Dr. Ajibola Awolowo
One of the greatest curses of being a doctor is that one never stops learning. One of the biggest blessings of being a doctor is that one never stops learning. Whichever way you take it, as a blessing or a curse, if you must remain relevant in medicine, you must keep learning. This is because the field keeps changing with new knowledge, outcome of research, new diseases and better medications being discovered every day.
Another awesome thing about being a doctor is that knowledge you acquired many years ago can somehow become relevant today or when you least expect it. You can take things you learnt from patient A and patient B 5 years ago to treat patient C today. In medicine, you can connect the dot between various scattered information you have gathered over the years to expertly manage a patient today. You will look like a genius when you do this and people will wonder which textbook you read that from but the answer always is, pattern recognition.
I am sure you can argue that this is also true for whatever profession you practice. Unfortunately, I have only ever practiced medicine so I am kind of biased towards it.
There is nothing new under the sun. Every situation we find ourselves in is either like one we have been in in the past or someone else has been in and have shared their experience. Pattern recognition means we recognise this fact and take lessons learnt from the previous personal or shared experience to navigate this present situation.
While working in a teaching hospital in Nigeria, probably 6 or 7 years ago. I saw a patient that came in with abdominal pain. I was on call on the day so I assessed the gentleman. I examined his tummy and the first thing I noted was that I could feel the pulsations of his abdominal aorta much more than I have felt in other abdomens I have examined in the past (the abdominal aorta is the large blood vessel that carries blood from the chest to the tummy and then to the legs).
I was confused as his tummy was otherwise normal. There was nothing else I found that would have explained his pain except the bounding pulsations of this blood vessel. I documented my findings and he was seen by the more senior doctors shortly after who immediately recognised that he had an aneurysm (this is when a blood vessels becomes larger than it is supposed to be putting the patient at risk). He was promptly referred to the specialist and had surgery done afterwards.
Fast forward to a few weeks ago, while examining the tummy of a patient who came in for something else, there it was! I felt it again. That same bounding pulsation in the tummy. The only difference was that this time, I had seen something similar in the past. I thought I had forgotten all about my previous experience, but it all came flooding back once I put my hands on that tummy. I wasn’t missing it this time.
I probably would have come across like a very smart doctor (which I hope I am) when I told him, “You came in for this, but I found this incidentally and this is what I think it is. You need to be seen by the specialist”. In reality, I am probably not smarter than the average doctor out there. I was just only able to draw from experience, recognise the pattern and make appropriate recommendations. Pattern recognition helps you connect the dots and see the woods for the trees.
In investing, pattern recognition is a very useful skill. I remember the exact moment that this realisation hit me. In 2021 (or 2022), Vitafoam hit my radar as a few friends were discussing its growing earnings. The company seemed to be on an upward trajectory. I looked into the company’s financials to try and understand what was responsible for the turnaround in its fortunes and it appeared as if they were on a cost-cutting crusade which did not seem sustainable to me.
I decided against buying the company and might have even sold down the company if I had any holdings in them at that point. How wrong I was! The company did not only continue to grow its earnings, they also grew their revenues in leaps and bounds. Cost cutting would not have produced that. I recognised that I had missed a great opportunity to invest in a company at its inflection point.
Another case in point for me was Fidelity. When it was selling at N2.5 per share, the company came to my attention. I did my analysis and recognised that, though the numbers historically did not meet my buy-criteria, something was happening within the company that was changing the story. What did I do? I discarded the baby with the bath water. I failed to see the inflection point that was staring me right in the face, again.
Having learnt my lesson from the experiences above, I found myself in very similar circumstances when National Aviation Handling Company (NAHCO) seemed to be at a similar inflection point. Earnings were growing and so was revenue in a patter akin to Vitafoam’s growth. This time around, I needed no one to convince me, I started buying hand over fist even when it seemed the price was exorbitant going by historic Price to earnings ratio. The rest, they say, is history.
I am not recommending that everyone start buying any company that shows a growing revenue or profit. I recounted my experiences in a bid to prove that recognising patterns can have a strong bearing on making a profit or avoiding losses in investing.
How then can we apply pattern recognition to our investing practice?
First, we must learn to be brutally honest with ourselves. Most times, we put the blame for our losses on others and attribute all our wins to our skill or effort. Successful application of pattern recognition in investing necessitates that we go deeper than this. We must reflect truthfully on our mistakes and our successes.
Losing money in an investment does not mean it was a bad investment. Neither does making a hefty profit in a deal translate to it being a good deal. Rather, the thought process that led to the decision which produced the profit or the loss is what makes it a good decision or not. If we learn from the line of thought behind the profit or the loss, we can replicate it to increase the probability of making a further profit or avoiding a similar loss in future.
Why did you buy that company that you made a big profit or loss in? Was that decision based on tangible and replicable information or was it from fear of missing out? If the decision was based on a piece of information sourced from fundamental analysis, you now know what to look out for or avoid in future opportunities.
Secondly, be sure you are learning the right lessons. The fact that you may have recognised a pattern does not mean it is worth following. You are not the first person to invest on the planet. Many have come before you and many will come after. Read books. Learn from the masters. Ask yourself how the new pattern you feel you have found matches up against their time tested and proven discoveries. You don’t want to be chasing your own tail in a bid to follow a pattern.
Lastly, you must have faith in the process. It will seem very uncertain and almost absurd for you to follow through on the decision to follow the pattern you have now recognised. Following time tested and proven patterns will lead you down dusty and lonely paths. You need to override your fear and craving for the safety the herd provides. The good news is that following patterns becomes easier the longer you stick to the process. Don’t lose faith.
Dr. Ajibola Awolowo is the Host of Value Nigeria Podcast. He can be reached via valuenigeriawithajibola@yahoo.com