Sizzle and Steak

Supported by Greenhaven Road Capital, finding value off the beaten path.

Rory Sutherland makes a good point. He notes that if you get into a great restaurant but it smells awful you’ll have a bad experience.David Ogilvy understood this too. Terry O’Reilly’s Under the Influence podcast is built around this idea and he says; “the reason people choose certain brands has little to do with how something functions or how something tastes, because with so many categories we drink the label and smoke the advertising.”

These men are marketers. They sell the sizzle, and it’s just as important as the steak.

The Mona Lisa is a great technical painting but she has sizzle too. For a long time, she was merely a Renaissance painting. Then Napoleon hung her in his bedroom. A century later someone stole her. Picasso was suspected, then exonerated. The painting returned. NPR explains:

“Before its theft, the ‘Mona Lisa’ was not widely known outside the art world. Leonardo da Vinci painted it in 1507, but it wasn’t until the 1860s that critics began to hail it as a masterwork of Renaissance painting. And that judgment didn’t filter outside a thin slice of French intelligentsia.”

Joel Greenblatt has sizzle with his steak too:

Josh Wolfe told Patrick O’Shaughnessy that the best entrepreneurs have sizzle and steak.

“There are amazing credible people. And there are amazing salesmen. And sometimes those two people are one. When they are you have an amazing entrepreneur. But often times they’re not…You need a marriage of both. You need a storyteller and you need an operator.”

Sometimes it’s hard to match the sizzle with the steak. On Wharton Moneyball (April, 2018) the foursome talked about uncertainty in sports. Uncertainty is hard to sell. Yet life is uncertain.

One reason sizzle and steak are both necessary could be related to Clayton Christensen’s Disruption Theory. Disruption occurs when one feature of a product becomes good enough and consumers switch their preference but producers don’t. The mp3 dominated because it sounded good enough. The key music metric shifted from quality to portability.

But the relevant feature isn’t always quantifiable. When Warren Buffett considered his investment in See’s Candy, he wrote to Charlie Huggins in 1972, “Maybe grapes from a  little eight-acre vineyard in France are the best in the whole world, but I have always had a suspicion that about 99% of it is in the telling and about 1% is in the drinking.” Once something tastes good enough it’s about the label (“with so many categories we drink the label and smoke the advertising”) that influences how we spend/Spent.

All sizzle no steak is derogatory but all steak and no sizzle isn’t better. Jocko Willink is fond of talking about the dichotomies of life; leadership, courage, and curiosity. The best answer is often; it depends. Situations dictate actions and that’s true here too. Some businesses need more sizzle, others need more steak, all need some of both.

The good thing is that more sizzle isn’t difficult. At Basecamp, they do this by coding good software and writing about work. David Heinemeier Hansson calls the sizzle “teaching”, and says, “every business is interesting in some way.”

The good news is that there are different forms of sizzle for different kinds of steak. The better news is that sizzle is achievable for anyone.

Rory Sutherland has another good point. Improving sizzle is a lot easier than improving steak. For example, what if trains were nicer instead of faster. “It doesn’t matter if your journey is three hours or two and a half if it’s useful time.” Better stories are easier than better tracks.


Thanks for reading.



Sam Hinkie

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Supported by Greenhaven Road Capital, finding value off the beaten path.

Sam Hinkie joined Patrick O’Shaughnessy for a conversation about decisions, basketball, and marriage. The marriage (and parenting) portion, ~35:00 was an excellent portion. In a world of life hacks, time hacks, new apps we (I) sometimes overlook (forget) it’s the people that matter.

Following interests. Hinkie’s been a long-term thinker since he was fifteen. “I’m just wired this way.” Aligning actions with dispositions brings better results. Mohnish Pabrai said that if you’d rather see a movie than read annual reports, you probably won’t have the potency to be a great investor. Hinkie’s bent was toward long-term success as he defined it. It was a race where only he knew the distance. Scott Malpass told Ted Seides something similar:

“…at the end of the day we don’t really care much about what other people are doing. We’ve got our own risk tolerance, our own mission. We are going to do what we need to do for Notre Dame.”

Your mission doesn’t need to be an inebriated whim to charter a boat and sail around the world carpe diem style. Rather, pay attention. Hinkie said,”pay attention to what’s happening elsewhere and try to apply what’s working in other places to your place if it matches, to your decision criteria if it makes sense.” It sounds like Ray Dalio‘s advice to find another one of those. Dalio said, “Basically everything is another one of those … the key to success is to identify which one of those it is.” Start with, the world is this way because…

Sometimes which one of those is already figured out. Hinkie suggested; “Substitute your weak judgment, when you don’t know much about the place, for someone else’s strong judgment when they know more about it.”

And, “If it works there, kick it around and at least start with something that works somewhere else in some other place in the universe.”

And, “It’s conventional wisdom because the consensus has settled there and it’s more or less right. Conventional wisdom should be a high bar. It should be a bulwark against progressivism.”

And, “Where we are now might not be right, but it’s clearly the best answer we have.”

And, “Our early check was if the San Antonio Spurs did it.” If their day or two of analysis suggested something different from the Spurs they double checked the analysis. “The burden of proof,” Hinkie said, “is on the new comer.”

Hinkie focuses on things he can do well. He’s works best with a long-term orientation. He works best when he can help and is interested. For startups; “My criteria is; is this in a space I deeply want to learn about and I think is likely to be very big…and, is there something about their stage, experience, or needs that I might actually be able to help them?”

Solving puzzles. “The most fun for me,” doing data analysis, “was all the behind the scenes work with the people in the trenches trying to get to the right answer.” That’s not to say there is a right answer. Data isn’t a silver bullet, it’s a shovel.

Mina Kimes said, “I look to data to find answers to basic questions and if I don’t I almost find it more interesting that if I did find the answer.”

“There’s art to every single process,” said O’Shaughnessy. “I think you’re on a never-ending search for better inputs,” said Hinkie.

What’s important is to be solution agnostic. In another Invest Like the Best podcast, Morgan Housel said, “The most powerful concepts are those that span multiple disciplines.” Jason Zweig added, “If you are not judging the validity of ideas by long-term, objective, peer-reviewed evidence then you are just protecting your own identity and that’s foolish.” It’s the ego, not the hammer, that sees every problem as a nail.

“I don’t care how to get to the best decision, I just want to get there,” Hinkie said.

How do you get this? “What you really need are intellectually curious thoughtful people, with all their own sets of experience to bring to bear on this and to have a culture of trust where you can call BS when you see it.”

It’s good people within the right culture. Hinkie references Netlfix’s culture deck and co-molder of that deck was Netflixer Patty McCord who wrote:

“A great workplaces is not espresso or lush benefits or sushi lunches, grand parties or nice offices…Well, a question I often ask people when they ask me that, so I will ask you that, if you think about the time you went home from work and you spontaneously told your spouse or your pet, ‘Oh, my god, it was a great day at work today.’ It’s almost never that there were macadamia nuts and the cookies or that mojito was just right.”

Ben Horowitz agrees:

“Yes, yoga may make your company a better place to work for people who like yoga. It may also be a great team-building exercise for people who like yoga. Nonetheless, it’s not culture. It will not establish a core value that drives the business and helps promote it in perpetuity.”

Good culture is a decentralized command. Good culture is good arguments. Good culture is top-down support. That’s what Hinkie experienced. “I remember sending Daryl Morey a text afterward saying how proud I was to work with him because he would have the courage to do what is right even if it was unpopular.”

That unpopular move was possible thanks to top-down support. Morey’s boss, Leslie Alexander told him, “Who cares what other people think? It’s not their team.”

What Hinkie and O’Shaughnessy are striving for – what data and teams and culture are the means for; is figuring out the perception-reality gap. Hinkie tries to invert the endowment effect. “We would try to reverse it to get rid of the endowment effect. If I already had this player, would I trade for that. If the answer is clear in one direction there’s real signal in that.” Though even in his explanation if the answer is clear Hinkie implies the difficulty in this. The GMs come up with some solutions. So does Malcolm Gladwell and Bill James.

James (wrote Michael Lewis) succeeded because he was an outsider. He saw the game differently. Baseball Abstract (1984) “is a book about what baseball looks like if you step back from it and study it intensely and minutely, but from a distance.”

Gladwell told Bill Simmons this is what teams should do, literally. Have a veto-GM on another coast.

Another puzzle solving tip is to invert. In Hinkie’s class at Stanford he teaches negotiation and says the best way to negotiate well is to prepare well. “Deeply try to understand the other side in an empathic way.” Bryan Caplan created a test for that.

Thanks for reading.


Moneyball revisited

Supported by Greenhaven Road Capital, finding value off the beaten path.

Someone tweeted about the value rereading books. The books don’t change but the reader does. In that spirit, we’ve revisited Zero to One and today will revisit Moneyball.

Michael Lewis’s bestseller from 2003 is the quinceanera of sports analytics. Birthed by Bill James in his Baseball Abstract(s), sports analytics continues to grow, age, and mature. It was Lewis’s book that brought it mainstream and it’s from the book we’ll draw a few quotes. Ready?

1/ Measure the right thing.
“The scouts adored high school players…High school pitchers also had brand-new arms, and brand-new arms were able to generate the one asset scouts could measure: a fastball’s velocity. The most important quality in a pitcher was not his brute strength but his ability to deceive, and deception took many forms.”

As Sam Hinkie told Patrick O’Shaughnessy, for a long time, fastball velocity was a good metric. But now we have better ones.

2/ Watch your biases.
“There was, for starters, the tendency of everyone who actually played the game to generalize wildly from his own experience. People always thought their own experience was typical when it wasn’t. There was also a tendency to be overly influenced by a guy’s most recent performance: what he did last was not necessarily what he would do next.”

Like fastball velocity, our biases generally indicate the right direction but there are other tools besides what’s between our ears. This is arriving in Traffic. Good organizations have systems too,  like the The GMs.

3/ Zero fucks, enough ego.
“…if there was one thing Grady knew about Billy, it was that he could give a fuck about baseball tradition. All Billy cared about was winning.”

There’s a dichotomy of ego; gumption but not grandeur. Too much ego for Billy Beane would have been wanting to win my way.Gregg Popovich understands, “I don’t care where an idea comes from. You have to be comfortable enough in your own skin to realize that an idea can come from anywhere.”

4/ Put a Milo on him.
“‘Bad makeup’ is a death sentence. ‘Bad makeup’ means this kid’s got problems we can’t afford to solve. The phrase signified anything from jail time to drinking problems to severe personality disorders.”
“The meetings, from (Paul and Billy’s) perspective are all about minimizing risk. They can’t afford to have guys not work out.”

Warren Buffett says there are two rules to investing. Rule number one, don’t lose money. Rule number two, don’t forget rule number one. If half of success is showing up, then one-third is avoiding mistakes.

6/ Active share.
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6/ We’re not selling jeans here.

7/ Career capital.
“For instance, when baseball managers talked about scoring runs, they tended to focus on team batting average, but if you ran the analysis you could see that the number of runs a team scored bore little relation to that team’s batting average. It correlated much more exactly with a team’s on-base and slugging percentages. A lot of the offensive tactics that made baseball managers famous—the bunt, the steal, the hit and run—could be proven to have been, in most situations, either pointless or self-defeating. ‘I figured out that managers do all this shit because it is safe,’ said Alderson. ‘They don’t get criticized for it.'”

Sometimes we make decisions because they are good decisions and sometimes we make decisions because they look like good decisions. Rory Sutherland gives an example:

“I’ll give you an example, if you want a good recommendation for an Indian restaurant, you are far more likely to get a good recommendation from a scaffolder called Terry than from the editor from the Times literary Sunday edition. Because scaffolders are perfect recommenders. They have quite a bit of cash but they want good food. They’re not interested in showing off their sophistication. They want a pretty good meal for a reasonable money.”

8/ 75 copies.
“It didn’t occur to him (Bill James in 1977) to be disappointed by a sale of seventy-five copies; he was encouraged! No author has ever been so energized by so little.”

9/ Incentives.
Miguel Tejada had grown up poor in the Dominican Republic, and in the Dominican Republic they had a saying, ‘You don’t walk off the island.’”

Jim Chanos told Barry Ritholtz that his first short suggestion “wasn’t received very well as you can imagine particularly because the big brokerage firms who recommended the stock were also making a fortune selling their annuities.”

Thanks for reading.

Lowenstein’s Warren Buffett

Supported by Greenhaven Road Capital, finding value off the beaten path.

Roger Lowenstein’s Buffett: The Making of an America Capitalist was a good tour of WB’s investing career through the late 1990’s. The many Buffett Books, (20 pages on Amazon!), CNBC Archive, and Berkshire Letters are enough material for someone to become a Buffet expert. This post is my novice preferences.

All unattributed quotes are from Lowenstein.



The volume of materials demonstrates Buffett’s emphasis on communicating with your stakeholders.

“But one purpose of his letters was to attract and knit together a shareholder group who would behave like his partners—in other words, who would stick with him.”

“He took pains to explain his approach in advance, and in concrete terms—precisely because he knew that a misunderstanding could sunder the union.”

Investors require patient capital but restless capital can walk away. Chris Douvos noted about long-term investing, that “The Venn Diagram of the people who can do it and have the courage to do it is actually pretty small.”  Writing letters was Buffett’s way of bucking up his stakeholders.

Flip-flopping is pejorative while updating beliefs is praised. Buffett is and was an updater.

“In Buffett’s view, (Disney’s) most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset. However, Buffett estimated that, on a proportional basis, the library alone was worth the price of a share.”

“He was bolder than Graham: more willing to load up on a stock or to ride a winner. And, of course, his results had been better.”

“The ‘main qualification is a bargain price,’ he wrote; but he also would pay ‘considerable attention’ to qualitative factors.”

Munger may have planted the seeds for the switch from quantities to quality but Warren prepared the soil.

Maker Schedule, Manager Schedule. Paul Graham blasted manager schedules because, “A single meeting can blow a whole afternoon, by breaking it into two pieces each too small to do anything hard in.” Buffett’s calendar was a makers calendar.

“His day was a veritable stream of unstructured hours and cherry colas. He would sit at the redwood horseshoe desk and read for hours, joined to the world by a telephone (which he answered himself) and three private lines: to Salomon Brothers, Smith Barney, and Goldman Sachs.”

Berkshire Hathaway is the buyer of choice – in part – because of their Decentralized Command. Lowenstein explained that Buffett, “picked the chorus line but didn’t attempt to dance.”

DC works because the people on the ground know the details better than the people up in the offices. Andy Grove valued the wind of the real world. But front lines expertise is also an ignorance. Buffett’s managers send their profits to Omaha because Warren is a better capital allocator. Much like Charles Koch, Buffett got a detailed report from the front lines but made his decisions from a command post.

Coca-Cola.  In 1988 Roberto Goizueta noticed someone was buying Coca-Cola stock. Don Keough wondered if it was his fellow Omaha native, after a phone call he found out it was.

Part of the reason Buffett bought was that while Americans were drinking 74X as much Coke as Indians, even though India had 3X as many people.

Investing heroically. Buffett’s success – in part – is due to investing in good companies during bad times. One example was GEICO, and Lowenstein recounts Buffett’s diligence:

“Then he went to see insurance experts—the B, C, and D of the day. Every one told him that GEICO’s stock was overpriced. Buffett’s reading of the facts was just the opposite, but he found them daunting. They were experts; he was in B-school. Every stockpicker worth his salt eventually comes to such a crossroads. It is extremely difficult to commit one’s capital in the face of ridicule—and this is why Graham was invaluable. He liked to say, ‘You are neither right nor wrong because the crowd disagrees with you.'”

With Graham’s support and Buffett’s diligence, we have an example of  Howard Marks‘s matrix. Chris Douvos said that David Salem encouraged him to ‘invest heroically.’ Lowenstein wrote:

“Buffett’s portfolio was decidedly unconventional. With his big bets on American Express, Berkshire Hathaway, and two or three others, the lion’s share of the pool was in just five stocks.”

The real competitive advantage Warren Buffett enjoyed was being Warren Buffett. In the book, his research is almost trancelike. As Mohnish Pabrai asks students who ask him about becoming investors, “Are you wired for it?” Pabrai notes:

“The first question investor need to ask themselves is ‘Does the glove fit?’… after you read an annual report you have to ask yourself, ‘you know, I spent two hours reading that, would I have preferred doing that or watching a Star Wars movie?’…you have to ask what type of activities give you the greatest satisfaction.”

Warren’s satisfaction comes from reading the reports.


Thanks for reading.

David Heinemeier Hansson

Supported by Greenhaven Road Capital, finding value off the beaten path.

Yes, we wrote that Katrina Lake had a good point about MBA programs, BUT I couldn’t help myself when this David Heinemeier Hansson (DHH) video titled “Unlearn your MBA” from 2010 came up on YouTube. This is our second post on DHH, the first is here.

Why should someone unlearn their MBA? For starters, it teaches you the wrong thing. In business school, you’re writing for professors. In the real world, you’re writing for customers. There’s a big difference.

DHH and his co-author Jason Fried are big on sharing their ideas via writing on their blogs and in their books. Josh Wolfe made the point that part of what makes a great founder is being a great communicator.

If that weren’t enough encouragement, writing well is a form of thinking well. Maria Popova put it best, “writing is thinking in public.”

Another problem with MBA program is the planning emphasis. Yes, DHH admits, planning is helpful for McDonald’s when they want to plan how many cheeseburgers they’ll sell in Q2 2020. But small businesses don’t need quite as much. MBA programs offer one thing, and rather than unlearn it we should reconsider it.

Hanson has choice words for venture capital too. “It’s a time bomb…the most harmful thing you can do to your business.” Why is that? Money becomes a crutch. Instead of relying on money, strengthen your creativity. Constraints are an asset. “Sometimes restrictions get the mind going,” wrote David Lynch, “sometimes you come up with very creative, inexpensive ideas.”

Instead, Hanson says; build a product with a price that generates actual profits. When Marc Andreessen’s number one piece of advice is to charge more I wonder if it means the same thing. You need the market to respond to what you’re doing.

For Hanson, the sooner the market speaks, the better.

Productivity advice. “Being a workaholic neither guarantees success or is a requirement for it.” Sure, Hanson says, there’s no such thing as an overnight success, but success comes from better choices, not more time.

Hanson lives in California and has co-workers around the world. “You can’t over collaborate seven time zones away,” he tells the class. He shared another smarter not harder choice with Lifehacker, saying his best time-saving shortcut was:

“Saying no. I’m always astonished by the tangled web of obligations most people manage to weave for themselves. I say no to almost everything. Then I can commit myself fully to the few things that I do truly choose to do.”

And about email.

“Most people’s inbox are overflowing because they waver, so they defer, which just makes the anxiety ever greater. Just make the call, which in my case is mostly “no,” then move on.”

Casey Neistat and Ryan Holiday teamed up to give similar advice in April 2018:

Hanson also believes in being there. Basecamp is a flat-ish organization because they don’t want to “disconnect the deciders and the doers.” One feature of Dead Companie’s Walking was absentee managers.

That Hanson spoke at all is surprising. As he says at the end, he’s afraid of alpha erosion.

“The companies that I look to that are doing well rarely get any PR at all. Most companies that are run like us are smart, they duck, they don’t talk about how much money they make. They don’t want to attract any attention.”

Eddy Elfenbein reminds us, “Always be aware that these advantages are not permanent.” And success attracts interest.


Thanks for reading.

Tren Griffin

Supported by Greenhaven Road Capital, finding value off the beaten path.

Tren Griffin was delightful in his podcast with Patrick O’Shaughnessy. What makes these two such a treat is the enthusiasm. This post will be a snapshot whereas Tren’s blog is an ongoing story.

Businesses succeed when they create something of value and capture part of that value. “Just because you have a product people want to buy,” said Griffin, “doesn’t mean you’ll have any margin.”

David Chang noted this too, “One of the things I wish the public knew is that just because you’re a busy restaurant doesn’t mean you’re making money.”

You know you have value, Griffin said when, “Everyone in the company is thinking, ‘My god, how are we going to satisfy all these orders?’ You’re not sitting around in the conference room, thinking, ‘Maybe we should add a feature.'”

Word of mouth is the gasoline on the bonfire of value. “You can’t scale a business very well if you have inorganic approaches to acquiring customers. If you have to buy radio ads it’s a hard slog.” And that word-of-mouth needs to feed into a large enough market. “It’s hard to scale a business for horse blankets.”

But As a company grows they need to watch out for the Wholesale Transfer Pricing trap.

Griffin takes inspiration from Fisher, “Fisher basically says, if you’re negotiating for something and you only have one choice you’re screwed.” The Movie Pass model, he said,  “is fundamentally dependent on the price of the retail tickets and they only have one supplier.” Netflix avoided this trap with original content and it’s reflected in Ted Sarandos‘s disinterest in sports. “The reason I don’t get tempted by major league sports,” Ted said, “is that the pricing power all belongs to the leagues.” Griffin points businesses to Andy Rachleff’s advice.

The organizations that capture value best have moats. They can be network effects (Modern Monopolies), economies of scale, intellectual property, or brand. “But brand doesn’t mean as much anymore, word-of-mouth means more. To the millennial generation and younger, they’re hooked on getting some product that Yeezy’s.” Brand could be considered a capital light business. During Rory Week we looked at his ideas, specifically around trains. It takes millions of dollars to upgrade to faster trains, Sutherland said, but much less to upgrade to more enjoyable ones.

Griffin notes that there’s a difference between building moats and buying them. Bill Gates built one. Warren Buffett buys some. To build one, Griffin said, takes an artist. “Jim Senegal and Howard Schwartz are artists. They have a gestalt sense of where the value is and what customers want.”

Moats, wrote and spoke, Pat Dorsey have high switching costs and we used his ideas for this podcast:

While platform businesses dominate today, there’s more than one way to build a business.”Sometimes you have to sell a box to sell software. You sell this thing which allows you to sell this service and the margins are in the service and the stickiness is in the thing.”

GoPro, Giffin said, never invested enough in the software angle. “Software is eating the world but hardware allows for distribution.” Software businesses are great. “I’m in the software business,” Griffin said, “and I see the gross margins in other businesses and I think, ‘MyGodd. How do they survive? They’ve got no money for anything.'”

Griffin’s notes, quotes, and ideas come from lots of reading. His deep interest started in 1999, “People were getting rich in ways I couldn’t imagine…I just didn’t know what to do…I read The Alchemy of Finance and I said, ‘I gotta read more books’… I read Hagstrom’s books and thought, ‘Who is this Munger guy?'”

He collected quotes. He wrote up notes. He built out his set of mental models. “Looking at mental models,” Griffin said, “is a mental model.”

How should you go about this? Let the index at the end be the beginning of the next. “If you chase someone like Munger down and read the books they recommend, then you find other strands and it’s like the root system of a redwood tree.”

More specifically, it’s Munger’s Worldly Wisdom and Psychology of Human Misjudgment talks that set Griffin’s hair on fire. Learning, thinking, and reading has also led Griffin to adopt Munger’s maxim, a year in which you don’t change your mind about something is a wasted year.

For instance, “The older I get the more I realize there are more pools of alpha than I thought.”

Griffin’s Barksdaleisms post is full of great quotes and we’ll cherry-pick one from the podcast.

“The infantry is always ahead of headquarters.” Jim Barksdale

This, said Griffin, was “classic Jim.” “Great operators get out of their chair and find out, they go and meet with the infantry…There’s nothing like a whole day in a call center to give you a good sense of what the customers are thinking about your product.”

This was something Kayak founder Paul English followed to the letter. English installed a red phone in the middle of his office. Tracy Kidder wrote that he also:

“He had wanted everyone at Kayak—and especially the programmers—to imagine themselves in the place of that customer looking for the right flight to Cleveland. Paul had devised a scheme he called “Empath,” which had obliged every coder in Concord to answer some angry emails from customers.”

Griffin said, “You and I need to go out on sales calls. We need to sit with customers…
Bill Gates said, ‘Unhappy customers are our greatest sense of learning.'” Andy Grove said that you can’t make decisions without feeling the winds of the real world.

Going out into the real world – Chasing the Scream – teaches you that gangs are antifragile

In Shop Class as Soulcraft, Matthew Crawford puts it this way:

“This history provides a nice illustration of a point made by Aristotle: Lack of experience diminishes our power of taking a comprehensive view of the admitted facts. Hence those who dwell in intimate association with nature and its phenomena are more able to lay down principles such as to admit of a wide and coherent development; while those whom devotion to abstract discussions has rendered unobservant of facts are too ready to dogmatize on the basis of a few observations.”

This is our fourth post highlighting Griffin; Tren and Munger, Tren on a16z, and Tren and his book. Thanks for reading.

Jim Chanos

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Supported by Greenhaven Road Capital, finding value off the beaten path.

Rapid fire notes from Jim Chanos conversation with Barry Ritholtz on Masters in Business.

Chanos’s firm, Kynikos, is named after the Cynics of Ancient Greece. “They basically were searching for the ultimate truth.” Here is one, unique, Diogenes primer.

Decentralized Command. Early in Chanos’s career, he worked for Gilford Securities, a job with “the latitude to do whatever I wanted to do.” Later in the episode, Chanos said that one mentor was Bob Holmes:

“Bob Holmes was not only a mentor but he stood behind me in the darkest days of Baldwin. The stock had doubled. The New York partner was screaming for my head on a plate. I was all of twenty-five years old. But he stood behind me. He’d seen the work. He’d seen the documents. He’d said, ‘Kid, you’re right.'”

Lowenstein describes Warren Buffett’s approach to decentralized command as “he picked the chorus line but didn’t attempt to dance.” Kirk Lacob of the Golden State Warriors put it this way; “I always thought our secret sauce was that we have great people and turn them loose and let them do what they’re best at.”

Of course, decentralized command only works with the right incentives. It’s the Upton Sinclair warning; don’t expect someone to understand something his job demands he not. Chanos said his first short report “wasn’t received very well as you can imagine, particularly because the big brokerage firms who recommended the stock were also making a fortune selling their annuities.”

Tesla, Chanos said; “is one of the bellwethers of this market. It is a hopes and dreams stock. Investors have pinned their hopes and dreams on this stock and on this CEO, who has done a very good job promoting that vision. The problem is that it is an automobile company.”

It sounds like his criticism of Musk is selling too much sizzle and not enough steak. Great leaders, said Josh Wolfe, “…need a marriage of both. You need a storyteller and you need an operator.”

The secret to great investing is having an edge.

“Julian Roberts had said it best, ‘What is your edge?’ When having a bear and a bull discuss a stock at his shop he would constantly say, ‘What do you know that the market doesn’t?’ What is in your process that gives you an edge, trading-wise or research-wise? What makes you see things differently? Where you see the reality rather than the perception of reality?”

Edges are tricky, performance figures are easy. But as Chris Douvos noted, performance is often a lagging indicator. It sounds like Chanos agrees, “What most people do is look at performance and that alone will not do it for you because you’re always going to chase that which is behind.”

Around 23:30 Ritholtz and Chanos discuss China. Here’s Josh Brown’s request for readings about the country. Beyond the books and the podcast, there’s this 99PI episode about duplitecture in China and also the ghost cities.

China’s problem, said Chanos, is borrowing. “Any time you use debt to fuel grow you’re pulling forward consumption.”

Early in his career, Chanos learned the value of arguing well. Another mentor was Julian Robertson, and “his approach galvanized me. He’d call me up and say, ‘I see you’re short XYZ Corp. Some guys in my shop like that. Why don’t you come over for lunch.’ It was always like going into the lion’s den.”

Reporters like to know the other side too. Ritholtz asked if that’s why Chanos had a pleasant relationship with the media. “Reporters generally like talking to short sellers because they’re going to get the opposing point of view on a situation.”

A recent addition to this point is what Bryan Caplan calls the Ideological Turing Test.

Books “I read a lot of history,” Chanos said.

“One of my favorite historians is William Manchester. Everyone remembers his MacArthur biography (American Caesar) and his unfinished Churchill Trilogy, but the book that’s a game changer is A World Lit Only by Fire. It’s the story of middle ages and reformation, written through this prism of great people like Magellan and Gutenberg.”


“In my history of fraud class, we love The Match King by Frank Partnoy…a wonderful story of the greatest fraudster of the 1920’s.”

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