Notes from the Diamond #5: Wannabes Beware
December 16, 2018·1 comment·In Brief
Ray Chapman had the perfect batting stance. Brother Matthias taught Babe Ruth exactly which stance to use. David Swensen's investment model has been studied and replicated by thousands of institutions. Yet knowing what winners do and becoming a winner yourself are two entirely different things. The Yale endowment's success created a generation of institutions convinced that understanding the method meant they could replicate the results.
• A repeatable stance or a documented strategy isn't what made the difference. Ray Chapman employed the "perfect model" for batsmen and it didn't save him. Babe Ruth copied his mentor's every motion but wouldn't have become Babe Ruth without skills that couldn't be photocopied from across the diamond.
• The Yale model became a meme the moment it was codified. Institutions read Swensen's book, studied the endowment's asset allocation, and began funding the same managers in the same ratios. What they didn't copy was the thing that actually mattered.
• Swensen spent 33 years developing a distinctive mindset about how to deploy capital. That mindset—an intolerance of mediocrity, a relentless pursuit of excellence, a willingness to abandon winning tactics when circumstances shifted—isn't something a consultant can implement or an institution can inherit.
• The supply of people capable of sustained excellence in selecting investments turns out to be deceptively small.Jeremy Grantham did it. David Swensen did it. How many others have the competitive intensity that makes them unable to accept a mediocre decision, let alone a mediocre decade?
• Copying the method while lacking the mindset doesn't just produce average results. It produces failure that looks exactly like the success it was trying to replicate. The question isn't whether you understand what Swensen did. It's whether you have the capability to do it yourself under changed conditions.
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Comments
“Doing this in a timely and effective manner presupposes a distinctive mindset: one resembling closely if not perfectly the mindset animating David Swensen’s ongoing labors on Yale’s behalf, and the mindset of Swensen’s countless wannabes not at all.”
There is a lot to glean from this read…the above strikes a cord with me! We had one mindset in my prior life, the only easy day was yesterday, TEAMs and put as much knowledge/skills into muscle memory as humanely possible and finally that TEAM exists of nothing but individual leaders making up a common purpose/mission, you take one out, the TEAM continues unperturbed.
Thoughts:
A prediction can be broken up into 3 steps:
[Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge.
I understand poker players have a saying - if you can’t spot the fish at the table, you’re the fish. So, the bad-and-self-aware won’t participate. If you are trading in a prediction market (aren’t all markets, prediction markets?), you are either good-and-aware or good-and-ignorant or bad-but-ignorant. Ironically, the latter two can’t tell whether they are the first group or not. Ref: gwern.net]
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