Mike - The Darkest Night: Lessons from Battle and Value Investing

Principles & Lessons:

• Preparation reduces risk—but only when paired with deep understanding and timing. Mike repeatedly emphasizes that risk is not eliminated through bravado or action, but by waiting for the right conditions after detailed preparation. This is captured vividly in his analogy: “We wait till that darkest night moment, where there's no moon, it's really scary, people don't want to go out, and that's when we go and we do our best work.” The same principle applies to investing—Zapata seeks to invest only when risk is lowest, which paradoxically is when fear is highest and prices are lowest. But that timing is only valid if the underlying business has been deeply studied, like how his team would track a target and consider political, environmental, and operational risks. As he notes: “The precursor to that is, have you done the work involved in understanding that target?”
• Grit is context-dependent and not purely innate—it can be developed through adverse environments and necessity. Zapata critiques the simplistic view of grit as either something you have or don’t: “I'm not sure if I was born with grit… my circumstances helped provide that.” He shares growing up on food stamps and working from a young age, implying that enduring hardship isn’t merely an obstacle but a formative environment for developing resilience. This has implications for how we understand perseverance in professional or investing contexts—it is not a static trait but an emergent behavior formed by necessity, expectation, and habit. “Injury becomes a new normal,” he says, illustrating how adaptation under stress is normalized within certain cultures—military or otherwise.
• The core of risk mitigation—both in SEAL missions and in investing—is the isolation and evaluation of variables others conflate or avoid. Zapata draws a powerful analogy between value investing and mission planning: “We simply didn’t see it [SEAL missions] as high risk… value investors are able to cut through the noise, they're able to isolate positions, isolate ideas, and test them to see if there actually is an opportunity.” The key insight is epistemological: to make progress in uncertain domains, you must reduce the dimensionality of noise and rigorously isolate what matters. This makes space for asymmetric returns. This principle is exemplified in how he approached the distressed construction company investment—not simply reacting to headline risk (a revolver being pulled), but investigating the asset base and management alignment to conclude that the “liquidity crisis” was misperceived.
• You can’t outsource judgment on alignment—words don’t matter; only actions do. One of Zapata’s most operationally useful principles is: “Never believe somebody on their words, look at their actions.” This is especially crucial in small/micro-cap investing, where information asymmetry is high and narrative distortion is common. He integrates skills from battlefield interrogation and human behavior assessment: “You're reading body language, you're understanding the nuances of people being honest with you, or trying to evade answers.” The epistemic core here is that knowledge of incentives and demonstrated behavior outweighs stated intentions. Investors err when they don’t do the hard work of verifying alignment—whether through insider ownership structures, performance-linked compensation, or the CEO’s willingness to forgo salary.
• Ego is the enemy of epistemic growth—without the balance of confidence and humility, learning stalls. Zapata identifies the “perpetual beta” mindset as essential to growth: “That program is going to always modify and adjust… If you try to say that it's locked in, then that's where you stop growing.” He cautions against rigid identity or attachment to any one model of the world. The real danger is not error, but the refusal to update in light of error. Ego “is a high place to fall from”—it prevents error-correction. Importantly, Zapata ties confidence to process (e.g., buying based on deep preparation), and humility to error recognition. This dynamic is essential for investing, where being wrong is inevitable but ruin is not—if feedback is welcomed and beliefs are flexible.
• Investing edge arises when you test what others dismiss—especially when fear or fatigue blinds them to mispriced potential. This is best illustrated in his discussion of “smoke and fire” opportunities: “The market just didn’t believe them… and they pushed that stock down.” Zapata deliberately seeks companies the market avoids, but with hard catalysts (asset backing, managerial incentives, balance sheet asymmetries) that make downside risk low. Importantly, this isn’t contrarianism for its own sake—it’s a structured epistemology built on testing what others assume without checking. The construction company example shows how “the liquidity crisis” was largely perceived risk—not real risk—and thus offered the chance to “buy on assets and sell on earnings.”
• Team alignment and shared purpose are force multipliers in any high-stakes environment—especially when hierarchy is deemphasized. Zapata’s emphasis on team is not just sentimental—it’s structural. “It doesn’t matter if you’re a SEAL officer or enlisted, you’re all part of the team.” He contrasts this with typical ego dynamics in organizations: “There’s no room for ego… it’s not about being right, it’s about winning.” This has implications for how to structure investment teams or any organization where decisions under uncertainty matter. Leadership should be decentralized and informed by experience, not title. He illustrates how “a smart officer will seek the guidance of the senior enlisted because they have typically had more experiences.” This counters top-down thinking with epistemic humility and distributed judgment.
• The investor’s job is not to predict the future, but to understand when misperception creates margin of safety—and to know the limits of that understanding. Zapata doesn’t fetishize mean reversion or growth vs. value binaries. He acknowledges that “you have to adjust where it makes sense,” while also resisting the “sirens of growth.” He notes that traditional net-net strategies are largely arbitraged away, and that new opportunities require contextual adaptation. His view of balance sheet testing—through aggressive discounting and conservative valuation of assets—reflects a philosophical modesty: we can’t know the future cash flows, but we can know what’s on the balance sheet today, and how conservatively that protects us. This frames value investing not as dogma, but as a probabilistic inquiry grounded in present-tense realities.

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