One for the Generalists
It pays to be a generalist in life and in investing.
Winning in business and at times, in life, is often credited to 'head starts'. Company A had a head start over the rest of the competition with a groundbreaking technology, so it won. A VC had a head start in spotting a secular trend and got in early, and she won. Jamie has been practicing his skill since he was a child, he's had a head start over the rest of his peers and competitors. He's probably going to win.
Starting early has become a part of our culture. The world charts a course for you from the minute you're born. A step-by-step guide to success.
"What, you're 25! You have not moved past Step 8! You better start moving!"
And generation after generation is put through this mill. A hyper-focused, hyper-specialised journey to the summit. 'Tunnel vision bruh!'
The hyper-specialised playbook works in a 'kind' world. A world in which you can succeed by perfecting a pre-defined set of rules. A space with a set of variables you can control. Chess, Golf or scientific research for example. But, this environment specific approach hits a brick wall if used in another environment.
Life on the other hand is an uncontrolled space. Paraphrasing David Epstein from his book Range, the world, most of the times, is 'wicked'. It is rife with uncertainties and problems you do not have answers to. It has more 'grey' than 'black-and-white'. When being a specialist stops working, maybe its time to become a generalist.
Master of some
The world incentivises mastery. Someone who as a range of experiences under his belt is commonly named Jack, of all and master of none. But to succeed in this increasingly complex world, one needs breadth. A diverse set of experiences that allow you to compound knowledge. Over time with enough consistency, you might become a jack of all, and master of SOME.
When I say 'Generalist' I mean someone who's had the chance to sample enough experiences in life. Someone who has picked up nuggets of knowledge by being in a number of spheres and can use the magic of 'interconnectedness' to get answers to complex questions. A generalist does not have to be a Leonardo Da Vinci like polymath. She could be a generalist in a broad domain and could use that experience to succeed in a specialised sub-domain.
Elon Musk used his diverse range of experiences growing up to launch X.com (which later became Paypal), after selling his first company ZiP2 Corporation. He then went on to create SpaceX, and then Tesla, two of the most successful companies in the world today. Four businesses pertaining to very different domains. He might be a jack of all, but is clearly a master of some.
As we move towards a highly automated world, it becomes imperative to have an understanding of broader principles from a variety of domains. The more constrained and rule-based your world, the more likely it is to be automated at some point. Having this Range would help you utilise conceptual knowledge from one domain to solve challenges in another. Something that humans are still better than the machines.
Investing with Range
If life was a complex world full of uncertainties, the world of investing is more like Complexity 2.0. More uncontrolled variables, black swans and the like. Everything works until doesn't. Exogenous shocks like a global pandemic could break all your models. A group of retail traders could meme-fye a stock that could lead you to ruin (see: Melvin Capital).
Long-Term Capital Management, a hedge fund set up in 90's by Nobel Prize winning financial economists and star Wall Street traders collapsed due to Russia defaulting on its debt, an event that had not been factored in into its 'risk-models'. This was a fund that ran highly leveraged strategies and had hyper-specialised experts of the game with the reins in their hands.
With every bit of information available to anyone in the world, informational edge no longer guarantees success. The alpha in investing lies in being able to think through the idea in ways others can not. To do that, one needs to use these influences of the past (or the present) to take decisions that enhance your winning percentages.
As Morgan Housel puts it, the investing world has less experts due to more 'grey' than 'black and white'. Its another one of those wicked worlds where you need to be part accountant, part historian, a behavioral psychologist, well versed in game theory, an economist, statistician, a systems thinker and so much more. This is a world where decisions are made in probabilities or likelihoods. A space where you might need to use broader fundamental principles of another domain to understand a problem in the one you are trying to invest in.
The best investors use this Range to find the answers they are looking for. They use analogies to understand complex business models of our times. They leverage the knowledge compounded over the years to put themselves in a position where winning is more likely. Warren Buffett and Charlie Munger have done that for that past 60 years or so. The likes of George Soros, Terry Smith, Nick Sleep have used some version of this range to achieve what they did.
All great investors have something in common: They build this Range over the span of their careers, by learning and unlearning about a number of different worlds to get a better sense of how each one them works.
We learn who we are only by living. While we all want to exploit the opportunities that we think lay out there, we tend to miss the exploration part, where you sample experiences via different activities, jobs, careers and relationships. Being a generalist first allows you to explore who you are and what you really want. Being a specialist after will let you exploit what works best for you.
In short Generalise, then specialise.
The Atomic Investor