The analysis, not the answer

Investment is a perspective on the future, and the perspective is rarely absolutely right or wrong. More often than not, it’s a matter of circumstance, of timing, of changes to perspective, or the way in which these things relate to some “consensus” in the “market” – both of which are fluid terms, and difficult to define.

The better investors isolate the variables that may shape the outcome – at least the most significant, for there are many – and as the outcome takes shape (although this isn’t always definitive) update and adjust analyses as the case may warrant.

The important thing is not the answer, because there isn’t really one. Even when the outcome matches the investor’s forecast, this may be for unanticipated reasons, or it may be true for just one case that doesn’t carry over broadly to the universal, or maybe it’s a matter of some arbitrary timeframe in what is a continuum of these.

The important thing is the analysis, the framing of the case and its assumptions. The better analyses are clear and logically presented, complex but argued in a simple fashion, conducive to subsequent fine-tuning and reframing as events and evidence pour in, with the original framework intact – because the logic doesn’t change, only the variables.

One can learn a great deal from a good analysis, including ways to develop other good analyses. An answer, on the other hand, has nothing to offer. Worse still, it may seem as though it does, which is deceptive.

One of my favorite analyses, dating back more than a decade, is Fred Wilson’s Venture Capital Math Problem. This has come under friendly criticism lately because its “answer” has been incorrect.


Obviously, I disagree.