Upfront cliché’ : Being a good (Investor), is the enemy of being a great (Investor)! BOOM!
The source of the investment logic adapted below, is primarily from legendary investor Howard Marks (as penned in his “Dare to be Great” 1 & 11 notes) , but the application of this world-view is entirely ours, let’s go!
Non-consensus (unconventional) ideas are lonely, and often appear imprudent. But, if and when they work out, they produce superior returns, as described in the top right block within Marks’ 2 x 2 matrix:
The 2 x 2 matrix explained further:
If your behaviour is conventional, you’re likely to get conventional results – either good or bad. Only if your behaviour is unconventional, can your performance likely to be unconventional – and only if the judgements are superior, will your performance likely to be above average. (Note to reader: more understanding in the short video that follows here:
From experience, many of the most successful investments entailed being early. That’s half the reason why Marks considers the greatest of all investment adages to be: “What the wise man does in the beginning, the fool does in the end”, and “while there’s no surefire route to investment success, he believes one of the easiest ways to make money is by buying things whose merits others haven’t yet discovered”.
John Maynard Keynes made the point more poignantly by observing “Worldly wisdom teaches that it is better for reputation to fail conventionally, than to succeed unconventionally”.
The bottom line on thriving for superior performance, has a lot to do with daring to be great. Especially in terms of asset allocation, ”can’t lose” usually goes hand-in-hand with “can’t win”, or as the note in the fortune cookie says: “The cautious seldom err or write good poetry”. Caution can help us avoid mistakes, but it can also keep us from great accomplishments.
Now lets get closer to our specific application:
The first thing we need, if we’re to become superior investors, says Howard, is an explicit investing creed. What do we believe in? What principles will underpin our process? He suggests that we ask ourselves questions, like:
- Will we emphasise risk control or return maximisation, or do we think it’s possible to achieve both simultaneously? ( See above video)
- Do we rely on prediction, or command the ability to literally create successes?
- What are the first principles that govern the early-stage venturing and investment space.
- Is early-stage investing only for the elite or can it be democratised through the application of a science?
- Can you dare to look wrong?
- What is the role of luck?
If we’re going to be great, Howard asserts, we have to dare to be different.
Charlie Munger was right, about it not being easy: “I’m convinced that everything that’s important in investing is counter-intuitive, and everything that’s obvious is wrong! Unconventional behavior is the only road to superior investment results, but it isn’t for everyone. In addition to superior skills, successful investing requires the ability to look wrong for a while and survive some mistakes. It’s those who believe, that can and should take a chance on being great.
Larry Ellison observed, “when you go out into the real world, it’s when you find errors in conventional wisdom – when everyone says A is true, and A is actually not true – that you gain your competitive advantage.
Peter Thiel frames this same challenge in “ZERO TO ONE” as, “what important truth do very few people agree with you on?”, and devotes chapter 8 to “secrets”, which opens with the following paragraph: “Every one of today’s most famous and familiar ideas was once unknown and unsuspected. The mathematical relationship between a triangle’s sides, for example, was secret for millenia. Pythagoras had to think hard to discover it. Today, his geometry has become a convention – a simple truth we teach to grade schoolers. A conventional truth can be important – it’s essential to learn elementary mathematics, for example – but today, it won’t give you an edge. It’s now not a secret”.
Welcome to the Market Category Generator (MCG) the place of secrets, when select investors gain access to the (non-consensus information relating to the) future adoptability of innovative start-ups new products….
Other topics by TMARA, include :
The rewards of an early-stage LEAD investor
Stop turning friends and family into fools!
HOW to know, IF and WHEN a startup will reach Product-Market Fit:
The primary cause of startup failure:
Most, if not all, of the great startup successes (home runs) did not solve a BIG PROBLEM for a big market!
www.tmaragroup.com for more conversations
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