Summer Reading
A timeless suggestion for an engaging series of novels
Happy Thursday, 👋
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Summer Reading
The professions of a physician and an investor share several similarities. Every patient is unique and seldom provides their physician with a complete medical history. The situation mirrors how every company is different, compelling investors to ask the right questions to understand a company’s full history and outlook. Arriving at a specific diagnosis or investment thesis requires the use of deductive reasoning. Investors start with an overview of the macroeconomic landscape before making more detailed observations about industry trends. These observations guide investors in compiling a list of management questions to develop a greater understanding of the specific company.
Several years ago, we asked a dean of a medical school what he recommends incoming medical school students read during the summer before starting classes. His answer has remained one of our top summer reading suggestions for investors.
Arthur Conan Doyle’s Creation
The Sherlock Holmes series by Arthur Conan Doyle was the recommended summer reading for incoming medical school students. The first novel, "A Study In Scarlet," illustrates the concept of deductive reasoning as Holmes employs a series of observations and questions to deduce the background of his future partner, Dr. Watson.
Education never ends
Several novels in the series provide timeless investing lessons which we have applied throughout our career. Below we discuss three of these ideas:
🔎 Constant Observation. In “A Scandal in Bohemia”, Holmes asks Watson how many steps there are leading up to a room in their house. Even though we may have walked up the steps to our own house hundreds of times, most of us probably do not recall the actual number of steps. Observing what has become routine prompts questions about why something is done a certain way or challenge norms regarding new products or ideas.
❓ Question Assumptions. We often ask what appear to be simple questions when evaluating a new investment, but our goal is building a full understanding of the company. Asking the “why” behind an assumption often leads to unexpected discussions as in “The Beryl Coronet”, Holmes questions several assumptions to discover a straightforward case is not exactly as it appears.
📂 Data Filtering. Without a strategy, measuring trends across several components of a company often creates more noise or confusion. Irrelevant trends can cloud judgements when there are too many performance indicators or data points. Holmes reminds us of these challenges in “The Naval Treaty” where the risk of too much evidence hides vital facts.
Final Thoughts
Whether or not you plan to start medical school in the fall, the Sherlock Holmes series makes for a fantastic summer reading choice. They provide thrilling narratives along with building a greater understanding of deductive reasoning.
Wishing everyone a great weekend,
-The Caymont Ventures Team.