Supported by Greenhaven Road Capital, finding value off the beaten path.
This post is part of the TIL2017 Summary Series.
There were two kinds of winning that came up this year. Neither was “all I do is win win win no matter what.”
Win big lose a little. Asymmetrical bets came up again and again. Jason Calacanis said in multiple podcasts that angel investing is a great idea for five percent of your net worth. Consider not just the financial upside, said Calacanis, but also non-financial ones like networking and knowledge. These combined ‘returns’ make angel investing a wise investment.
Jason’s advice was earned the hard way. When he was pitched on Airbnb he passed, imagining that only broke college students and serial killers would use the service. Errors of omission – like this – are the worst warned Bill Gurley and Marc Andreessen.
Jerry Kaplan had to explain this idea to his father. When Kaplan decided to start a startup rather than follow a corporate path his father assumed it was risky. Kaplan explained that the company shouldered the liabilities, not himself. His downside was limited, his upside was not.
Chris Cole explained this idea using the example of George Lucas and Star Wars. Lucas took a discounted director’s salary in exchange for future rights. Those future rights were at different levels. Merchandise sales were likely – to some degree. Sequels were likely – to a lesser degree. Video games, Disney themed cruises, and forty-years of runtime were unlikely. But as each thing became less likely it paid more. If Star Wars could live for fifty years it would be very valuable.
This idea can apply to sports too. Brad Gilbert advises amateur tennis players to not serve first because of the upside. If your opponent holds, that’s expected. If you break, that’s ‘worth’ more. If serve holds for the next three sets then you end up with a 3-1 lead, a numerical and psychological edge.
These small bets take a willingness to be wrong. Asymmetries only exists because large payouts are infrequent.
Choose games you can win. The second kind of winning was to choose your battles. This is the Buffett and Munger strategy of embracing limited understanding and filing things into a too hard pile.
In the 2017 NBA finals this came in the form of the Cavaliers strategy. They couldn’t beat the Warriors at their own game. They had to play a different way.
Another from sports was Gilbert on the tennis court. One problem amateurs have, he wrote, is that they play to look good rather than to win. Looking good means ripping winners down the line. Winning means returning serves to the center. The latter game is much easier to conquer.
Dwight Eisenhower knew this too, and so did his brother who told him to “never get into a pissing match with a skunk.” Ike’s military history and experience directed him away from fighting in Vietnam and Korea. It also guided him in the mano a mano battles on the hill.
In her work in poor countries, Esther Duflo conducted studies that could be repeatable. Rather than large, sweeping changes, Duflo, and her colleagues looked for small things that could make a difference. They found that gifted bed nets, incentivized vaccines, and efficient micro-credit were all positive small changes that could cascade into large effects. That’s winning.
Both of these strategies; asymmetrical plays and favorable situation, require humility. In the first there may be many small loses before a big win. In the second it means walking away from something because you can’t do it well.