Why Single Catalysts Underperform
The multiplicative power of convergence.
To read our full disclaimer, click here.
Most investors hunt for single catalysts. One reason to buy. One compelling metric. One story that makes sense.
They’re missing the real prize.
The truly exceptional returns come when multiple forces align simultaneously - when business fundamentals, market psychology, and structural dynamics all point in the same direction. These forces don’t just add up. They multiply.
Charlie Munger called this the Lollapalooza Effect, borrowing from the music festival where multiple bands create an experience far greater than any single performance. In investing, it describes what happens when several independent forces converge on the same outcome.
The result is explosive.
The Anatomy of Multiplication
Great opportunities typically have three layers:
Business Reality. Something fundamental is changing. Revenue quality is improving. Optionality is stacking. Multiple independent drivers are compounding beneath the surface - not one catalyst, but several.
Market Psychology. Fear, stigma, or misunderstanding creates a gap between perception and reality. The market applies yesterday’s framework to today’s business. Investors see the industry label and stop looking.
Structural Forces. Obscurity, size constraints, or lack of coverage keeps natural buyers away. The company is too small for institutional mandates. Analysts don’t cover it. Most investors have never heard of it.
Each layer can move independently. When they move together, returns compound in ways that linear thinking can’t capture.
Why Others Miss It
Most investors think linearly. They see Factor A and predict Outcome A. They see Factor B and predict Outcome B. They add them together and call it analysis.
The magic happens at the intersection - when business transition meets market misperception, when stigma meets ignorance, when obscurity meets quality.
Recognizing these opportunities requires more work. You can’t just run a screen. You need to understand how multiple forces interact and have the patience to wait for convergence.
Most investors aren’t willing to do that work.
A Current Example
I see this playing out in my second largest position heading into 2026.
The business reality: a company transitioning from project-based contractor to recurring revenue infrastructure partner. Sensor contracts delivering. Maintenance agreements contracted through 2030. Polymer substrate commercialization on deck. Gaming software doubling. Tax stamps expanding. Not one catalyst - five or six independent drivers, each capable of moving the needle.
The market psychology: investors see “banknote authentication” and assume decline. They don’t understand the national security angle or the transition underway. The company trades at 5.4x forward earnings while comparables trade at 15-20x.
The structural forces: UK micro-cap with minimal coverage. Management focused on execution, not promotion. If the company scales and gets discovered by funds, institutional buying kicks in.
Any single factor reversing could drive meaningful returns. The business transition alone could support a double. Recognition that the stigma is misplaced could drive re-rating. Institutional discovery could add another leg.
When multiple factors reverse simultaneously, returns don’t add. They multiply.
How to Spot Them
The best opportunities often emerge during periods of maximum discomfort - when an industry carries stigma, when a business model is “obviously” dying, when a company is too small or too obscure for most investors to bother.
Ask yourself: Are multiple negative factors already priced in? What happens when even one reverses? Could several reverse simultaneously?
The market occasionally creates situations where everything that can go wrong is already assumed. Those are the moments to pay attention.
The Patience Premium
Recognizing a potential Lollapalooza situation is step one. Having the patience to wait for forces to converge is step two.
Sometimes that takes months. Sometimes years. Most investors can’t wait - they need action, movement, something happening now.
That impatience is precisely what creates your opportunity.
Benjamin Graham said the market is a voting machine in the short run and a weighing machine in the long run. Your job is to position yourself before the weighing begins.
Bottom Line
The Lollapalooza Effect isn’t about finding more factors. It’s about finding the right factors - and understanding how they interact.
Most investors will keep hunting for single catalysts. They’ll keep thinking linearly. The opportunity is in the multiplication.
If you like the way we think and want to see how we invest - including the full thesis on the position mentioned above - subscribe and become a paid member to access our complete portfolio and reasoning behind each position.
Thank you for reading,
Dom
Schwar Capital
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.
Phenomenal insight about convergence versus single catalyst thinking. The Lollapalooza Effect analogy is perfekt for understanding why timing matters so much in investing. I've seen so many trades fail becuase investors focus on just one catalyst, dunno how they miss the bigger convergence picture.