Instead, the fund's managers looked internally, and wrote a nine page letter drawing upon Nobel Prize in Economics laureate Daniel Kahneman's book, "Thinking, Fast and Slow," and how it shapes the culture and investment process at the firm.
The book focuses on inherent human biases and irrational decision making. Voss Capital aims to recognize these often subconscious tendencies so they can avoid making mistakes, while exploiting the mistakes of others falling into the cognitive traps described by Kahneman. A continuing theme of the letter is the firm's goal of attaining a "heightened awareness of our own limitations."
The investor note highlights the two distinct ways of thinking Kahneman describes in the book: "System 1," which is an immediate, instinctual reaction to something, or "thinking fast," and "System 2," a more complex way of "thinking slow," where your brain takes the time to really analyze the details of a situation.
Kahneman argues that anything that requires focus and concentration is activating System 2, according to the note, like doing a complex math problem as opposed to simple arithmetic. The book investigates how these two distinct ways of thinking interact with each other in making decisions.
One tactic at Voss inspired by Kahneman's book is "to repeat our investment process so many times that we spot positive attributes of a company something like how a radiologist spots an abnormality: practically subconsciously and with little effort," allowing what would normally be a complicated "thinking slow" task to instead be a quick "thinking fast" reflex.
Other key insights include recognizing mental laziness and being aware of confirmation bias, when people seek support for an initial belief while ignoring conflicting viewpoints. The book also addresses group think, when groups tend to revolve around the loudest (often not the most intelligent) voices.
In the note, Voss writes about the steps the firm takes to avoid such situations. For example, when analyzing a stock, employees perform the analysis separately and then send each other their thoughts to avoid influencing each other and falling into group think.
The note also discusses "ego depletion," which Voss describes as the mental fatigue associated with a tired mind. That exhaustion can lead to a higher risk of reacting to events using the instinctive "thinking fast" model and making mistakes. To prevent this limitation, Voss Capital takes "the investment banker model as one to directly avoid" to "mitigate cognitive laziness and burnout."
"Instead of taking pride in working 100 hour weeks, every week, we emphasize frequent breaks, mediafasting days, off-site reading days, periodic 'off the grid' vacations, and even intraday naps or meditation to replenish ego," continues the note. "We believe an emphasis on efficiency over sheer quantity is paramount, and will allow for clearer decision making on choices that really matter."