Antonio Gracias - Pro-Entropic Investing

“Pro-entropic approach” stems from the belief that the world's chaos will keep increasing.

Key Takeaways

1. Pro-Entropic Investing: Antonio Gracias introduces the term "pro-entropic" to describe companies that thrive in chaos. Antonio believes the world is becoming more chaotic due to factors such as de-globalization, technological disruption, climate change, politics, and demographics. A company like SpaceX, for example, becomes stronger amid increased chaos. Another company, Gopuff, which disrupts convenience stores, excels in various situations, from recessions to pandemics. Antonio emphasizes the importance of pro-entropic thinkers in leadership roles, who maintain flexibility in decision-making based on changing probabilities.
2. Identifying Pro-Entropic Companies: Antonio's firm uses an underwriting framework that categorizes companies as pro-entropic, resilient, durable, cyclical, or fragile. They primarily invest in pro-entropic and resilient companies. When assessing companies, they look for those that have stable underlying demand functions and disrupt existing markets on both product quality and cost axes. Antonio believes that ‘timing and valuation are less crucial for pro-entropic investments compared to those lower on the spectrum.’
3. The Importance of Understanding People in Investing: 5% of the population may have a brain anomaly that doesn't trigger the amygdala in the same way as others. These individuals can excel in high-pressure situations but can also pose risks. For instance, while some might climb mountains without fear, others might commit fraud. This anomaly is especially prevalent in power professions like finance and politics. Based on these insights, Antonio's firm adjusted their base rate forecast, assuming that 10% of people they interact with might have differing values or intentions. This realization emphasized the importance of aligning with partners and businesses that share the firm's core values—humility, integrity, responsibility, and excellence—and taking the time to ensure this alignment before deepening the relationship.
4. Combating Emotional Bias in Investment Decision: While many decision-makers manage cognitive biases well, emotional biases pose a significant challenge. He emphasized the importance of recognizing and addressing such biases, especially in mission-driven investments. Additionally, the firm has introduced measures like explicit bias identification in their underwriting process and promotes open discussions about emotions and biases during decision-making to ensure a balanced perspective.

Transcript