The investing advantages of not caring what others think of you

Developing an edge in investing comes down to the ability to consistently identify mispriced assets through time and knowledge arbitrage. Okay, but how? In my opinion, the table stakes for this behavior (beyond just obsessive research) is the ability and willingness to go against the grain, especially when you run the risk of publicly looking like an idiot. This is hard, especially as humans are instinctually wired to behave in-line with community expectations. Whether we realize it or not, we’re all part of clans and tribes, and we behave and act in ways that reduce the risk of social isolation. As an investor, precisely the opposite type of this behavior is required for long-term success.

In other words, we need to make bets far outside consensus views—and risk isolation in the short-term—to reap the arbitrage opportunity over the long-term. This can be challenging, but I believe the psychological ability of simply not caring what other people think is core to any concentrated, public equity strategy.  Elements of this idea—and much more—are expressed in Arthur Clarke’s latest piece for The Atlantic, appropriately titled “No One Cares!” Clarke’s thesis in this article is more directly focused on the negative social reinforcement loops of the internet, but there’s some great, Danny Kahneman-esque nuggets of wisdom about developing an edge in the market through behavioral psychology. 

“Other people’s influence on your opinions about the world pales in comparison to their influence on your opinion of yourself. Evolution neatly explains why: for virtually all of human history, humans’ survival depended on membership in close-knit clans and tribes. Before the modern structures of civilization, such as police and supermarkets, being cast out from your group meant certain death from cold, starvation, or predators. This can easily explain why our sense of well-being includes others’ approbation, as well as why the human brain has evolved to activate the same neural substrates when we experience physical pain and when we face social rejection.”

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What business owners can learn from Newtonian physics 

My friend Michael Olenick, a research fellow at the INSEAD business school in France, published a clever essay this week titled, “Newton on Business.” Mike researches and consults on corporate innovation for a living, and I loved his framing of Newtonian physics as applied to business theory—specifically around technology disruption. For those who are interested, Mike writes a great newsletter on technology, blue ocean strategy, and disruption—link here.

“So… why would a business purposefully put in place an organization to slow things down? Because the business is an object in motion and comfortable with their speed and direction. They want things to continue exactly as is and set up a management plan to make it so. Which brings us to the second part of the rule: ‘unless acted on by an external force.’ This the core of the late Prof. Clayton Christensen’s disruption theory, the heart of The Innovator’s Dilemma. If you don’t disrupt your own business, somebody else eventually will. Of course, ‘eventually’ can be a really long time.”

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WFH … or Work From Anywhere? Airbnb and the “Great Convergence”

As we all now know, the pandemic acted as accelerant to certain trends and business models: e-commerce, digital streaming, Zoom, etc. But to me, perhaps the most fascinating upheaval has been the global shift to remote work. As knowledge workers increasingly reconsider where and how they live their lives, my personal view is that we’re in the very early innings of a radical shift that will impact cultural, social, and economic norms across geographies. This week, the journalist Derek Thompson sat down with Airbnb co-founder and CEO Brian Chesky to talk through how “computers, knowledge work, and remote work are all producing a ‘Great Convergence’ of work and life.”

“You can see this convergence most clearly in our houses. As recently as the 1800s, the home was everything—where Americans worked, and slept, and cooked, and ate, and raised children, and worshipped. For most people, there was no commute; there was no office, or factory. And the agrarian economy ruled out vacations for most families. Then, in the past 150 years, the industrialized world drew sharp lines between life, work, and leisure. It was a period of divergence rather than convergence. Home, work, and hotel meant three different places.”

In case you missed it: My first Nightcrawler podcast conversation with our firm founder/CIO, Arne Alsin—link here.

A few more links I enjoyed: 

Rory Sutherland — Effective Communication: Jesters & Saints – via Infinite Loops Podcast
“But it always strikes me that the job of creative people, of artists, of entrepreneurs to an extent, is different to the job of scientists. The job of scientists is to take what is already known and to come up with convincing answers or recommendations to what the behavior should be in response to what is known, assuming that what you know is adequate. The job of the artist or the creative person, or I would argue the comedian by the way, is to see things which nobody else has noticed. They may be known once you draw attention to them, but they’re just nowhere there in consciousness at all.”
Hayden Capital Q3 2021 Investor Letter – via Fred Liu / Hayden Capital
“By taking this small position, it gave us the option value / incentive to track this potentially, rapidly evolving situation closely, and allowed us to commit capital more aggressively as the ‘flop’ came out and confirmed our thesis. However, while I think we played our hand correctly given the known information at the time, the ‘flop’ was ultimately never dealt.”
More than Joe Rogan: Inside Spotify’s audio revolution – via Fast Company
“Indeed, the company likes to say it is investing not just in podcasts but in ‘future formats of audio.’ And it’s doing this at a speed that Ek says is an integral part of the plan. During the earnings call, he repeatedly invoked the term velocity to describe the company’s audio strategy. ‘Why does velocity matter so much to Spotify? Because I believe that it will ultimately determine our long-term success,’ he said. ‘If you are slow, you better be right most of the time. But if you are fast, you can test and iterate more, which creates a culture of innovation.'”
Joe Frankenfield: How much value investing is in Saga Partners? – via Good Investing
“My strength is probably that I can sit and just dig through filings for hours, and not make any final decisions until I finally see the light for something. I think it’s hard for people to not be active, and I’ve always been able to just not trade or feel the pressures to trade.”

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