*Their* restricted action section

One idea around here is that of the restricted action section, and how to unlock it. Broadly the goal is to limit any reduction in the range of choices. For example, the willingness to look stupid is a way to reduce the restricted actions section.

A common cause of restriction are stakeholders. Employees are stakeholders, movie financiers are stakeholders, and institutional investors are stakeholders. In the case of DTC, the most underrated part of the success of companies like Dollar Shave Club, All Birds, or Warby Parker was their competitor’s stakeholders. It wasn’t that Gillette didn’t want to sell their razors for cheap, but that would undermine their retail partners. Stakeholders limit actions. What’s there to do? Tyler Cowen gave a 2022 talk at Yale and advised this:

“Never stop listening while you do this (advocate your position). Don’t make it a crusade, make it a way you are expressing your opinion but trying to learn at the same time. I think especially in university environments you will be more effective that way. If you’re a top line university administrator, the pressures you’re under and the number of constituents you have to cater to is so extreme. Those are frustrated people. A lot of them may be on your side way more than you think but they can’t say so.”

Tyler Cowen

Whenever I find myself flummoxed by someone’s action it’s a sign I don’t understand the incentives. Sometimes the incentives are satisfying the stakeholders. I like Cowen’s approach here: be curious and find the incentives.

Need a louder phantom Tyler Cowen? Here’s more.

Filters for thought

The best way to make decisions is to collect information most related to the system at hand. Touch a hot stove. Drop a pen. Kiss a lover. Each of these offers a direct action-feedback-action loop.

But these aren’t the interesting parts of life. The interesting parts of life are multiple people functioning at different times towards a goal that’s only shared in the sense of each person’s understanding.

Life is messy.

But we know that. Like driving across Interstate 80 with the prospect of a blizzard, we can plan accordingly. In talking with Cleveland Browns General Manager Andrew Berry, Annie Duke noted how difficult the decisions are within a team. Teams are messy! There are sunk costs, biases, entrenched interests as well as the alignment (or not) of stakeholders . But Berry knows this.

“There’s a couple things we try to do. Number one is to do the hardcore analysis removed from the emotion of the season, the player, the decision maker….

“The second part is getting a number of independent perspectives and letting them state their case. It’s easy as the decision maker to be in your own cocoon and only consider your viewpoint on a player…And the last thing we try to do is have a third-party perspective. There are a couple of things we use that aren’t in our building. As much as you try to weed out every type of bias with your internal evaluation methods, it’s to some degree impossible.” – Andrew Berry, The Alliance for Decision Making podcast, July 2021

That’s a lot of specific, helpful, in-practice advice but it is really just one thing: distance.

Distance is the idea behind base rates. It’s switching to “the outside view“. Distance is the idea behind sleeping on it. If the input to good decision making is the best information, then distance changes the information.

Berry recognizes, first, that he alone won’t make the best choice. Berry recognizes that his team will make better choices with training. Berry recognizes that no matter how much work he puts into himself and his team that they’ll still use some suboptimal information, so they get outside information too.

A friend went to a wedding and proudly said he wasn’t hungover because he alternated drinks of beer and water. That’s good design. Berry probably has good design too, don’t evaluate players within one week of a season. Maybe they do it like the Olympics, and throw out the best and worst scores. Whatever the Cleveland Browns system is, they definitely have a system for making good decisions.


Life is messy is one of Brent Beshore’s expressions and it’s a wonderful “default”. If our thinking is framed by the starting state then to start with the idea that life is messy makes a lot of other parts less so.

Hiring stakeholders

Every business has stakeholders. Each entity in “the supply chain” is a stakeholder. There are supplier stakeholders: credit card companies deciding who or not to service. There are customer stakeholders: voting with their feet. There are government stakeholders: adjusting the dials of the economic system as if it were an aquarium.

There are also employees as stakeholders.

“I think of Masterclass, I think of Coda. I think of a company that we just invested in. They’re very clear and upfront about their culture and the process. And I think that A, attracts people who are excited about that type of culture and B, by the time that somebody has actually gone through the process, it’s very clear to them what working in the company is like.” – Roseanne Wincek, Invest Like the Best, August 2021

The LTV/CAC idea applies to all stakeholders. There are many ways to lower the CAC, and it’s one of the more interesting business questions because the lower the CAC the better the business model.

But even a CAC of one doesn’t work if the LTV is zero. The most important part then is getting the right stakeholders, and the best way to do this is clarity. We are the kind of people who do this sort of work.

This isn’t easy. It’s not like a business can say: this is our business model, because alpha erodes. And, it’s not just competitor stakeholders that affect how an organization runs. Any stakeholder can change the rules. Landlords raise rents. Suppliers vertically integrate. Life changes!

Zappos once ran a campaign with a CAC of $18,500. That was inefficient. But a company who does more convincing that clarifying will have the same results: a lot invested and little to show. For instance, Ottawa Canada is a phenomenally good place to built a software company?

“If I hire someone through this very intricate hiring process that we have, there’s an understanding the chance of us still working together in ten years is really high. It’s a commitment from both sides. The company needs to be worth working for in ten years, but because of that, we can have a very different relationship than in a place where the expected tenure is eighteen months.” Tobi Lütke, The Tim Ferriss podcast, June 2020

Shopify filters employees through an “intricate hiring process.” Investment managers filter limited partners through ominous letters. Brands filter customers through advertising.

Maybe flexibility is the best way to think about stakeholders. How much do your stakeholder restrict your range of motion, and is there a way to increase ones flexibility?


Erik Jorgenson calls analogies our mental ‘sporks’. Brilliant!. The credit card companies were top of mind because the OnlyFan payment situation was news around the same time as the episode. Visa and MasterCard have stakeholders too. Sometimes it’s situations like this that provide opportunity for a business. If someone won’t “do X”, that’s a smaller market and more of a chance to avoid alpha erosion. Lastly; CAC, alpha erosion, and stakeholders are all on the list of my favorite ideas.

Playing telephone with Bill Miller

Bill Miller spoke with Barry Ritholtz about active management and the importance of stakeholders.

When Miller departed from Legg Mason and then bought out the residual partners, he didn’t take any of the institutional clients.

“We brought the mutual funds along but I did not bring the institutional business along. We have some separate accounts but we don’t really take institutional money, not that we won’t take it, but we aren’t actively trying to grow it. We are only interested in having clients that understand you’re going to get volatility. We try to monetize the volatility. “

Part-of-the-reason institutions are more difficult to work with is the people. Not only investment committees, but investment committee boards. Not who Miller talks to, but who they talk to.

Around the same time as the Miller interview with Ritholtz, Hannah Fry spoke with Shane Parrish about the algorithms in our lives. Counting leads to coding and our interaction with algorithms, automations, and augmentations is accelerating. One approach (often wrong) is to educate people. Tell someone the number of calories in a Starbucks drink and they don’t opt for the smaller size.

Fry highlights this. It’s not realistic to expect that an outsider has the time, talent, and tenacity to interrogate a source code. They are numbing numbers. If something is too hard to understand, often instantaneously, then it may as well not exist.

The most ubiquitous parts of life are complex. This was a good book about the iPhone but I don’t remember much other than it truly is a global supply system that makes the device in my pocket work. Mix in some YouTube videos about cellular networks (it’s ‘cell’ as in which hexagon from our tessellation map is this person in?) and relearning what the UV spectrum is and I kinda-sorta-get it. There are videos too about repairing a screen. A layperson can do that, but jailbreaking or writing apps? How much does, or should, one person know?

Back to Mr. Miller. He’s not explaining the physical world (Mediocristan), a mostly stable place where the UV spectrum has held relatively constant for hundreds of years. He’s operating in the social world (Extremistan), a mostly unstable place, and it is hard to communicate there.

When asked what he wished he knew when he started, Miller said:

“The thing that I am constantly realizing is that the world, the economy, and the markets are so much more complicated than you have any idea. Having dogmatic views and pontificating about the world as this way or that is a complete waste of time because nobody has any idea about what’s going to happen in the future.”

Listen to Ted Seides’s podcast and you’ll hear that investment committees get this. Institutions employ smart, thoughtful, well-rounded people. However, it’s the next level when the alignment of communication, incentives, and priorities breaks down. It’s how the game of telephone works. Someone can read and watch and kinda-get-it. That same person cannot pass it along.

The alignment of stakeholders is why investment letters (and to another degree, podcasts) are so important. It’s a filter. If someone can read a letter, consider the ideas, and still wants to invest then that person gets it. It’s reading the source code. It’s succeeding at the game of telephone. It’s communicating well.

Your work with stakeholders depends on communication and your communication depends on how clearly you see the world. In the latest pay-what-you-want piece we look at advice from Tyler Cowen and my grandmother. The gist? If you see the world as you wish and not as it is, you’re in for a rude awakening. Get it here