Steve Mandel - Investing Behind Change

Principles & Lessons:

• Good investing starts not with abstract theories but with a concrete understanding of how specific businesses work. Steve’s investing approach is anchored in firsthand understanding: “Didier taught me really the details of how to dive into the guts of a business.” This foundation is not about relying on financial models or extrapolated metrics alone but about comprehending a firm’s operational mechanics, incentives, and levers. For example, Mandel's fascination with how Costco became the dominant seller of premium olive oil or how FIGS disrupted medical apparel reveals that insight begins with specific case-level understanding, not macro-level theorizing. Investing, then, is less about forecasting the future from a top-down view and more about understanding the structure and behavior of specific systems at a granular level.
• Culture is not a peripheral variable—it is often the central driver of business outcomes. Mandel repeatedly emphasizes that his background in retail taught him to evaluate the quality and replicability of culture. Walmart, for example, is praised not just for operational excellence but for how it treated people: “They took many, many people … to rising up through the management ranks.” In contrast, he condemns another unnamed retailer with a “screw our suppliers, landlords, and customers” ethos, noting that this model is unsustainable. Culture, for Mandel, is not a soft feature—it is epistemically central because it informs how people behave across time and under pressure, thereby affecting replicability and durability.
• Business models with built-in replication mechanisms have explanatory power and investing relevance. Mandel sees great investing opportunities in businesses that successfully replicate a proven model, noting that “when you have a better mousetrap and can replicate it,” scale and defensibility follow. This echoes his interest in “unit economics” and his attraction to models like Zara, IKEA, and Walmart. What matters here is not the grand vision but the ability to reproduce a configuration of people, process, and product that continues to work when copied. These replication models are better understood through explanation (how and why they work) than through correlation or backtesting.
• Investing behind change is valuable only when the change is deeply understood, durable, and explains the company’s trajectory. Mandel says they “invest pretty much forever behind change,” but he’s careful to distinguish real change from noise. He explains how they initially focused on wireless and then dropped it as the space commoditized. On the other hand, payments have remained a fertile area due to structural and ongoing innovations: “The move from cash and check to digital forms of payments … still has a long way to go.” This reflects a non-inductive stance: not assuming the past continues indefinitely, but also not being seduced by the new without explanatory depth.
• Alpha from shorting has declined, not because the ideas vanished, but because the institutional conditions changed. Mandel offers a nuanced view on shorting: “We absolutely couldn’t do [what we did in the late '90s] today.” The inefficiency in shorting during that period arose from limited participants and frictions in information flow. Today, however, “the borrow cost shoots up to ridiculous levels immediately,” and platform proliferation has intensified competition. This is not a moral tale of skill loss or overregulation; it is an institutional analysis: edge deteriorated because the environment evolved. Effective investing thus requires constant reevaluation of strategy within changing structural contexts.
• The most reliable investment edge lies in non-linear thinking and probabilistic reasoning. Mandel is explicit: “If [analysts] are very linear thinkers, it will never work … our world is all about probabilities and weighing outcomes.” This reflects an epistemic stance against seeking definitive answers in inherently uncertain domains. The key, he suggests, is comfort with ambiguity and the ability to focus on the few variables that actually matter. He notes: “Just identify the one, two, three things that really matter here and let’s own them.” This is a principled epistemology: ignore noise, resist the illusion of certainty, and attend only to explanatory variables with causal relevance.
• Great management is defined not just by vision or charisma but by an epistemic vigilance—constantly questioning and revising assumptions. Mandel notes that “the best quality management teams … are always looking over their shoulder.” He draws a contrast between two firms: one dismissive of competition, the other always learning. Unsurprisingly, the latter succeeded. This speaks to a growth-oriented error-correcting culture: a good manager is not the one with the best ideas but the one willing to refine or abandon bad ones. Sam Walton is celebrated not for being a genius but for his attentiveness and consistency in treating people well and driving operational excellence from the ground up.
• Success in building firms—and investment firms—is not formulaic but adaptive, iterative, and structurally aware. Mandel describes the founding of Lone Pine not as an epiphany but as a process: “I wrote a business plan … took input … iterated.” He rejects a top-down, control-heavy structure and instead builds an organization with broad ownership, fair incentives, and transparent processes. This is not framed as a virtue signal, but as a system that increases the chances of longevity and alignment. His organizational design reflects a meta-understanding: systems are fragile if rigid; resilience comes from distributed knowledge, adaptable processes, and feedback-rich environments.

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