Gina Martin Adams

Gina Martin Adams joined Barry Ritholtz on the MIB podcast. I’d never heard of Adams, but this was a good interview. Let’s get into the notes.

1/ Passion. “If you have a passion for this business you will find a home, but you have to have a passion.”

I hate passion as advice. It’s only half of the story. The other half? Hard work.

Tren Griffin wrote, “One trick related to passion is that you are not likely to be passionate about something you do not understand…the more you know about some topics, the more passionate you will get.”

That’s the key. You need an understanding, a skill, a level of competence to ignite the flywheel that passion spins.

Mohnish Pabrai said, “I have a rule I’ve followed for my entire career: if on Monday morning I’m not fired up for work I do two things. Number one, I don’t go to work. Number two, I hit the reset button.” On the surface that sounds like follow your passion, but it’s really more like, do something that rewards you.

PassionSkill (1)Things that reward you are hard, but not too hard. Dan Coyle found the sweet spot in athletics. So too did Steven Kotler. Austin Kleon pointed out that his dream job has a lot of things that aren’t dreamy.

Jocko Willink said “If you are super passionate about it there’s a very good chance you’re going to be one of the top performers.” It’s not just the passion that gets you there. It’s the work.

I think Adams meant this. That, it’s going to take a lot of hard work for a great job and that you’ll need some passion to help you through it.

2/ Fighting the last war. “Today anything is a massive problem for the banks. I think a lot of what’s holding financials back is this psychological impediment ‘when’s the next crisis coming?’…you can name a gazillion things that are going to ‘bring the banks under’ which are so unlikely but the psychology is set up to expect that kind of thing.” – Adams

“It’s classic recency effect. Every general is fighting the last war. Every investor is thinking ‘here comes the next credit crisis.’ It’s never what just happened, it’s always something different.” -Ritholtz

Recency effects happen to us all the time. I just finished Faiulure is Not an Option and did a podcast episode about it (#033). One of the stories in there was about the recency effect.

About the Apollo 1 disaster, where an eruption in the module killed all three astronauts, Gene Kranz wrote about why they couldn’t escape:

“The exterior opened outward while the interior pressure hatch opened inward. It was a brute, heavy and awkward. Given the design, a rapid escape from the spacecraft was impossible. But the NASA and North American designers hadn’t been as worried about escape contingencies as they were about the possibility of a hatch popping open into the vacuum of space or another inadvertent opening during a water landing. The premature opening of Gus Grissom’s Mercury hatch and the loss of his capsule was a lesson not easily forgotten.”

This makes sense. Solve a problem after you face it. You don’t want the door to open in space. You don’t want the door to open during splashdown. We solve these problems well, but we often stop there.

The problem is that we don’t think through enough counterfactuals. We don’t ask, what else could happen? Michael Mauboussin had a great explanation about counterfactuals, and we can expand it here.

NASA solved for BIG BAD OUTCOME #1 (space coming in) and #2 (ocean coming in) but missed #3, (astronauts can’t get out). They fixed it, but what about #4, #5, and so on?

In the book Kranz notes the tradeoffs you have to make. Designers can’t solve every problem. Coming up with as many counterfactuals as possible gives you a chance to decide how many problems you want to solve. You commit to solving a, b, c, and d, but choose not to solve, e, f, g. NASA learned this the hard way.

I’m diving into Red Teams and part of what makes them so helpful is that they see a wide array of problems. Red teams succeed because they bust cognitive biases, they find new facts, they understand history. When Marc Andreessen says he trashes the shit out of Ben Horowitz‘s arguments he does so to test them. He’s trying to avoid effects like fighting the last war.

We can’t “fight the last war.” We have to fight it and figure out what’s next. Red teams help do that.

3/ I don’t care that, it’s just too hard. “Have people just thrown up their hands and said, ‘you know what, I’m just going to index and not even think twice about it.’?” – Ritholtz

“I think that’s part of it. I think more importantly it’s that investors have just shunned the equity market altogether.”- Adams

I loved this exchange because it lets me tie together two great quotes.

The ultimate beauty of index funds is that they get you utterly out of the business of guessing what will happen next. They enable you to say seven magic words: “I don’t know, and I don’t care.” – Jason Zweig

&

If something is too hard we move on to something else. What could be simpler than that? – Charlie Munger

I’ve written more about Jason Zweig and Charlie Munger other places, so we won’t rehash all their ideas here. But this one is beautiful. It’s all about the Sigmoid curve.

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At some point your effort leads to diminishing returns. You have to make a tradeoff.

Do I continue to conduct investment research, write books, or learn to play the guitar OR DO I read my kids more books, exercise more, or spent an extra hour at work?

Investing, unlike say, guitar practice or reading books to kids, is really hard to do well. As Michael Mauboussin, Jack Schwager, and Gladwell and Simmons pointed out (via soccer), as the competition increases, success is harder and more prone to luck.

Why not just do something else with your time?

4/ Finding secrets. “Our clients are the institutional investors. What are the products that their clients are asking them for. It’s passive products in a lot of ways. So my client may want something very different than they wanted in the past.”

This part surprised me. Adams’s client’s clients are relaying the message to them about what they want. That doesn’t often happen.

Have you ever told the local Ford dealer what you want to see manufactured? No, you just buy a Toyota the next time.

Adams’s and her clients need to find secrets. Peter Thiel crystallized the idea of finding secrets, and I’ve come to visualize them like coal seams. They’re all around us, but they’re hidden. Some are big, some small. It takes a bit of digging and work, but you could find one.

  • When Phil Knight founded Nike, he found a secret.
  • When Apple released a touchscreen smartphone, they found a secret.
  • When J.K. Rowling wrote Harry Potter, she found a secret.

When Steve Jobs said “A lot of times, people don’t know what they want until you show it to them,” this is (probably) what he was getting at. He found a secret that people wanted, but couldn’t articulate. Here are some others:

  • I couldn’t articulate that I wanted a Disney vacation, but we’ve been there as a family and it was great.
  • I couldn’t articulate that I wanted a watch so tough you could wear it while handling a chainsaw, but I bought a Casio G-Shock.
  • I couldn’t articulate why a book about Coca-Cola would be good, but it was.

Secrets are everywhere. If you run a business you need to constantly be looking for them.

5/ Simple, but not easy. “Everybody who started on a trading desk is always told ‘cut your losers short and let your winner run.’ Understanding that and actually doing it are two completely different things.” – Ritholtz

Life itself, is simple, but not easy.

Surviving at sea is simple, but not easy. Starting a soccer team is simple, but not easy. Creating another Silicon Valley is simple, but not easy. War is simple, but not easy. Eating right is simple, but not easy.

Solving what do I do and how do I do it are both important questions.

6/ Pattern recognition. “I distinctly recall sitting in my office during that summer and thinking ‘why is the market so  ridiculously stable, what does the market know that I don’t know?’ then you think back to that period and you have a lot of people saying Bear (Stearns) was the big moment and that was going to be it. Then suddenly you have this wave of trouble in the fall.”

In his interview with Ritholz, Michael Mauboussin joked about hindsight bias. It seems like there’s a little here with Adams too.

If there isn’t, then Adams should have acted on her pattern recognition. When something doesn’t smell right begin further examination.

Coke used to send their executives to Europe to build their pattern recognition skills. Disney did the same thing, only at a resort in Denver. Ground Control for space missions did it with simulations.

Pattern recognition is a super power. Athletes have it. Investors like Jason Calacanis, Jim Chanos, and Warren Buffett have it. Fighter Pilots like John Boyd have it.

The faster you can Observe, Orient, Decide, and Act – the better you will be. Pattern recognition gets you through these OODA loops faster.

7/ Strengths in weaknesses and weaknesses in strengths. “Being a woman on Wall Street is both a blessing and a curse. There are a lot of blessings that come along with being a woman on Wall Street. You are immediately recognizable. It’s a curse because you 100% don’t fit in – still. ”

In your strengths are weaknesses and in your weaknesses are strengths.

  • Wigan, a soccer team, takes long shots that have a low probability of going in (weakness) but which allow them to recover on defence (strength).
  • Tim Ferriss saw this in wrestling and started to look everywhere for them.
  • When you are surrounded by an enemy (weakness), it also means you have unlimited fields of fire (strength). And vice versa.
  • The 1919 Chicago ‘Black’ Soxs were so disorganized they didn’t get paid by the gamblers who promised (weakness) but when they went to trial the state couldn’t prove they conspired together (strength).
  • Tony Hawk had to form his own style (weakness) which became the de facto way later (strength).

If you have a weakness, turn it into a strength.

Thanks for reading, I’m @mikedariano on Twitter. If you liked this post, you might like my book – http://amzn.to/1nztynB. If you didn’t like this post, well, why are you still reading?

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