Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Possible (3P)====== Possible (3P) is a powerful mental model championed by noted investor Guy Spier, designed to help investors critically evaluate stories, forecasts, and investment theses. The "3P" stands for **Possible, Plausible,** and **Probable**. It acts as a mental funnel, forcing you to systematically move from the broad realm of what //could// happen to the much narrower, evidence-based world of what is //likely// to happen. In a world saturated with exciting narratives about the "next big thing," this framework is a crucial tool for a [[value investor]]. It helps you cut through the hype and anchor your decisions in reality rather than speculation. Instead of getting swept up in a story, you're prompted to ask a sequence of increasingly tough questions: Is this outcome even possible? If so, is it plausible that this specific company can achieve it? And finally, based on hard evidence, what is the actual probability of success? It's a simple yet profound way to maintain discipline and avoid costly mistakes. ===== The 3P Funnel: From Fantasy to Reality ===== Think of the 3P framework as a filtering system for ideas. Every day, we're bombarded with investment "opportunities." The 3P funnel helps you quickly sort the treasure from the trash. Most investment stories live in the "Possible" stage, but very few make it all the way to "Probable." By consciously moving an idea through these three filters, you protect your capital from the seductive allure of a good story that lacks a solid foundation. ==== Breaking Down the Three 'P's ==== === Possible: The Widest Net === This is the first and most lenient filter. At this stage, the question is simply: "Could this happen?" The answer is often yes. * Could a small biotech company discover a cure for aging? It's //possible//. * Could a new electric vehicle company unseat Tesla? It's //possible//. * Could a forgotten retailer make a stunning comeback? It's //possible//. The "Possible" universe is vast and exciting, but it's also the land of lottery tickets and speculation. An investment thesis that only clears this first hurdle is built on hope, not analysis. Relying solely on possibility is a surefire way to lose money. === Plausible: Adding a Dose of Realism === This is where the real thinking begins. An idea is plausible if there is a realistic, believable path for the "possible" outcome to occur. You start asking more practical questions: * Does the company have the necessary resources (capital, talent, technology)? * Does the management team have a credible track record? * Is the proposed strategy coherent and grounded in the realities of its industry? For example, it's //possible// that a lemonade stand could become a global beverage empire. However, is it //plausible// given its lack of a distribution network, marketing budget, and brand recognition? Probably not. This filter helps eliminate far-fetched scenarios and focuses your attention on ideas that have at least a theoretical chance of success. === Probable: The Value Investor's Playground === This is the final and most demanding filter. This is where you put on your analyst hat and dig into the data. An outcome is probable only when there is strong evidence to suggest it is more likely to happen than not. The questions here are quantitative and evidence-based: * What do the [[financial statements]] say about the company's health and profitability? * Does the company have a durable competitive advantage, or [[moat]], to protect it from competitors? * Is the valuation attractive, offering a significant [[margin of safety]]? * What are the historical base rates of success for similar ventures or turnarounds? A great investment is one where a positive outcome is not just possible or plausible, but //highly probable//, and yet the market price doesn't reflect that reality. Value investors live and breathe in the "Probable" zone, seeking high-probability bets at low-risk prices. ===== Putting 3P into Practice: A Quick Example ===== Let's imagine "FutureFoods Inc.," a startup claiming it has invented a machine that turns air into nutritious protein bars. - **Possible:** Can a machine convert atmospheric elements into food? In the realm of science fiction, sure. So, technically, it's //possible//. - **Plausible:** Is it plausible with current technology and our understanding of physics and chemistry? No. The idea violates fundamental scientific principles. The investment thesis fails right here. There's no need to proceed. - **Probable:** Since it's not plausible, the probability of commercial success is effectively zero. Using the 3P framework, you would dismiss this "opportunity" in seconds, saving you from a speculative, and likely disastrous, investment. ===== Capipedia's Corner: Why 3P Matters ===== The Possible (3P) framework is a mental Swiss Army knife for investors. It's a simple, elegant defense against narrative-driven investing and our own psychological biases, like [[confirmation bias]]. It forces a healthy dose of skepticism and grounds your process in a rational progression from imagination to analysis. Remember, the biggest investment returns don't come from betting on the merely possible. They come from correctly identifying a //probable// future that the rest of the market currently sees as only plausible or even impossible, and then buying in at a great price.