The Cost of Waiting for 90% Conviction - ASA Equity Magazine Jan/Feb Issue

Recently, we have been re-reading The Bezos Letters by Steve Anderson and Karen Anderson – an excellent distillation of the principles Jeff Bezos embedded in his famous annual letters to Amazon.com, Inc. (NASDAQ: AMZN) shareholders between 1997 and 2020. Like Warren Buffett’s Berkshire Hathaway letters, Bezos’ letters are a masterclass in long-term thinking and are essential reading for any serious investor.

One of the most practical and frequently cited ideas comes from his 2016 letter, where Bezos outlines his now-famous “70% rule” for decision-making:

“Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow… If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.” – Jeff Bezos, 2016 Letter to Shareholders.

If we reflect on the year that was at NAOS Asset Management, one of the hard learnings from the year 2025 was not abiding by the Bezos 70% Rule. We spent considerable time analysing an emerging company that would have been a new investment for us, in a specific industry vertical where our prior understanding was minimal. Over a period of months, we studied the industry, reviewed the historical financials, and spoke to customers, suppliers, shareholders, and competitors. Our analysis concluded that this particular emerging company appeared to be a compelling long-term risk-adjusted investment opportunity.

Ultimately, we did invest, but at a modest initial weighting, while we waited for further validation before scaling into a core holding. Fast forward to today, and the said company is being acquired by a strategic investor. That proverbial ship has sailed, and the ASX is losing another high-quality emerging company.

Bringing this back to Bezos’ 70% Rule, investment conviction is difficult to measure with precision. In hindsight, however, it is clear that we had long since passed the 70% threshold on this company – we were probably closer to 90% or more. To quote Bezos directly, “being slow is going to be expensive”. This was true with respect to the opportunity cost of not investing.

To coin a phrase from the basketball coach John Calipari – “you win, or you learn”. Whilst we certainly didn’t lose in this example, we believe that these are the two key learnings that were reinforced.

1. Management Teams

A truly high-quality management team – one with a proven track record and genuine owner-like thinking – can more than compensate for the remaining unknowns. In this case, backing that team earlier would have comfortably bridged the gap between the 70% information threshold and the illusory comfort of “100% certainty”. Investing behind a high-quality management team is, in a way, outsourcing your investment management to the management of a company when you invest in that company. You’re trusting them to allocate capital and generate returns on your behalf.

“Getting to know the management of a company is like getting married. You never really know the girl until you live with her. Until you’ve lived with a management, you don’t really know them to that same degree.” – Phil Fisher

2. Reputation

A company with a strong reputation for delivering value, not just as seen through its own eyes but across many stakeholders in an industry, is generally a good starting point for company health and future success. When speaking to industry participants, you expect to hear differing views, some positive and some negative. Often, the trick is to step back, ignore perceived biases, and take a higher-level view to focus on what matters. One thing that is particularly reassuring to hear is what competitors think of a company. In our analysis of this particular company, we found virtually no negative feedback, no matter how hard we looked.

“When a management team compliments a competitor, this can be like gold dust for an investor.” – Marathon Asset Management

Adopting the 70% Rule does not mean compromising our standards or diluting our discipline; rather, it is about continually identifying the hallmarks of a high-quality opportunity and placing greater emphasis on the few key pieces of information that provide comfort. Knowing that investing is more art than science, learning from some of the great investors and some of the most successful founders of all time is a great way to grow as a human and an investor. If the end goal is investment success, the journey to reach the destination will include discomfort, opacity, volatility, risk, and, of course, backing your judgment. After all, that is the world of equity markets.  

“Every great investment begins in discomfort.” – Howard Marks