Treating An Investment Story As A Murder Mystery
Here at Porter & Co., we take the holidays seriously. We’ll be celebrating the “12 Days of Christmas” (plus a few extra!) from December 23 through January 6. During the holiday season, we won’t be sending our regularly scheduled research and insight.
Instead, we’ve asked members of the Porter & Co. team – editorial staff, analysts, marketers, and others – to select a favorite (generally investment-related) essay, article, speech, book excerpt, or other text, and to share their reflections on how it inspired them. Expect each one daily at our usual publication time: 4 pm ET. We hope they’ll help you get to know the family at Porter & Co. a little better – and perhaps offer some fresh perspective from voices you don’t usually hear.
Today, managing editor Liz McNulty writes about her historical research process for investigating company backgrounds… explains why it’s a lot like detective work… and shows how her favorite detective from classic fiction helped her solve a seemingly dead-end mystery in The Big Secret on Wall Street.
We wish you a warm and happy holiday season, from all of us here at Porter & Co… and we’ll be back with our usual program on January 6.
Researching an investment story is a lot like solving a murder mystery. Behind the publicly available information (the prospectus… quarterly filings… news stories… glowing media interviews of the founder…) there’s often a saga that no one sees at first glance… and more often than not, it’s a surprisingly human story, with plenty of sex, drugs, and abnormal psychology. When you follow the trail far enough back, you often find an unnatural death or a natural disaster.
The part of my job I enjoy most is digging into the background of the companies we write about for The Big Secret on Wall Street and Distressed Investing. I treat it like detective work, and I model my approach largely on that of my favorite fictional detective, G.K. Chesterton’s unassuming little priest, Father Brown. Informed by his vast knowledge of the irrationality of the human heart, Father Brown steps into a seemingly unsolvable crime scene… watches and listens… and notices one or two things that aren’t quite right. When he tugs on those threads, the hidden solution follows.
You’ll see him employing this tactic to full effect in the classic short, The Invisible Man, first published in 1922. Father Brown’s colleagues are baffled by a locked-room mystery where a seemingly invisible man has walked past four guards, murdered his romantic rival, and carried the body out of the building’s only entrance. Amid the confusion, Father Brown spots something out of place: a letter. It leads him to this famous “a-ha” moment (spoiler alert!):
“Nobody ever notices postmen somehow,” he said thoughtfully; “yet they have passions like other men, and even carry large bags where a small corpse can be stowed quite easily.”
I had Father Brown’s crime-solving approach – both here and in his 52 other adventures – in mind when I was tasked not long ago with finding the untold story behind preferred stocks (a hybrid security that’s a blend of a stock and a bond). They seemed to have appeared out of thin air in the U.S. some time in the early 1800s, and information about them was scant.
While digging through some obscure historical archives, I discovered that these stocks had first been issued in 1834 as a fundraising strategy for the C&O Canal Company. And there it was, the one little thing out of place: the line: “However, because of the company’s record… there was little to no chance that the required amount could be secured from any source other than the state of Maryland.”
What record? I wondered. What was the trouble with the C&O Canal Company?
So, like Father Brown, I pulled on the thread. And I uncovered the tale of a deadly cholera outbreak… two gangs of rival Irishmen… and the bloody (though little-known) “War on the Canal”. Turns out, that’s the real story of preferred shares. You can read it here. (The story itself is free above the paywall, but if you want to get the associated stock recommendation, you’ll need to be a Big Secret on Wall Street member. You can learn more about how to sign up here.)
And by all means, if you haven’t, read The Invisible Man. In addition to still-timely social commentary (who are the tradesmen in your life that you “never notice, somehow”?) it’s also a perfect read for this time of year. Set in a London lightly dusted with the first Christmas snowfall, it makes a suitably cozy December treat.
Porter & Co.
Stevenson, MD
P.S. Uncovering investment mysteries is what we do at Porter & Co. And we can solve yours… Join us in The Big Secret on Wall Street every week for investment analysis, monthly recommendations of high-quality, capital efficient companies, portfolio reviews, and more…
On the first Thursday of every month, Erez Kalir publishes Biotech Frontiers. Erez has been on an extraordinary run since we launched Biotech Frontiers in January… Out of 20 recommendations for 2024, 18 are up, for a 90% win rate… two are up 100% or more, and overall the portfolio is up 42.5%….
And Marty Fridson and his team publish Distressed Investing on the second Thursday of every month. Since March 2023, Marty has made 15 distressed-bond recommendations and six for distressed stocks – of the 13 current open positions, including eight bonds (up 15.2%) and five stocks (up 69%), 11 are in the green, resulting in an average portfolio return of 29.7%.
If you are not yet a subscriber to The Big Secret, click here, or to learn more about Distressed Investing, Biotech Frontiers, or anything we do at Porter & Co., contact Lance James, our Director of Customer Care, and his team at 888-610-8895, or +1 443-815-4447 internationally.