I found his concept of variant perception useful. According to micheal, every investment idea should be explainable in 2 minutes and four points
- The idea
- The consensus view around the idea
- The variant perception of the analyst
- The trigger event which would unlock the value
For example, if there is a solid growth company which is expected by the market to grow at 20%, and as an investor my expectations are close to the same number, then I am not going to make more than the cost of equity if the actual numbers meet the expectations (for more detailed understanding of how to evaluate market expectation read the book Expectations investing)
I have used this concept of variant perception in some form although not exactly in the same manner as explained by micheal. Let me give an example
Marico in the year 2003-2004 was selling at around 10-12 time trailing earnings. A simple DCF would easily show that the market was discounting 2-3 years of competitive advantage period -CAP (for detailed understanding of CAP, please read this article) with growth in low teens. Now if one looks at the brands, the history of their New products and their distribution network and management,it is easy to see that this company could grow in low teens for considerably more than the market implied CAP of 2-3 years.
So basically my variant perception was not centred around the growth (which is the the usual variant perception generally given by most of the analysts) but around the CAP of the company.
Marico now sells for a much higher PE and the growth was also much higher than implied by the market (around 15% +).
To a certain extent, one can see the same kind variant perception being exploited by warren buffett, except that he is a genius at recognising such businesses with CAP much higher than implied by the market price (ex: coke, GIECO etc)