TIL2017 – Know thyself

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

This post is part of the TIL2017 Summary Series.

Many podcast and book subjects have an elevated level of self-awareness. As Richard Feynman put it, “you must not fool yourself and you are the easiest person to fool.”

In some ways this includes the advice to follow your passion. Ken Burns said to do what inly rejoices you. Many investors have said that investing only works if you enjoy the work. It’s too easy to hire hard work. Your competitive advantage is focused in areas where you’ll do extra work because you enjoy it.

Understanding yourself also means pointing a spotlight on your blind spots. For Jason Calacanis it was ignorance about Airbnb users. For Scott Fearon it was ignorance of California diners. For Alton Brown it was ignorance about his skills in front of the camera. Mistakes led to self-awareness.

Another moniker is “soft spots” which may be a weak spot in decision making. Daryl Morey had to move away from his soft spot for big men who hustled and rebounded. Marcus Lemonis had to move away from trying to fix the people in the business he bought. Gregg Popovich had to move away from one style of basketball.

Self-understanding is a true mirror, not a carnival one. Brad Gilbert wrote that he sees too many amateur tennis players get upset at themselves for missing shots. So what! You’re not Pete Sampras, writes Gilbert.

Without self-awareness, the heat of the moment can cook our choices. Some preempt this and make their decisions away from the fire. Wesley Gray said to plan in System Two, alluding to Kahneman’s personifications. Ray Dalio created a layer of filters to reduce emotion in decision making at his investment firm.

Even though people have struggled with this, two ideas from modern times can help; zero fucks and identity footprints.

Though rarely expressed with profanity, many subjects don’t care what other people think because they understand themselves. They know the goal better than anyone else – often as the founder – and work toward that.

Equally important is a limited identity footprint. Suffering, said the Buddha, comes from attachment. Or colloquially, disappointment is when reality doesn’t meet your expectations. The idea is the same; don’t be attached to unimportant things.

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TIL2017 – Winning

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.

TIL2017 – Curiosity

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

This post is part of the TIL2017 Summary Series.

Readers are curious. Entrepreneurs are curious. Juvenile delinquents are curious. Yvon Chouinard pointed out this idea and it appears again and again. Each of these people wants the world to exist in a different form.

When the college dropout codes a technology pillar it’s because they were curious. People without the right avenues, wrote Ken Grossman, are troublemakers. This line is narrower than we realize.

More than a handful of podcast guests say curiosity is fun. It’s like hunting for Easter eggs said Wesley Gray. Curiosity was what Joe Peta did as part of his rehab. Walter Isaacson said a “playful curiosity” was what separates Da Vinci from Dariano (me, you). Tyler Cowen said it’s like being Sherlock Holmes.

These investigators of intrigue often suggest we go. Cowen said books are a great way to learn about things but to really taste a place you have to go there. Jenn Hyman said she got her business idea not while in business classes at Harvard but in her sister’s apartment. Esther Duflo went to Africa and India to solve the questions her curiosity produced.

Before you go, wrote Peter Thiel, believe there are secrets to find. If you go without expecting (hoping) to find something then nothing you will find.

Thomas Russo told Ted Seides to listen to things that surprise you. That’s what happened during Peta’s rehabilitation and deliberation. Why did this baseball team have that record?

To channel Charlie Munger, it will also help to know where not to go. That can be school. Ben Sasse said school is okay, but we need more options. Bloggers like James Altucher and Seth Godin disagree. So might Alice Waters.

Instead of school, go and ask a lot of questions. Scott Norton did this for his ketchup company. He asked experts at making food and experts at eating it. Marcus Lemonis said that he’s like an infant, asking why, why, why.

Brian Grazer wrote a book about curiosity. Brad Gilbert started his own little book about it. Gilbert lost a tennis match to an oaf. How did he beat me? Gilbert wondered. He sat down to watch the guy’s next match and tracked his play, taking notes in a little black book. At their rematch, Gilbert won and he expanded his notes to include more players.

Let curiosity sprout come from novel notions.

Ken Burns said he never picks films because he knows about the subject. He does the opposite. He picks things he doesn’t know about. Jason Calacanis advised pretending you’re a journalist.

The quality of curiosity is quantity. Alton Brown called it the greatest force in the universe. Kevin Delaney said that success comes from ideas.

If I were magical this is the first spell I’d learn. I’d cast curiosity.

 

TIL2017 – Trust but verify

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

This post is part of the TIL2017 Summary Series.

“Trust but verify,” – a Russian expression – is helpful and relevant with more accurate and accessible data. Data is a key to the right lock.

Feelings are not facts said Ray Dalio, Ken Burns, and Travis Sawchik. Each of them encourages us to move from the world we expect to the world that exists. Included in the basket of feelings are opinions, biases, inclinations, and ideas. We have to test that stuff.

One favored verification is out of sample tests. This test, said Cliff Asness, is “very calming.” Dalio suggests we find timeless and universal data.

We don’t tend to do that. Instead, we can get tripped up. Extrapolation is a common downfall in sports like the NFL.  Blowout wins in college football, for example, is a poor predictor.

Other times we need to verify how much numbers really matter. Ben Sasse said that a 40:1 student to faculty relationship sounds a lot better than 300:1, but doesn’t matter. So long as there are “five nerds” doing all the talking, the experience for the rest of the students is mostly the same.

Numbers like 99% can be convincing too but upon further inspection may not be. Former football lineman John Urshell expressed doubts about how often brain damage occurs in football.

Other times we can see a complicated system. This is often just marketing said Wesley Gray.

Ideally, we get to control the data from the point of collection. Ben Falk said this is what happens with the Philadelphia 76ers. The team tracks three-point shots made in practice. The players have to prove themselves before they get the green light during a game.

Data control is what sent Esther Duflo into the field. She was concerned that too much foreign aid was assigned by demand and supply wallahs. “Wallah” is Indian for a person involved with a specific thing. Duflo et al. call politicians from both sides to the carpet. Why? They don’t verify their assumptions. Rather than parroting that supply/demand will fix X, run experiments to see what really happens.

When asked about what led him away from market cap weighting, John Montgomery gave Barry Ritholtz this answer, “research.” It’s a funny moment in the interview. Rather than pontificate Montgomery levels. In the same interview, Montgomery explained how he tracks his time. It’s laborious, he said, but it’s something he needs to do if he’s going to verify how he spends his time.

The Nike running team did this with Eliud Kipchoge. Rather than assume that marathon times were a good indicator, they measured oxygen, gait, and diet to verify that the runners were performing at their peak.

Layered on to all this is our biases. The The GMs talk about solving this problem and come up with some good ideas such as writing down your ideas and revisiting and blind voting.

Infinite verification is impossible but basic verification is not. A few calculations or internet searches can give us some idea whether to trust, or verify more.

 

 

TIL2017 – Be Different

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

This post is part of the TIL2017 Summary Series.

We’ve already had a post about Being Different. It was like the song of the year though, so it gets repeated here.

Being Different is valuable because it distinguishes you from others. It’s like when my seven-year-old daughter says ‘Let’s race!’ but speeds off before telling me where the finish line is. If the end is different you can be the first one there.

Danny Meyer did this for restaurants. He wanted to put flavor notes together in a new way. He wanted to emulsify tastes. He wanted new food in New York – and he’s largely succeeded.

We can hold up Meyer and the others in hindsight but the journey to different is lonely. You have to be a loner, a cynic, a skeptic wrote Scott Fearon to be a short seller. Jason Calacanis warned against investing in obvious things. Meb Faber said that “me too” funds will often fail. Marc Andreessen said to look beyond the non-obvious.

Okay. How?

One way to be different is to do something you know. Andy Rachleff suggested this. Create something that you love to use, said Rachleff. In other words, eat your own dog food.

Another way is to learn about something. This is what Scott Norton did when he created a new ketchup brand. If there’s a manual about how to do a thing, it’s not a new thing Norton said.

Marc Andreessen would tell you to look at fringe groups. What are they doing? We see this through history like when the radio went from a novelty to a luxury to a necessity. Cars, phones, dishwashers too.

Sometimes you won’t be different. This is why Gimlet Media doesn’t have a sports show said Alex Blumberg. Until they can do something different than the existing podcasts they’ll sit out.

Sometimes your different thing will be really different. Who, for example, would want to watch eleven hours of civil war pictures? Ken Burns found out that a lot of people would. Burns and Alton Brown both succeeded because they remixed existing ideas to make something new. For Brown that epiphany was when he wondered what a combination of Julia Child, Mr. Wizard, and Monty Python might look like.

Different isn’t a Silver Bullet. The thing still has to be excellent. Jenn Hyman tested the Rent the Runway idea on her sister and friends in college. Scott Galloway tells his NYU Stern students – and anyone else who listens – to build a great product before you worry about marketing. So does Ryan Holiday.

If the different thing succeeds it will be temporary. Others will join this one person race. Edges don’t remain said Ed Thrope. Sports is a petri dish full of examples from Jeff Luhnow to Daryl Morey to The NFL.

Being different will always be hard and sometimes be valuable.