“Good is the enemy of great!” Thank you!
The source of the adapted logic below, is legendary investor Howard Marks (extracted from his “Dare to be Great” 1 & 11 notes), followed by a neat application of his world-view – the Market Category Generator (MCG) proudly developed by www.tmaragroup.com – here goes!
Non-consensus (unconventional) ideas are lonely, and often appear imprudent. But, if and when they work out, they produce superior returns (the blue block), as highlighted in the top right block of Marks’ 2 x 2 matrix:
The 2 x 2 matrix explained further:
If one’s behaviour is conventional, you’re likely to get conventional results – either good or bad. Only if one’s behaviour is unconventional, can your performance be unconventional – and only if the judgements are superior, can your performance be above average (the blue block).
“In other words, if we knew something (a secret) no-one else did AND we were right, we’d be rewarded with a superior return”
From experience, many of the most successful investments entailed being early. That’s half the reason why Marks considers one of the greatest of all investment adages to be, “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”.
The bottom line on thriving for superior performance, according to Marks, 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 may we get closer to the 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?
- Do we rely on prediction, or command the ability to create successes?
- What are the first principles, the natural laws that govern the space.
- Is early-stage investing an art or a science, or both?
- 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 behaviour 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 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 to unearth secrets, where investors gain answers to the following questions, IF and WHEN a start-up can and/or will likely become a market MUST-HAVE, in other words, reach Product-Category fit (PCF) – the primary cause of start-up success
(more below in an earlier post, if you have the time)
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