The Three-Year Rule Is the Problem

There is a stadium in northwest England where the crowd noise does not simply rise and fall with the action on the pitch. It accumulates. Anfield holds roughly 60,000 people, and on a full matchday, the sound becomes something physical. I was there recently for a match between Liverpool and Tottenham, and what struck me most was not the football itself, but the final minutes.

Liverpool, one of the league's stronger sides this season, was leading 1-0 at home against a Tottenham club in genuine crisis: a storied London franchise hovering near the bottom of the table, in real danger of relegation to a lower division. For a club of Tottenham's stature and resources, that outcome would be beyond embarrassing; the financial and reputational damage could last years. Liverpool should have won comfortably.

But, inexplicably, as the last minute of regular time began, the Liverpool defense left Tottenham's most dangerous forward completely unmarked in the box. He equalized without difficulty. Five minutes later the whistle blew. 1-1. The crowd, which had been building toward celebration, turned. Thunderous boos rang out. The few exceptions were the supporters who had already walked out before it was over.

The Tottenham fans, packed into their section, celebrated as though they had won. They also directed a chant at the home faithful, roughly to the effect that real loyalty means backing your team regardless of the result. Thinking back, I don't believe I'd consider the Liverpool fans necessarily disloyal; they were frustrated. There is a difference. But the chant stuck with me, because it surfaced something I think about constantly in the context of what we do.

There is no final whistle in investing.

The Structure of Patience

The market does not declare winners and losers on a schedule. And yet we operate inside artificial time limits that behave as though it does — three years of underperformance and you're out, regardless of what the underlying thesis says. This inconsistency is one of the most consequential features of institutional investing. It systematically removes capital from positions before they have time to resolve, and that is precisely what creates the pricing environment our approach depends on.

Consider what it actually means to hold a position through years of disappointment when the fundamental conviction has not changed. Most investors cannot do it. Not because they lack the intellectual framework, but because the social and professional cost of being wrong for even short timeframes — a year or two — is simply too high. The easiest path is always to sell, move on, and replace the discomfort with something more defensible in a quarterly review.

This dynamic creates a particular kind of structural opportunity. When a manager with genuine insight and demonstrated capability continues to hold a position that the broader market has abandoned, and when that position sits outside the major indices so that no one is benchmarked against it, the result is a pricing environment that has almost nothing to do with intrinsic value. The stock becomes cheap not because the business is hopelessly impaired, but because no one has a professional incentive to own it and every incentive to avoid it.

We have lived through this dynamic with several positions in recent years. A consumer-facing business written off as structurally impaired turned out to be a coiled spring once the balance sheet was addressed — Carvana is a name that will be familiar to many of you as a general example of exactly this kind of asymmetric setup. A set of biotechnology holdings required years of tolerance for regulatory uncertainty and binary risk before the underlying science was reflected in prices. And most recently, a display technology company that had been held by one of our activist managers for the better part of six years — through management crisis, workforce reductions, and a stock price that at one point had fallen well below the manager's initial cost basis — saw its shares move in a manner that would not have seemed possible even weeks prior.

Each of these stories follows the same structure. An easily observable fact — genuine technological superiority, a capable and committed manager, an activist with skin in the game — was widely known, yet almost universally ignored. Not because the information was unavailable, but because no one was incentivized to act on it, and the accumulated weight of years of poor returns made doing so feel irrational.

Sunk Costs vs. Conviction

There is a behavioral concept worth naming directly here, because it applies to situations like this and honest analysis requires engaging with it. The "sunk cost fallacy" describes the tendency to continue a course of action because of prior investment — time, money, reputation — rather than because the forward-looking case remains sound. It is a genuine cognitive trap. Even skilled investors are not immune.

The honest question is whether the continued commitment to a position like the display holding was disciplined conviction or behavioral error — albeit one that seems to have paid off. That question does not fully resolve, and it shouldn't. The manager faced this critique for years. The stock, even after its recent move, spent most of its life trading at prices that made the original thesis look like a mistake. For most of its holding period, a reasonable outside observer could have made a compelling case that the right call was to exit and redeploy.

What kept the position alive was not stubbornness, but a refusal to sell what was deemed a world-class asset at a deep discount to fair value simply because the calendar demanded resolution. That distinction is key. Sunk-cost thinking says: I've come this far, I can't admit I was wrong. Conviction says: the asset is worth more than the price, and I will not hand it to someone else at that discount regardless of how long I've been waiting.

We held the manager through this period with full awareness of what the position represented in the portfolio. And if the outcome is what it appears to be, what it reflects is not luck. It is the compounding effect of a model in which the managers we work with are permitted to think in years rather than quarters, and in which the temporary pricing of an asset does not determine its value.

The Market We Are In

Markets right now are complicated in ways that reward exactly this disposition.

Geopolitical disruption — ongoing conflict with structural implications for energy infrastructure, inflation, and the perception of the US as a stable anchor of the global financial order — has introduced a level of uncertainty that is neither temporary nor fully priced. The standard institutional response to this environment is to retreat toward comfort: passive exposure, consensus positioning, anything that minimizes career risk even if it maximizes financial risk.

There is a version of this argument that has been made well by others in recent months. The S&P 500, long treated as a neutral benchmark against which all active management is judged, now represents something quite different from diversified exposure to the American economy. It is a concentrated bet on a small number of companies whose fortunes are tied primarily to a single technological thesis. Most investors understand this. Very few are positioned differently, because the governance structures and incentive systems of institutional investing make deviation from that index extremely costly on an individual and career level, even when the investment case for deviation is clear.

We are positioned differently, and we have been for years. The frustration of watching that positioning look wrong relative to a benchmark that was itself becoming increasingly narrow has been very real for us — and, I suspect, for many of you. That frustration is now beginning to resolve in the direction we expected. Not because we got lucky, and not because something external changed that we didn't anticipate. It's because the architecture was right, and markets are returning to a regime in which architecture matters more than momentum.

What Comes Next

The three situations I referenced — Carvana, the biotech holdings, the display investment — are not anomalies to be celebrated and then set aside. They are not one-offs or fortunate coincidences. They are what the strategy is supposed to produce.

This model does not require that every position work. It requires that the positions we take have asymmetric return profiles: meaningful downside bounded by valuation; far larger upside driven by quality and time. Like a venture portfolio, the structure absorbs losses and is designed to be carried by its winners. Unlike a venture portfolio, the underlying assets are liquid, the risk is not binary in the same way, and the entry prices reflect significant discounts to fair value that may or may not include growth optionality.

What it does require is patience. And patience is not passive. It is an active refusal to allow artificial time horizons to override an analysis that remains sound. It is the willingness to look wrong for longer than is comfortable, to hold a manager through years in which the external evidence argues against them, and to trust that quality and time, as they almost always do, eventually prevail.

The gravitational pull of institutional investing runs in exactly the opposite direction. It pulls toward commoditization, toward comfort, toward the language of risk management that is often a cover for the avoidance of genuine judgment. The managers we work with, and the approach we have built around them, exist outside that pull. That is no accident.

The past several years have been difficult in ways I would not minimize. But I would also not wish away the market conditions that produced those difficulties, because it is the same architecture producing the outcomes we are now seeing. The seeds of the next cycle of opportunity are already present in today's markets. We intend to be positioned for them the same way we were positioned for the last one.

You can look at it two ways. The clock doesn't run, or it never stops. In any case, the game continues to be played between and beyond the halves — no one whistle forces a verdict. Fortunately, that is both the challenge and the advantage.