Quote of the week:

“Associate with people who are likely to improve you.” ― Seneca

How to be an outlier

In his latest essay, Superlinear Returns, the investor Paul Graham explores the idea that continuous learning is the key to growth. (“If you’re not learning, you’re probably not on a path that leads to superlinear returns,” Graham writes.)

At its core, the piece explores the implications of living through a period of exponential growth and winner-take-all dynamics in business. But on an individual level, the essay offers deep insights for anyone who seeks a mastery of one’s craft. “There are many variables that affect how good your work is,” Graham writes, “and if you want to be an outlier you need to get nearly all of them right.” He continues:

“For example, to do something exceptionally well, you have to be interested in it. Mere diligence is not enough. So in a world with superlinear returns, it’s even more valuable to know what you’re interested in, and to find ways to work on it. It will also be important to choose work that suits your circumstances… Work as hard as you can without burning out, and this will eventually bring you to one of the frontiers of knowledge. These look smooth from a distance, but up close they’re full of gaps. Notice and explore such gaps, and if you’re lucky one will expand into a whole new field. Take as much risk as you can afford; if you’re not failing occasionally you’re probably being too conservative. Seek out the best colleagues. Develop good taste and learn from the best examples. Be honest, especially with yourself. Exercise and eat and sleep well and avoid the more dangerous drugs. When in doubt, follow your curiosity. It never lies, and it knows more than you do about what’s worth paying attention to.”

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Apex predators and investing

Years ago, Jim Collins wrote about foxes and hedgehogs as two archetypes of business leaders: the fox is sneaky and cunning while the hedgehog simply “waddles along, going about his simple day, searching for lunch and taking care of his home.” (In the end, Collins says hedgehogs typically win.)

Peter Keefe, the portfolio manager of Avenir, uses another fauna-themed metaphor to describe his own investment process in a recent conversation with William Green. “My analogy, that I learned from a lifetime in the woods, is apex predators hunt rarely, but when they do, they take down big game.” Peter is a fountain of wisdom—I was fortunate to meet him last year—and his interview with William covers many timeless investing principles gleaned from his 30+ year journey in the field.  

“I mean, lions sleep or lie around 22 or 23 hours a day. And they don’t feed often, but when they do, they feed big. So I try to apply that analogy to the investment process. We don’t feed often, but we try to feed big when we do… Just to finish out that analogy, I put coyotes on my [farm]. They don’t hunt unless they have an enormous, overwhelming advantage. So, they’re an example of a good business model. That’s how you ought to invest: when you have an enormous, overwhelming advantage. Those opportunities come along infrequently.”

A few more links I enjoyed: 

A Few Laws of Getting Rich – via Morgan Housel
“Happiness is complicated, but if you simplify it into things like a loving family, health, friendship, eight hours of sleep, well-balanced children, and being part of something bigger than yourself, you realize how limited money’s role can be. It’s not that it has no role; just smaller than you may have assumed.”
Interview with Dan O’Keefe (Artisan Partners) – via John Rotonti
“What is enduring about the stock market, what is true now, always has been true, and always will be true is that people overreact… That is the opportunity that is afforded to people that can bring a calm and rational approach to investing. That endures.”

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