Quote of the week:

“I am not young enough to know everything.” — Oscar Wilde

How to identify talent (from a Hollywood superagent)

Whether you’re picking stocks, building a team, or leading a company, the ability to recognize talent is a necessary skill. But unlike accounting or financial modeling, there’s no standard approach to the craft. “It’s very difficult to describe it any other way than it’s very much like collecting art in a strange way,” says Michael Ovitz, the founder of Creative Artists Agency (CAA), in a recent conversation with Patrick O’Shaughnessy.

The podcast explores many subjects—lessons from Microsoft’s first CTO, the source of creativity, etc.—but I found Michael’s observations about finding talent (both in investing and in Hollywood) to be particularly insightful. 

“I don’t think I could have done this perfectly at the beginning of my career, but I was lucky enough to start in the entertainment business when I was 17. I met a lot of people, and the more people you meet, the easier it is. And when you sit with someone, you get certain cues that are both social and intellectual that give you a frame of reference about drive, about emotion, about deportment, about looking at you when you talk to them, about different tiny things. It kind of reminds me of a Seurat painting—the pointillist. If you look at a 2-inch square of a Seurat picture, you see a bunch of points and dots. You look at a 4-inch square, more points and dots. If you look at an 8-inch square, more points and dots… And then as it gets bigger, the picture appears.”

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Constraints create creativity

“When I think of wealth, money, and investing — constraint is not the first word that comes to mind,” writes the investor Bogumil Baranowski in an essay about the creative leverage of limitations. “It’s quite the opposite. Limitless abundance might be a more intuitive image, but aren’t constraints our true friends that help us flourish?”

I like this idea for two reasons: one, I think it’s true. And two, it’s a rebuke of conventional wisdom, which would suggest “more budget” or “more resources” results in better ideas and products. In fact, recent research suggests the opposite might be true—”managers can innovate better by embracing constraints.” 

“One area where constraints play a crucial role is screening for investment ideas. When faced with a vast number of potential investment options, it can be challenging to make informed decisions. However, by incorporating constraints into our screening process, we can significantly improve the quality of the investment process. I recently spoke with Algy Hall, a renowned expert in stock screens, who explained how using such filters helps avoid common pitfalls and focuses on identifying winning stocks: ‘I see it as a helping hand that can keep our speculative tendencies at bay while letting the inner long-term patient investor shine.'”

A few more links I enjoyed: 

The Great Reallocation – via RMI (H/T Kingsmill Bond)
“Financing the energy transition is a story of capital reallocation. Over the next seven years, renewable capex will roughly double and fossil fuel capex will roughly halve under core IEA scenarios. Falling fossil fuel capex will therefore provide half of the growth in renewable capex. This capital reallocation is very achievable. The required growth in energy supply capex of 2 percent is lower than expected global GDP growth of 3 percent, and lower than the annual increase in energy supply capex from 2000–2010 of 9 percent. Given that the capital formation in 2022 was $27 trillion, the additional capex on energy supply would constitute only 1 percent of global capex.”
Easy Money – via Howard Marks
“The lessons from past periods of easy money usually fall on deaf ears since they come up against (a) ignorance of history, (b) the dream of profit, (c) the fear of missing out, and (d) the ability of cognitive dissonance to make people dismiss information that is inconsistent with their beliefs or perceived self-interest.  These things are invariably enough to discourage prudence in times of low interest rates, despite the likely consequences.”

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