Essays

There are two ways of looking at your work. One is as a subtractive process, the other is as an additive process. Understanding the difference between these two points of view is one of the highest leverage ways to improve your and your team’s effectiveness. Failing to understand it is probably one of the largest sources of waste and frustration in most companies. So what's the … [Read more...]

Talk about inflation and supply chain is all the rage these days. How do these two factors interact? How exactly does supply chain disruption cause inflation? Fortunately, there’s a game for that: The Beer Game. For a game with the word "beer" in its name, The Beer Game is not very fun. I would say it comes in a pretty distant second to beer pong. For a game about supply chains, The Beer … [Read more...]

One of the most important concepts in finance and investing is risk-adjusted returns: how much return you got per unit of risk that you took. If I go bet everything I have on 23 in Roulette at Caesar’s Palace and I win, that doesn’t make it a good bet with a good risk-adjusted return, it just means I got lucky. Any game where the house has a guaranteed edge such as roulette has a negative … [Read more...]

You can broadly categorize all games into two types: dynamic and static. I use "games" in the broader/more general sense that includes things like business, investing, school, etc. Static games are games where the actions and outcomes of one player do not affect the actions and impact of another player. Schooling is generally a static game. Just because someone else got an A on a test, … [Read more...]

  Occasionally, there is a saying that hits you in just the right way and just the right moment and you keep coming back to it over and over. One of those for me is: Slow is Smooth and Smooth is Fast. I’m not sure of the original source, but the saying is widely attributed to the Navy SEALs. The origin of the idea is probably much older though likely still military in … [Read more...]

Most of us have a knee-jerk reaction that when something bad happens to assume that someone or something is "out to get us." My personal favorite example is that every time I lose my wallet, my first thought is "someone stole my wallet." I have, in fact, never had my wallet stolen but have been sufficiently careless to misplace it many times (usually somewhere I can find it, … [Read more...]

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I’ve been (rental) house hunting for the last couple of months. I don’t really know anything about real estate investing, but I’ve been trying to read up (John T. Reed’s Best Practices for the Intelligent Real Estate Investor is my favorite so far). It’s been interesting seeing what aspects of a home (rental or for sale) that I care about are priced in and which aren't. Factors which I care … [Read more...]

One of the recurring themes of this newsletter is that reality has a surprising amount of detail. We have a tendency to oversimplify a complex reality to be able to deal with it. That’s fine, as long as you realize what you’re doing. One of the corollaries to reality has a surprising amount of detail is this: Do the Thing You Want To Do. This seems so obvious, but people often don’t do … [Read more...]

There are certain books that hit you at just the right time and became a big part of how you see the world. For me, one of those books is Nassim Taleb’s The Black Swan. The Black Swan has become a widely used (and oft misused) term, but Taleb’s intended definition was simple: A black swan is something that is both highly improbable and highly impactful. As Taleb points out, "known unknowns" … [Read more...]

One of the things that stand out in Alexis de Tocqueville's Democracy in America is the impact of the frontier on early American society. Tocqueville observes that the stability of all governments, and especially democratic governments (Tocqueville was writing in the early 1800s so democratic governments were still a pretty new phenomenon) require the people to be happy (or at least not too … [Read more...]

One popular argument we often hear from investors that I speak with as part of my work at Mutiny Fund is "I’m a long-term investor. Short-term volatility or drawdowns don’t matter to us because I am happy to hold the assets for the long-term." I hear this particularly from people who have learned about investing a lot from the Warren Buffett/Jack Bogle camp as they often are quoted in … [Read more...]

When you encounter a difficult and complex problem, what’s the best way to approach it? There are, broadly, two ways of doing so: as a knot or as a fence. The knot approach is encapsulated in a legend of Alexander the Great. According to legend, Alexander marched his army into the then-Phrygian capital in modern-day Turkey. Upon arriving in the city, he encountered an ancient wagon. Its … [Read more...]

Musician John Mayer gave a talk at Berklee College of Music where he asked students a simple question: "Do you want people to listen to your music?" "If you do," he went on, "that means there are certain rules, like no song is longer than 4 minutes. You can write 10-minute songs and talk about how people don’t understand you, but you can’t complain that no one listens to your songs. Of course … [Read more...]

I got my first job with a distributed company in 2012. We had about a 25 person team across three continents. It was the first time I had worked for a company where everyone wasn’t in the same office. Overall, it was a great experience, I had a lot more flexibility with how I used my time - no more worrying about asking to come in late because of a dentist appointment and it was easy to pop off … [Read more...]

How do you win at business? One can go into the philosophical questions of what does "winning" mean anyway or is that even the point? But, let's take the question at face value: how does one company outcompete others to succeed in the marketplace? The seemingly abstract nature of this framing is important. Most business books tend to start off much more tactically, at a lower level of … [Read more...]

Suppose I ask you to remember the following four objects: an orange, a watermelon, an American football, and a tennis ball. How will you keep them in your mind's eye? You will do it by grouping them. Some of you will group them by the type of object they are: Two pieces of fruit: the orange and the watermelon.Two sports balls: the football and the tennis ball. Those of you who tend to … [Read more...]

Some travelers come to a village, carrying nothing more than an empty cooking pot. Upon their arrival, the villagers are unwilling to share any of their food stores with the hungry travelers. The travelers go to a stream and fill the pot with water, drop a large stone in it, and place it over a fire. They go out and scrounge up a few roots and tubers around the village to add to the pot, but … [Read more...]

Toyota for the last 20 or 30 years has been the benchmark car maker for reliability. This seems normal now, but it's important to know that Toyota used to make really, really terrible cars. In the 1960s, the heyday of the American automotive industry, Toyota’s reputation was about as bad as it could have been. Then, by the early 80s, they were the best cars in the world and parents across America … [Read more...]

  Goodhart's Law states: When a measure becomes a target, it ceases to be a good measure. Take evaluating real estate as an example. When most people buying/renting a house or a condo, the internet search order goes something like: Pick the location Pick the price range Pick the square footage (or number of bedrooms) Finally, bring in other parameters, such as … [Read more...]

What do theories of guerilla warfare, college football, and running a company have to do with the development of modernism and postmodernist philosophy? Kind of surprisingly, I think the answer is a lot. Let’s start with football (of the American variety). Generally, the way that the game is played is that there is a head coach along with an offensive and defensive coordinator. Generally, … [Read more...]

Eugene Wei, an early employee at Amazon, has an excellent blog post on invisible asymptotes. It is worth reading in full, but to briefly summarize, the idea is that as a company grows, it will approach invisible asymptotes where its growth slows in certain areas. This idea is captured in the technological S-Curve: An otherwise ignored technology or company suddenly gains major traction, … [Read more...]

One of my most shared Tweets ever said: I have no idea how to test this but I suspect that there is a strong correlation between the number of history books someone has read and how moderate their opinions are. History is a list of simplistic ideologies failing to work as promised over and over again. That’s a big claim to pack into a tweet, but it’s one version of an evolving line of … [Read more...]

I recently got a question from a reader asking about if and when they should move from working on their current business to a new venture. I’ve gotten a bunch of versions of this question over the years (often from myself): when should I leave this job for another job? When should I leave this job to do my own thing? When should I leave my business to take a job or start another … [Read more...]

I tweetstormed a popular (and apparently still controversial) opinion that the investment management business is turning into the media business. I am, as usual, far from the first person to make this observation. This is a natural result of aggregation theory applying itself to the investment management business. Aggregation theory says, quite simply that the internet had two big … [Read more...]

  Over the last couple of years, I’ve probably talked with 500 investors. It’s been a pretty wide range, from professional investors working at family offices or large institutions to lawyers, doctors, and small business owners. I believe for (almost) all investors, the biggest thing they could do to improve their risk-adjusted returns is not to get better at "picking winners" … [Read more...]

When asked how he went bankrupt, Ernest Hemingway replied “gradually, then suddenly”. It’s a great phrase because it seems to apply to so many things. Often times, things seem “stuck” until they change all of a sudden. An industry that has seen no innovation or change is suddenly upended by a new entrant (E.g. Payment processing before Stripe, Cabs before Uber/Lyft). A peaceful movement … [Read more...]

The Robustness-Efficiency Trade-Off (RETO) states that systems (systems used herein the very general sense meaning it could be a project, company, country, society, etc.) must trade-off between being Robust and being Efficient. This is one of the most important tradeoff spaces and gaining a better understanding of it will make you a better entrepreneur, investor, ecologist, or … [Read more...]

One of the main ideas associated with German philosopher Friedrich Nietzsche was the notion of the "eternal recurrence of the same". The idea being that over an infinite period of time, everything recurs infinitely. He relates this to the notion of Amor Fati, often translated as "love of one’s fate", and associated with Marcus Aurelius and Stoic philosophy (though Aurelius never used the phrase … [Read more...]

In last week’s edition, we looked at how two farmers, Bill and Ann, can cooperate to improve the overall productivity of their farms. This lesson is generalizable well beyond farming - cooperation, be it between investment strategies or basketball teammates, can produce a “whole is greater than the sum of its parts” effect. Some interesting research is being done on this topic by Ole Peters and … [Read more...]

Today, I’d like to tell you a little story about a farmer named Bill. If you're not into farming, it just so happens that Bill discovers one of the most important principles in investing and decision-making in this story, so there's also that. Anyway, back to Bill. Bill grows crops. In a good season, Bill harvests 150 seeds for every 100 seeds that he plants. That’s a 50% growth … [Read more...]

This week I published an essay on why Reality Has a Surprising Amount of Detail. It looks at common causes of overconfidence bias and how individuals can counteract them to make better decisions. One of the most common places where I see this show up is in business decisions. Entrepreneurs, executives, and managers often fall prey to overconfidence. I’d like to tell a … [Read more...]

Sun Tzu's The Art of War is a book nominally about, well, war. It’s kind of deceptively titled though. A more accurate title would be “The Art of Not Going to War Unless You Really Can’t Avoid It And Then Still Avoiding Fighting as Much as Possible.” That’s a bit of a mouthful, so probably best to stick the original, but you get the point. The Art of … [Read more...]

On the Western Front of WWI, the French soldiers had a very simple rule for engaging with the Germans: fire two shots, but never fire first. It was the French practice to “let sleeping dogs lie” when in a quiet sector and never be the first to attack, but to respond with two bullets for everyone that came over. This simple rule was very effective for preventing casualties and is an example of … [Read more...]

  Russian revolutionary cum dictator Vladimir Lenin once remarked that: There are decades where nothing happens; and there are weeks where decades happen."   I tweeted this phrase in early March 2020 as the COVID-19 virus arrived in Europe and North America. It seemed at the time that February was more like a century in the past than a few … [Read more...]

Last week, I wrote about Jospeph Campbell's idea of the Hero's Journey. There are three major stages of the hero’s journey: The Departure Act: the Hero leaves the Ordinary World.The Initiation Act: the Hero ventures into unknown territory (the "Special World") and is birthed into a true champion through various trials and challenges.The Return Act: the Hero returns in triumph. From the … [Read more...]

There was a bluegrass band I used to go see when I lived in Birmingham, Alabama. The only thing I remember from the concerts is the fiddle player. She just looked like she was doing exactly what she was supposed to be doing with her life. You could feel it and it was really beautiful and amazing to watch. We tend to notice and admire people that have accepted their own calling, whatever it may … [Read more...]

Airplanes tend to have redundant subsystems and other design features that let them keep working even after a certain amount of abuse. The first dozen rivets falling out might never be missed. But, the thirteenth rivet popping out may cause the wing to fall off. Perhaps no one knows this better than our friend Wile E. Coyote. Perpetually chasing his nemesis, the roadrunner, he often finds … [Read more...]

A good plan violently executed right now is far better than a perfect plan executed next week." --George S. Patton One of the most powerful sensemaking tools is the use of analogies. As we are going through a fairly unprecedented event in world history, I think it is natural and logical to lean on historical analogies as a starting point for thinking through what the future may look … [Read more...]

Whoever can handle the quickest rate of change is the one who survives." --John Boyd As a thought experiment, imagine 100 ladders lined up against a long wall. Each has a 10% probability of falling over. If the ladders are spaced out and independent from one another, each being used in a different spot, the probability that all of them fall is astronomically low. There is about a … [Read more...]

Only the Paranoid Survive" -Andy Grove Perhaps in no other week will the name of this newsletter be more apt. I started following the coronavirus situation in January and mentioned it in this newsletter two weeks ago. I lead that newsletter with a line from Vladimir Lenin: "There are decades where nothing happens, and there are weeks where decades happen." As it turned out, I was at … [Read more...]

There are decades where nothing happens, and there are weeks where decades happen.” - Vladimir Lenin To borrow a turn of phrase from a Russian dictator, “There are decades where nothing happens, and there are weeks where decades happen.” We may be living through a week in which decades are happening. COVID-19 … [Read more...]