The Subtle Dangers of Misaligned Investments, According to Michael Merlin

In a recent LinkedIn post, Michael Merlin explores a nuanced view of bad investments, arguing that they are not always characterized by monetary loss but rather by a loss of strategic direction. Merlin highlights how seemingly attractive opportunities can quietly undermine a company’s core strategy long before financial repercussions are evident.

Merlin begins by challenging the conventional understanding of poor investments, stating:

Not all bad investments lose money. Some just lose direction.

This opening sets the stage for his analysis of what constitutes an “infected investment.” He outlines several common pitfalls that lead companies astray, often driven by external pressures and short-term thinking.

Identifying “Infected Investments”

Michael Merlin identifies six key indicators of investments that, while not immediately resulting in financial loss, can weaken a business’s strategic foundation. These “infected investments” often stem from external influences and a lack of internal conviction.

Chasing Trends Over Strategy

One of the primary issues Merlin points out is the tendency to follow surging trends rather than adhering to a well-defined strategy. As Merlin notes, this leads to decisions where companies are:

Chasing what’s hot instead of what fits.

This misalignment, he argues, can replace clear thinking with mere imitation of competitors, ultimately fading conviction in the company’s unique path.

The Allure of Quick ROI

Another critical trap is the excitement around quick returns on investment (ROI). Merlin warns that this focus can obscure hidden long-term costs. He elaborates on this point:

Quick ROI excites. Long-term costs hide.

This short-sightedness, according to Merlin, can result in “vanity metrics” that disguise weak fundamentals and are often fueled by a fear of missing out (FOMO), leading to rushed decisions.

Scattered Efforts and Diluted Momentum

Merlin also addresses the problem of making too many disconnected bets, which prevents any single initiative from gaining significant traction or compounding value. He states:

Many bets scatter. Nothing compounds.

This diffusion of effort, he suggests, dilutes momentum and prevents the development of deep, sustainable advantages.

The Power of Aligned Investments

In contrast to these missteps, Merlin presents the characteristics of aligned investments that reinforce a core strategy and build durable value. He emphasizes that such investments ensure every move supports the central mission, fostering long-term advantages over temporary gains. According to Merlin, aligned execution leads to compounding confidence within teams, and the development of scalable systems rather than isolated wins. He also highlights that while upside is exciting, aligned investments involve a clear understanding and acknowledgment of risks, rather than their outright ignorance.

Merlin concludes by asserting that strong companies differentiate themselves not just by asking if an investment will grow, but more importantly, whether it truly “belongs” within their strategic framework. He posits that while external signals can influence decisions, internal alignment is the cure for strategic drift.