From comics to capital markets: Michael Knolla on how to get there from here













Today I’m featuring a guest post from Michael Knolla. 

Michael works for an investment firm.  Thanks to Pip Coburn, that great conveyor of intellectual exchange, Michael and I recently shared a conference room.  At some point in the proceedings, I overheard Michael talking about comic books and popular culture.  Passionately.

“Ah,” I thought, “This is not always the background or the passion of people working in the capital markets.”  Indeed, the worlds of investment and fan culture are pretty discontinuous.  You can do one.  Or you can do the other.  In our culture, you have to choose.

More’s the pity.  The investment world is increasingly shaped by cultural forces that fans are especially good at understanding.  And a career in investment is, I think, a great platform for anyone who wishes to carry the study of popular culture into their professional life.  The poetry and the banking of Wallace Stevens were mutually exclusive.  For Michael Knolla, there are lots of connections.

Indeed, Michael has apparently discovered a Northwest passage, and I was anxious to find out how he did it.

You will see the full text below, but I liked this passage especially.   Michael is referring to the skills he learned from transmedia or as he calls them,

“the ‘shared worlds’ of Marvel, DC, Valiant & Image comic books as well as the Dragonlance & Forgotten Realms novels.  Shared worlds, where different authors use the same settings and/or characters to tell stories with varying levels of interconnection, require a different kind of reading, I think, than stand alone or self-contained works.  With plots that would go on for months, if not years, crossing over at various times into other titles I learned to categorize and recall data in a way that helped me make connections and anticipate twists in the story.  Later this would be incorporated into one of the frameworks I use for identifying & monitoring investment themes.  It was also an early exercise in sorting signal from noise in learning which authors’ characters were more restricted in their ability to influence the larger arcs.

Michael found strategic understandings in popular culture. 

I’m guessing I was about 3 years old when my father first showed me the original King Kong.  The iconic image is of course King Kong on top of the Empire State Building with the airplanes flying around him, but what has always stuck with me was King Kong fighting the dinosaur.  This giant gorilla vs. T-Rex dynamic opened a whole new mental framework in my toddler mind, one that would be nurtured by a healthy serving of Godzilla movies as I grew older.  The latter were important as they moved the dynamic from one of x vs. y, winner take all, to a more rock, paper, scissors model.    For example, Godzilla could defeat Mothra in its caterpillar form but Mothra would triumph in the moth version, yet it might take both Godzilla & Mothra to triumph over MechaGodzilla.  It is easy to fall into heuristics in this profession when it comes to competitive advantage (that industry X is all about branding or company Y will always dominate because of its low-cost manufacturing, only to see these paradigms subverted by new distribution models or changes in the consumer decision metric) despite the warnings of Porter & Christensen.  

Michael sees a still more general benefit to this popular culture consumption.

Read enough books, watch enough movies, and you’ll eventually develop a strong sense of how stories work that enables you to go beyond Chekov’s gun in your forecasting (not just that it will be fired, but at whom, by whom, for what reason, and what the fallout and resolution will be).  This experience in predictive pattern recognition combines well with the above into a framework for developing investment theses and forecasts.

Here’s the full text.  It begins with Michael’s note to me:

Grant, thanks for the opportunity to talk about two of my favorite subjects: the research process and media consumption.  I am blessed to be someone who has found a job they truly enjoy, yet I doubt many of those who knew me in my youth would have guessed I would end up an equity analyst given that the only stock I grew up around was the livestock at the farm at the end of the street.  Yet, almost a decade into my career hindsight suggests that I was hardly disadvantaged by my starting point.  Rather, to borrow from Steven Johnson’s new book, I needed to exapt the skills I had developed in a different context to my new profession.  This is NOT intended to be an “Everything I Needed to Know About X I Learned from Y”; college, the CFA exam, the mentoring of analysts I’ve worked with, experience, etc. have all been vital to refining those skills and adding many more.  But if you are interested in how culture or commerce can catalyze/synthesize thinking about the other my experiences may serve as decent conversation starters:

·       Shared Worlds & Learning to Identify & Monitoring Investment Themes: My first experience with an investment bubble was the late 1980s/early 1990s comic book craze.  At the time I was convinced I would pay for college with my comic book collection.  Strangely enough in a way I think I have, as I pay down my student loans with the money I earn as an equity analyst.  While Marvel was briefly a publicly traded company before being acquired by Disney, and DC has been a part of Warner Brothers for some time that is not the connection I am referring to.  Rather it relates to the skill set that evolved out of reading the “shared worlds” of Marvel, DC, Valiant & Image comic books as well as the Dragonlance & Forgotten Realms novels.  Shared worlds, where different authors use the same settings and/or characters to tell stories with varying levels of interconnection, require a different kind of reading, I think, than stand alone or self-contained works.  With plots that would go on for months, if not years, crossing over at various times into other titles I learned to categorize and recall data in a way that helped me make connections and anticipate twists in the story.  Later this would be incorporated into one of the frameworks I use for identifying & monitoring investment themes.  It was also an early exercise in sorting signal from noise in learning which authors ^ characters were more restricted in their ability to influence the larger arcs.

·       “Cigarette Burns” & Leading Indicators: Many of those comics were read between shows while I worked at the movie theatre my father managed.  I’d started out tearing tickets and cleaning the theatres and worked my way up through concessions & ticket sales to eventually become a projectionist, just like both of my brothers, before heading off to college.  For a few summers I helped put together the new films each week, splicing the reels together and then running them through late at night to make sure they’d sent all the reels and they were in the right order.  To this day I can’t help but notice the “cigarette burns” that indicate a reel change.  What I came to appreciate was the structure the reels provided to a film.  They each would run ~15 minutes so your typical 90 minute film had ~6 reels, with the characters & setting being introduced in the first, the conflict in the second, and the resolution in the fifth with the denoument in the sixth.  (That reel changes also conform decently to commercial breaks when eventually aired on TV, further supports their relevance to film structure I’m guessing.) By simply watching for the cigarette burns it was easy to anticipate the pacing of a given movie.  The corollary I would later experience is the focus required to know when to look for leading indicators in cyclical industries and the understanding of the different implications depending on when in the cycle they occur.

·       Plot Structure & Pattern Recognition in Forecasting: As I was advancing from ticket tearing to concessions & tickets to projectionist I was also graduating from comics and TSR books to more “sophisticated” reading.  Again, there was a lot of time to read between shows, so the fast reading (another very helpful skill in this profession) originally honed on week long driving vacations as a child, in the days before handheld videogames and portable DVD players, was further refined between shows.  Read enough books, watch enough movies, and you’ll eventually develop a strong sense of how stories work that enables you to go beyond Chekov’s gun in your forecasting (not just that it will be fired, but at whom, by whom, for what reason, and what the fallout and resolution will be).  This experience in predictive pattern recognition combines well with the above into a framework for developing investment theses and forecasts.

·       Cash Flows Across the Value Chain: I would later go on to work at the small bookstore in the mall where the movie theatre was located, and these teenage employments provided another lesson applicable to business analysis.  Movie theatres don’t make their money off of ticket sales, but rather concessions. The lights at the bookstore were kept on not by the sale of bestsellers (particularly given the heavy discounts they often had), and certainly not via sales of “fine literature” but rather through the regular sales of Harlequin romance novels and detective fiction.  The price points on these books may have been lower, but the margins were higher and the frequency of purchase was far more regular.  This taught me to look beyond the obvious revenue streams & horse races/popularity contests to the multiple cash flows across a value chain.

·       Godzilla & the Relative Nature of Competitive Advantage: I’m guessing I was about 3 years old when my father first showed me the original King Kong.  The iconic image is of course King Kong on top of the Empire State Building with the airplanes flying around him, but what has always stuck with me was King Kong fighting the dinosaur.  This giant gorilla vs. T-Rex dynamic opened a whole new mental framework in my toddler mind, one that would be nurtured by a healthy serving of Godzilla movies as I grew older.  The latter were important as they moved the dynamic from one of x vs. y, winner take all, to a more rock, paper, scissors model.    For example, Godzilla could defeat Mothra in its caterpillar form but Mothra would triumph in the moth version, yet it might take both Godzilla & Mothra to triumph over MechaGodzilla.  It is easy to fall into heuristics in this profession when it comes to competitive advantage (that industry X is all about branding or company Y will always dominate because of its low-cost manufacturing, only to see these paradigms subverted by new distribution models or changes in the consumer decision metric) despite the warnings of Porter & Christensen.   Certain competitive advantages are stronger and more sustainable than others but the movies & comics of my childhood serve as a reminder that there is always a weak point that could be exploited, the kryptonite or Achilles’ heel if one is feeling more classical.  It may not be, or it may take longer to exploit it than your investment horizon, but you darn well better be aware of it and monitoring for it because when a competitive advantage breaks down the market shift can be fast and dramatic.   When I worked at the bookstore, where we sold Magic & Pokemon cards, and I can now see a similar learning opportunity among the kids engaged in the games (as opposed to simply collecting the cards).  That these also incorporated crude “resource management functions” makes them even better in my eyes.

·       Trinitarian vs. Bull/Bear: All this reading and movie watching eventually coalesced into what I call my Trinitarian format, and it enabled me to move outside of the simple bull vs. bear dynamic that is so prevalent in the industry.  In literature I came to understand that my appreciation of one work was often greatly enhanced by the comparison and contrast with at least two other works.  Thus my life long love of Douglas Adams was deepened by my reading of Terry Pratchett and Kurt Vonnegut.  My reading of Umberto Eco is improved by my reading of Jorge Luis Borges and Italo Calvino.  H.P. Lovecraft is all the more enjoyable when read together with R.E. Howard and Dashiell Hammett.  As I began to read professionally I translated this dynamic into a framework that moved beyond reading something for and something against a given precept in a given area, to non-fiction trinities.  These would be comprised, for example, of one book written from a macro-perspective, another from a micro-perspective, and a third maybe from a non-western perspective.  Alternatively I might read works that take the same approach, but apply it to different issues or vice versa.  I have found this very helpful in my research, especially as it often highlights what a given perspective is leaving out, which is often more telling than what it includes.

Finally, only about a quarter or a third of my current book reading directly relates to my day-to-day work (i.e. would be classified as “bizbooks”).  Another third is basically fiction, which helps to refresh my mind.  My wife would always laugh when I was studying for the CFA exam that after an hour or so I’d say I was sick of reading, yet fifteen minutes later she’d find me reading a novel.  Those fifteen or thirty minutes of fiction, however, would typically rejuvenate me for another hour or two of studying.  The rest is a quest for novel frameworks and perspectives.  Isaiah Berlin’s The Hedgehog & the Fox, for example, is one of my favorites.  The dominant metaphors in business are sports related, having inherited the position from the previous generation of military metaphors, and it is useful to be familiar with them when communicating your ideas to others.  Yet if everybody else is defining the category by singles, doubles or homeruns then it can be useful to apply a different framework as it might reveal what others are missing.  

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