A Pirate Hunter’s [Investment] Process

I recently read Robert Kurson’s “Pirate Hunters,” while on vacation.  It was an engaging account of The Golden Age of Piracy of the late 1600s and centered upon the effort to locate a one of a kind ship from that era.

Kurson’s “Shadow Divers” and “Rocket Men” have also gotten very positive reviews.  However, I chose the pirate book during our annual family beach trip to North Carolina’s Outerbanks.  Thinking about pirates often crosses my mind while there staring out at the ocean imaging a one hundred plus foot frigate passing by the island.

The book rekindled my interest in pirates that I nostalgically trace back to the tween adventure of piracy and treasure hunting in 1985’s The Goonies.  There’s a book the boys consult when planning their hunt and its amazing that the imagery is still vivid in my mind.

Some of the images are taken from the illustrations in Howard Pyle’s “Book of Pirates,” which I remember clearly from childhood visits to the school librarytreasure-island-howard-pyle.

In “Pirate Hunters,” Kurson details the methods used to determine where to begin the physical exploration of the waters of an island in the Dominican Republic.  The lease-holder entitled to search a specific area of water provided the hunters with a few historical data points.  Some of them were unsubstantiated handed-down heirloom stories.  So the hunters, acting as part historian and part archeologist with a gift for deep water diving, research nautical archives of manuscripts that are several centuries old to supplement their magnetometer physical survey.

fight-among-piratesA critical moment in the story occurs when a book is published about Jamaica in 1687 that contains a first-hand account of the battle that led to the sinking of the pirate ship sought after.  The importance of documenting what seems like an arbitrary fact today played a major part of discovering one of the only pirate ships ever located.

The hunters were clearly impressed with the pirate captain Joseph Bannister.  They learned he,

had stolen his own ship, outmaneuvered two governors of Jamaica, evaded an international manhunt, and then, despite being outmanned and outgunned, defeated the Royal Navy in battle.  To do any one of those things, a man had to plan meticulously, prepare relentlessly, and demand the highest level of excellence of those around him.  To do them all, he had to be great.

While the pirate hunters utilize an evidence-based approach to target where to deploy resources they also use emotional intelligence to guide their analysis.  In determining what made Captain Bannister turn pirate they point to The Pirate Code and the desire for democracy as motivating factors.  They utilize examples such as Captains only receiving 2-3X the compensation of the lowliest deckhand on the ship as well as the equal representation of all the pirates voting on major decisions.

Spoiler alert, but in order to find the ship the hunters utilize historical research and also gain a great deal of understanding for the circumstances and personality of the pirate captain. They walk a mile in the man’s boots to get insight that leads to their discovery.

hookThe rationale for determining why Bannister turned pirate is important here.  A desire for democracy and the determination to do something that would be remembered in the history books drove him to attack a superior force rather than run.  This led to a determination that the fateful battle that sunk the ship took place on both water and an elevated land position.

Today, like our pirate hunters many successful investors and their advisors are also blending an evidence-based (EBI) approach with emotional intelligence (EI).

EBI is most commonly associated with passive investing that utilizes low cost and tax efficient index funds and ETFs to provide beta, which is a measurement of volatility vs. a benchmark exposure.  It is also associated with the efficient market hypothesis which states the market has considered all publicly available information to set an accurate price and therefore there is no edge.

EBI can be built upon for a customized approach fitting an investor’s psychology.  Research has indicated that many investors don’t always achieve the returns of the funds they invest in and this is also true with passive investments.  This is often due to volatility, attempting to time the market, or investing over an inappropriate time horizon.

Much like our pirate hunters used data to pinpoint the location of their quarry they used EI to understand their pirate captain’s perspective and ultimately his behavior to formulate an accurate reenactment of the story that led to their discovery.

The self-awareness and self-regulation of EI are very important to investors.  Money is emotional.  It is not advantageous like it was in prehistoric times, but it is a fact that investors’ brains are hard-wired to fight or flight.

maroonedUnderstanding how we’re likely to react to the daily moves of the market to formulate an investment policy and portfolio to build upon an EBI approach can be successful for many investors.  This may mean sacrificing some yield to achieve an adequate risk-adjusted return that meets your goals.  An investment you can live with is better than one that you sell out of when the pain (dips) begins.

Pirate Hunters doesn’t conclude like The Goonies with a pirate ship full of gold and silver sailing off into the sunset.  Most pirates spent their loot just as fast as they could steal it.  However, meeting the goal of finding only the second ever pirate ship recorded in history at the time and seeing the world through one of the Golden Age of Piracy’s greats were more than enough motivations for the heroes of this excellent tale.  Similarly, investors charting a course and using the techniques of EBI and EI can likewise have a better chance of safely arriving at their destination.

 

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