WEEKLY THOUGHTS

Last week we covered how our goal at Chenmark is to underwrite deals so that we continually acquire companies that demonstrate asymmetric payoff profiles. Ideally, when we "lose" we are muddling our way through, figuring out what is going wrong, and establishing a plan to do better in the future.

So far in our series on managing uncertainty we have discussed the importance of taking an expected value-based approach when making investment decisions and also covered why there are practical limits to a pure expected value methodology in the world of small business.

Last week, we went over some first principles concepts related to risk and uncertainty. The core idea was that if you have a strong understanding of the range of outcomes, the probabilities associated with those outcomes, and your ability to tolerate a negative result, you should consistently make positive expected value investments.

The last few months, we have spent quite a bit of time discussing potential acquisitions or deal underwriting more generally. While each of these conversations tends to focus on the idiosyncrasies of the company being evaluated, conceptually speaking, we are engaging in a form of betting exercise, where our challenge is to make the best possible decision despite having limited information and a high degree of uncertainty.