RISKY BUSINESS

Applying the skills of SEAL Team six to value investing

Applying the skills of SEAL Team six to value investing
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On 9/11, Mike Zapata was in the first phase of Navy SEAL training. He ascended the ranks into the elite Team Six unit and was deployed seven times during his nine and a half years of service. But like many careers, after nearly a decade of service he was familiar with the career trajectory; as a commanding officer (what us civilians might call, middle management) he’d be more removed from combat, which was what he liked most about his job. Zapata was ready for a change.

Ever since he was a teenager, Zapata was interested in investing. Throughout his various deployments, he continued to teach himself how to analyze companies and trade options. In 2010 Zapata left the SEALs to attend Columbia Business School and upon graduating started his own hedge fund, Sententia Capital.

In the third episode of the FWD: Thinking podcast, I interviewed Zapata about:

  • Problem solving when you’re nine feet underwater with your hands and legs tied behind your back.
  • How his wife Andrea’s income supported their family during his early days of entrepreneurship.
  • The similarities between tracking down military targets and value investing.

Training yourself to not let your mind go crazy

Zapata described “pool comp,” the underwater component of his SEAL training which tested his ability to stay calm under duress. One exercise involved bopping up and down nine feet under water with “your hands and your legs behind your back,” which would cause some trainees to pass out or quit:

“The beauty of the water, what it does is—your body knows it needs oxygen. And when it’s lacking oxygen, your mind starts to get a little crazy. [And] the crazier your mind gets, the more muscles you’re gonna use. The more muscles you use, the more oxygen you’re gonna consume.”

By focusing on his breathing, Zapata was able to buy himself time to “problem solve” his way out of this situation. This trait has served professionals across many industries:

“You see this in a lot of professions. I mean, nurses, doctors—they rarely go running down the halls. That’s Hollywood dramatic. But if you run, you’re adrenaline’s gonna increase and [it’s] gonna cause you to not see things.”

A supportive partner can make (or break) entrepreneurship

Zapata had the jitters as he “throttled back” into civilian life as an MBA student at Columbia. He recalls the pep talk his wife Andrea gave him on his first day:

“She gives me a sack lunch, looks at me and fixes my collar. And she’s like, ‘Chin up. People are gonna like you.’ And that was the [new] dynamic. After doing everything that I was able to do, now it’s like you’re a student again.”

But Andrea’s support was more than emotional. It was her income that enabled Zapata to take the risk as an entrepreneur starting his own investment fund:

“We only had one income. And so the question was can we maintain this standard of living for the next five years? Are we good with that? And I’m frankly able to do this because she’s continuing to work. And if she ever decides that she didn’t want to or something happened, it would change the equation.”

The similarities between tracking down military targets and value investing

At first blush, the Navy SEALs and value investing don’t appear to share many similarities. But Zapata describes how both roles required him to solve problems with incomplete information. Zapata describes the misconception that each SEAL mission began with “a manilla folder with a ‘top secret’ [stamp] on the top,” which would say: “This is your target. This is who you’re going after. Now go do it.” Instead, here’s what the preparations actually consisted of:

“We look at various forms of intelligence. We [evaluated] silo’d sources of information [to] see if [there were] commonalities across it. Does that either support our thesis and increase the chances that we’re going for the right person? Or does it take it down?”

Zapata found that knowing how to solve problems and manage risk translated well to running a hedge fund—it turned out “investing encompasses a lot of things that I did before.”

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FWD: Thinking is a new podcast about bold professionals who have challenged the status quo to recreate their careers. They’ve grown out of the cracks in the org chart, punched above their titles, and when all else failed, started their own companies. Hosted by Khe Hy and created by Quartz, this podcast traces the blueprints that lead to a more fulfilling work life. Subscribe on Apple Podcasts or wherever you get your podcasts.