Founded in 2012 by Arne Alsin (click here for Arne's bio at Forbes), Worm Capital is built around three simple ideas:
1. WE DO ORIGINAL, IN-DEPTH RESEARCH
Our team is committed to doing original research, from the ground up, using source documents and our own internally developed methodologies. We believe in starting analytical work from scratch, asking foundational questions, seeing each project as a thousand-piece puzzle. Our motto reflects what is a common problem in our industry: “We don’t do shortcuts.”
Original research is our springboard, where everything begins, from building on our expertise in five disrupted verticals, to analyzing and classifying business models, and finally, to picking stocks.
THINKING LIKE ENGINEERS:
We can’t cover every industry group and we can’t cover every stock. Which makes how we go about our business critically important. To help us focus on what’s important, we have our own classification system, which includes original theory on business model design.
From an engineering perspective: How does this particular business model work? What are the inputs and outputs? How does it fit the vertical in which is competes, and most importantly, how well does it meet the customer’s value proposition?
2. WE HAVE OUR OWN PLAYBOOK, OUR OWN VALUATION THEORY
In a rapidly evolving, “up for grabs” business environment, how do you pick stocks? How do you identify winning business models? Contrary to the backward looking, or historical emphasis that predominates in our industry, we’ve developed a forward-looking playbook, with our own set of valuation tools and theory.
THEORY AND PROCESS ARE IMPORTANT:
As a “shortcut to value,” the PE ratio and other Wall Street standards work well – when verticals are stable and largely industrialized. Enter disruption, and, all of a sudden, business models designed around optimizing quarterly earnings are now at a disadvantage.
Disruption creates a land-grab environment where young upstarts and their anything-goes mentality have a real chance to succeed. Product beats PE ratios, or, put another way, the ability to satisfy the customer’s value proposition often represents more long-term value than last year’s operating metrics.
3. DISRUPTION IS BEAUTIFUL
We fully embrace and invest in disrupted industry groups. Currently we cover five verticals that average well over $1 trillion in market value – in each case, it’s a wealth pie that’s in the process of being divided up anew. Marked by innovation and new ideas, as well as upheaval and chaos, a disrupted vertical is prime territory for stock picking.
WEALTH-BUILDING OPPORTUNITIES ABOUND:
We can’t make any promises as to whether we’ll succeed or not, but the opportunity is easy to see. Entire industry groups are up for grabs in a fast changing, rapidly evolving business competition that is likely to last well into the 2020s.
Who will survive and thrive? And who will decline and ultimately perish?
This is what makes picking stocks in a disrupted environment so thoroughly engrossing and fun: We don’t know who will win in any given industry group. We can’t know. In most disrupted verticals, all of the players have yet to be identified. The competitive boundaries are still blurry. And the rules have yet to be written.
It means you have to be flexible, and prepared for the competition, armed with both compelling theory and a thorough process. We had a lot of excitement in our first five years. With change accelerating, we’re even more excited about what the next few years will bring.