If asymmetry and convexity exist, this investment will have a much greater risk-adjusted return, and those positive returns will increase at an increasing rate. Obviously, these are the most attractive components to the most successful investments. How do we find them? A dynamic that has emerged globally combining industry disruption, technical innovation, customer loyalty, and a worldwide market is the “closed loop” business. This is where a company provides a product or service that is innovative, useful, and generates significant demand. Customer feedback for that product or service provides a “loop” that enables the company to understand its customer better and the attractiveness or negative aspects of the company’s product or service. The customer feedback now enables the company to provide a better product or service and be a more formidable competitor. There is now a loop connecting the company and the customer. If a company is essentially able to close this loop so that the customer values the company’s product or service so highly that the customer will not look for competing products, this will enable the company to grow at an increasing rate. Essentially, this closed loop is a value-generating competitive weapon that improves the product offered, retains customers gets better feedback to make an even better product, retains and attracts even more customers, etc. It enables more effective capital investment, more efficient operations, and improves decision-making from better customer data and responsiveness. This creates a virtuous cycle that spirals the business upward creating a sustainable competitive advantage generating increasing returns. As a result, a company that creates a closed loop with its customers will create the most attractive returns. Another critical component to identify an attractive investment is when a company provides a product or service essential to all competitors within an attractive market segment. In other words, the “arms dealer” to that industry. Arms dealers typically represent a singularly attractive investment opportunity. While the term speaks to a specific legal standard, essentially, monopolies are constructed within industry sectors constantly. A valuable product or service, while perhaps initially part of a fragmented industry, ultimately consolidates into a few, and sometimes a single source supplier. As you can probably see, the arms dealers and monopolies are essentially closed-loop businesses. Often unmentioned, yet the most important component to an investment’s story is the team managing the business, especially the CEO. We have discussed businesses that build slight competitive advantages and the network effect built monopolistic positions or understood how to play a role as the provider of an essential product to all competitors in a growing industry. But without doubt the most important component of all of this is the people managing the business. Extraordinary companies are built by extraordinary people.