generalist buy-side analyst in global equities, most recently with additional responsibilities in pharma and life sciences. Before that I worked in wealth management briefly and before that I was a lawyer. I’ve been picking stocks for around 15 years, initially cutting my teeth in small and microcaps. I’ve tried many ways of investing over the years, especially when starting out. What you see at NFTBC is the culmination of how my own investing approach has evolved over time - in part to suit my own behaviours, but also because I find it enjoyable to do it this way, frankly. I’m based in London, UK.
What is your USP?
I am particularly fascinated by businesses that are doing something different and breaking with convention. Being different takes courage as well as the necessary institutional structures that will allow unconventional behaviour to persist, rather than fade due to pressure to conform.
Now, of course, unconventional behaviour is not sufficient by itself to guarantee success. So what I'd like to do at NFTBC is identify those situations where the strategy is sound and carries a reasonable prospect of a favourable outcome - specifically a strong competitive position with attractive shareholder economics.
Additionally, I intend to focus more often than not on those situations where the outcome might not yet be obvious. There are plenty of capable writers who discuss the ones that are already working. With NFTBC, I have made the decision to write about the less obvious and, frequently, less talked about names. Sometimes these are businesses that are already highly successful but with some manner of temporary setback, other times they could be businesses in the process of a reinvention - it could even be both.
Despite being sizeable businesses, most of the stocks I have have written about so far tend not to be discussed much at all in the usual online investing forums. I think it’s a shame because they’re all doing things I consider to be genuinely interesting and worth writing about. I hope that comes across in my writing. I want it to be interesting.
Naturally, not all of these stocks will turn out to be a success. But one thing I have discovered about myself over time is that I have a very slightly higher-than-average tolerance for looking foolish, so that’s why I’m happy to post about them.
What are you going to publish?
Periodic long-form research in the style you’re already familiar with (e.g. REGN, WPP, BRKR, BMW, PTC, MRK.DE). I’m anticipating that research will typically go out in a single post but there will be occasional multi-part posts too when the situation suits it
Occasional shorter research notes (such as these on ORCL and GSK)
Updates following earnings, where I’ll be looking for signs of signal rather than repeating the press release (such as this or this)
The NFTBC Digest - a semi-regular email that goes to paying subscribers only. The Digest compiles interesting news, links and thoughts concerning NFTBC stocks (here’s a free example)
What is your approach?
While I’ve been publishing over the last five months I’ve had a notion percolating in my mind as to what NFTBC deep dives are supposed to be, and what I’ve landed on is this:
A buy-side version of a sell-side note.
I’ll explain. It’s not a concise pitch of a ready-to-eat single-use investment idea. But neither is it unbiased long-form research with a near-term target price. It’s long-form research, but wearing a buy-side hat - and the hat of someone who considers himself a business owner, rather than someone jumping from one thing to the next. It’s the tortoise rather than the hare. I want it to be food for thought, to help you in your own research - perhaps today, perhaps next quarter, maybe even next year.
While it might look a bit like a pitch, it’s not really intended that way - I am spelling out the various ways in which I think the business can ultimately add value. But I’m not trying to persuade anyone about anything - you can use my research in whatever way is most helpful to you. In practice I may often own the shares myself, and I’ll always tell you if I do.
The approach will typically be more qualitative than quantitative. And while I’ll talk about valuation and some of the key considerations, there will be no sophisticated models and such things. I’ll also talk about timelines, roadmaps and turning points, but I won’t make firm predictions on shorter-term price moves or advise on entry points. I’ll be honest with you, I’m not much of a timing specialist and tend to be a bit early. From my conversations with you, I can see that you’re sophisticated investors - you have your own approaches to valuation and timing. While I’m happy to talk about such things in separate conversations, it won’t be emphasised in my research.
Who is the target audience?
While everyone is certainly welcome, it has become clear over the last five months that most of you are professional investors. So I envisage the audience as professionals and sophisticated individual investors who:
have a particular interest in one or more of the stocks I write about, or
are curious to learn more about the sorts of businesses NFTBC dives into
What is the area of focus?
I want my research to be useful for a broad range of professional equity investors. Therefore the NFTBC universe will be broad on the market cap spectrum while still keeping things fairly liquid - global equities ranging from mid-caps up to megacaps.
As a global generalist, I will look across sectors and around the world. There may be a slight tilt towards pharma and life sciences, at least to begin with.
How often will I publish?
I’ve thought about this quite a bit. While I’m still not sure whether or not this is the best way to attract subscribers, I’ve decided not to make any commitments in terms of quantity or periodicity. I would prefer simply to try to earn your trust, over time, by publishing interesting content whenever it’s ready to go. Naturally I would expect there to be more going on around company earnings but it could be quieter at other times.
Do your stocks ever go up?
A very fair question. Thus far, I’ve been publishing about fairly persistently out-of-favour names. But it’s also a case of selection bias - I’m not generally writing as much about those ideas of mine that are currently working in the market. But, yes, I do expect most (even if not all) of these laggards to start going up eventually for the various reasons I explain in my writing. It’s a process that has worked well for me over time, but that I will continue to adapt. Paying subscribers (and those on free trials) can see my 10-year track record of looking at stocks in this way, here.
How are you using AI?
I find it very helpful during the research process, particularly when there are technical questions I want to get to the bottom of quickly but without losing depth. I also find it increasingly useful for competitor analysis - using targeted prompting I can cover ground much quicker than I used to and in more detail.
I do not generally use AI in the writing process however. The writing part is 100% me, unless I specifically tell you otherwise - I see no reason why this should ever change.
What about pricing?
If NFTBC is going to be a paid service, it’s vitally important to me that you derive value from it. I’m also cognisant that I’m still in the process of earning your trust - NFTBC is young and a work in progress. Equally, the target audience is professional and NFTBC is time-consuming to produce. NFTBC will therefore be priced in line with other professional stock-focussed Substacks, but towards the lower end of the range. There will be the typical discounts for annual subscriptions and for groups, as well as seven day free trials.
I’ve really enjoyed the journey so far and hope you will consider joining me in finding out where it goes next. Let me know if you have any thoughts or questions - you can get in touch via the Substack app or via email: mail@notesfromthebeautycontest.com.
Crashkolnikov
Congrats on the big step, I look forward to what comes next
- Alex (TSOH)