The Investigative Reporter Handbook: Investigative Journalism Reframed to Investors

In the last post, I have advocated in favor of writing investment cases down and making explicit each linchpin assumption not only for yourself, but to the investment team. As the previous book target public ranged from students to research reporters, I took my time to read another book called The Investigative Reporter Handbook, which aims to be a reference book for investigative journalists, irrespective of which sector they cover – from the government, to healthcare and so on.

I pretty much do not recommend the whole book, but there are some gems we can use in our day-to-day job, pretty practical ones. They tangle 3 main topics:

Research process:

  • Work the case from the outside in / Step back and see the bigger picture, don’t get lost in the details. What are the key questions of the case? And it can’t be more than 3, otherwise you still don’t know how to ponder what is the unknown that must be known
  • Constantly summarize the story in as few words as possible – be sharp
  • Collect both supporting and contradictory evidence
  • Parallel backgrounding: traits left by institutions lead to insights on people, and vice versa
  • “Documents” can lie just like human sources, after all, humans craft them: triangulate
  • Review primary, secondary and tertiary sources
  • Analyze power structures, both formal (likely in the form of organograms), but informal ones too (remember who actually run ANF?) – Understanding power structures gives a journalist a road map for discovering secret sources and hidden motivations
  • Since most recent evidence may make old research material relevant, periodic reviews of the case are recommended
  • Start writing as on as the investigation begins


  • You must convince your sources that you are a human being and that you are interested in the as people, too. Not merely transactional
  • Interviewing is all about building bridges, maintaining them and sometimes repairing them
  • Because you might have only one shot to interview a source, it is best to wait until most documents are in hand
  • Ask WHY. Use silence in your favor. Questions that lead to yes or no answers should be avoided. Ask for potential sources, people, articles, books. Ask for what you left uncovered but that should be mentioned or analyzed


  • Weigh carefully what the evidence shows
  • Always question conventional wisdom
  • Investors must confront what they think and become aware of certain assumptions they have brought to their subject. Everything should be scrutinized
  • “Questions yield new dimensions for the final stories”
  • Remember not to learn something every day, but craft a new good question for the next day as well
  • An investigation story should answer the SO WHAT, as well as the WHY, WHAT, WHEN, WHERE, WHY, HOW. The answers are generally in the details. The surviving details should form a chain of facts rather than a stack of facts. INSIGHT is key
  • The effective writer should always have an essential naivete, skepticism must be balanced with innocence
  • Think visually about your story, simulate your hypotheses

What video games have to teach us about research?

“So learning here is social, distributed and part and parcel of a network composed of interconnected people, tools, technologies and companies.” “The power of distribution – of storing knowledge in other people, text, tools and technologies – is really the way that all these things are networked together. The really important knowledge is in the network – that is, in the people, their texts, tools and technologies, and, crucially the ways in which they are interconnected – not in any one node, but in the network as a whole. Does the network store lots of powerful knowledge? Does it ensure that this knowledge moves quickly and well to the parts of the system that need it now? Does it adapt to changed conditions by learning new things quickly and well? These are the most crucial knowledge questions we can ask in the modern world.”

What Does Sense-making Can Teach Investors?

Sense-making is a qualitative, multi-disciplinary approach to make something sensible, i.e., how we structure the unknown as so to be able to act in it. In other words, it consists in constructing, filtering, framing, creating facticity and rendering the subjective into something more tangible. According to Karl Weick,

sense-making is about plausibility, pragmatism, coherence, reasonableness, creation, invention and instrumentality.

In this synthesis exercise in which accuracy is secondary, I found a couple parallels and antithesis to equity research, investing and managing an asset management firm.
On equity research and investing:
  • Sense-making is a synthesis exercise which usually benefits from mental models utilization to simplify complex and open-ended problems – it does not rely on extensive analysis and accuracy as enactment is needed in the learning process. This one is partially correct for investing in my point of view, since extensive analysis is a pre-requisite before synthetizing what the analyst has learned. A complete due diligence is required to mitigate risks, although it will never be complete due to the ever changing landscape and eternal unknown unknowns;
  • As I’ve just watched the True Detective TV series, I’ve learned from detectives this time (instead of Munger) that reading and studying different topics from a variety of sources helps us arm our brains with bits & bytes which can be combined later on our professional and personal lives. Although, we need previous knowledge and context to successfully use them “to consolidate bits and pieces into a compact, sensible pattern frequently requires that one look beyond those bits and pieces to understand what they might mean. Often, it is necessary to move outside a system in order to see the patterns within. (…) Of course, there is always more than one metaphor that can capture a situation, which means that any given metaphor is likely to be contested.”
  • And when we are unprepared, the man-with-a-hammer syndrome unleashes:  “operators who have specialized expertise do not see the big picture as crises develop and therefore miss key events.” We will try to frame the problem within our pre-existing models, unfortunately;
  • We are more likely to uncover unanticipated and potentially valuable viewpoints and information armed with open-ended questions. Moreover, in this way we avoid confirmation bias;
  • Marcel Proust helped me out in this one: “The real voyage of discovery consists not in seeking new landscapes but in having new eyes.” Again, it’s all about having perspective;
  • Sense-making benefits from past data (quant, social, etc.) in a given context to extrapolate necessary actions – just like investors learning from post mortem analysis/financial markets history to be better prepared for decision making;
  • Consequences are difficult to forecast in advance, though scenario planning could help out with this one;
  • Sense-making opposes scenario planning as “explanations that are developed retrospectively to justify committed actions are often stronger than beliefs developed under other, less involving, conditions.” This one is screaming for me since I live in Brazil and we are used to see growth embedded in 99% of potential investments here, thus we aren’t THAT creative imagining different scenarios. Unfortunately, we usually classify then as improbable as a preconception;
  • Learn not only what financial statements represent, but what is behind it: “e very sensitive to operations. Learn from those closest to the front line, to customer, and to new technologies.
On risk:
  • “Human errors are fundamentally caused by human variability, which cannon be designed anyway – so our function is to be risk mitigators which must be embedded in the capital allocator job description;
  • Compounding mistakes: “Small events are carried forward, cumulate with other events, and over time systematically construct an environment that is a rare combination of unexpected simultaneous failures.”
  • Constant learning, perspective and team complementarity as a knowledge growth vector and risk mitigator: “Capacity and response repertoire affect crisis perception, because people see those events they feel they have the capacity to do something about. As capacities change, so too do perceptions and actions. This relationship is one of the crucial leverage points to improve crisis management.” As investors, we should only act or react when we are prepared and comfortable with what we know and what we don’t know;
On governance:

  • “The dark side of commitment is that it produces blind spots” – This one I’ve learned from Malcolm Gladwell article in The New Yorker Magazine: do not engage in negotiation with fanatics, nor trust entrepreneurs living their dreams in listed companies. In other words, do not them live their dreams with your money;
  • “Turnover is as much a threat to capacity as is understaffing, but for a different reason. Institutional memory is an important component of crisis management”
  • “Perception, however, is never free of preconceptions, and when people perceive without institutional memories, they are likely to be influenced by salient distractions or by experience gained in settings that are irrelevant to present problems.”
  •  “In a globally competitive environment our reward structures are geared toward rewarding immediate action and hence we may be signaling that sense-making is not a valued activity.”
  • “Sense-making is inherently collective; it is not nearly as effective to be the lone leader at the top doing all the sense-making by yourself. It is far better to compare your views with those of others – blending, negotiating, and integrating, until some mutually acceptable version is achieved. Soliciting and valuing divergent views and analytic perspectives, and staying open to a wide variety of inputs, results in a greater ability to create large numbers of possible responses, thus facilitating resilient action.” – Sutcliffe & Vogus, 2003
At the end of the day, no single discipline or tenet will solve any problem alone, although sense-making might be useful when analyzing the past performance or story of a company in order to understand how things went out. It is like a mapmaking process. Sensemaking also uses mental models from previous experiences and disciplines. 

I do not agree though that it necessarily is a better exercise than scenario planning because it relies on past facts, as (i) facts are not as clean as they see, afterall someone made the fact up and you don’t know in what context and motivation and (ii) in a constant changing landscape it’s better to elucubrate about the future and try to foresee through group simulations what scenarios can come up.


Enacted sensemaking in crisis situations – Karl Weick

Sensemaking in organizations – Karl Weick

On Knowledge, Ignorance and Misperception

Many times we, research analysts, think we have completed the puzzle. Actually we NEVER do. What we actually do is think we have completed it. At the end of the day we are just tricking ourselves. If you think twice, our job is like playing the Jigsaw game – do you remember the movie? Things are getting scary, right? So, don’t freak out and let me explain it.

Analysts are flood with information from companies, sell-side analysts and stockholders – to name a few. This is just like playing Jigsaw’s game. The game is set up, someone controls your attention. You have to figure out  by yourself, just like a CIA agent, what the actual facts are. Distraction is across the corner, but the facts are buried down there. You will have to triangulate information across different sources in order to reach somewhere. Well, “somewhere” is a place where there are a lot more questions to be answered and that’s what knowledge means: knowing what you DON’T know. In other words, knowledge is ignorance acknowledgement. And so the game goes on. It’s an infinite game. Thus when you get home at night I suggest you to upgrade Munger’s lesson “Make sure you learn something new every single day” to “Make sure you end your day with more questions than when you woke up.”

Want to dig further?

Ignorance: How it drives science by Stuart Firestein

Finite and Infinite Games by James Carse