The pursuit of excellence takes many shapes in life. It often centers upon continuous self-improvement, or what the Japanese call kaizen. In certain endeavors, the act of training is a virtuous process towards mastery. Take an Olympic track athlete. Only the rigors of training can put the body in a position to compete. The body’s development improves muscle memory and coordination. Preparation becomes progressively more valuable as the physical improvement yield greater ability. Further, as the athlete gets closer to their competitive limit, she unlocks self-confidence and greater mental focus. This disciplined focus allows for more meaningful improvement when the lower hanging fruit of basic form and strength has been plucked. When your body is able to respond to minor tweaks in technique or diet – which is only noticeable having exhausted the first 80% of improvements –you unlock the ability to meet the last 20% required for mastery. This entire regiment reinforces the other aspects of one’s life which impact their ultimate performance: diet, forms of leisure, daily routine, broader discipline. Each of these feeds back into performance.
Other endeavors do not offer virtuous reinforcement. Instead, the trainee must develop mental balance (zen) to approach mastery. In these pursuits, training is less mimetic toward the real activity, and the building blocks of improvement are less direct. Take surfing. You can hit the gym, exacting a rigorous training regime for months prior to an event. You can of course get out on the waves and work on your form. This may put your body in the position it needs to be in to handle tough waves. However, if nature doesn’t cooperate on the day of competition, none of your preparation translates to success. The competitive environment isn’t controlled, so you are at the mercy of elements outside of your physical training. To handle this, one must develop the mental pliability to reduce intensity in order to keep it in reserve when the time is right. This can be a source of constant frustration for the surfing athlete, compared to the track start or swimmer who deals with the same track, same length of pool, and the almost ritualistic performance. For those athletes, training translates to success. For surfers, an intense training regime of exacting technical specificity may develop the wrong mindset for sitting patiently on a board, waiting for the perfect wave that never comes.
Investing - The Balance of Kai(Zen)
I think investing is some combination of the two (kaizen / zen). Successful investors must find ways to tap into virtuous self-improvement. For this, they may act like a sprinter. But like a surfer, their training is most often tangential to the actual act of investing: staying well-versed of current events, being broadly well read, improving one’s numeracy, learning from prior mistakes, learning from peers, keeping physically fit, etc. These activities do not directly translate to investment performance unlike the sprinter who knows what time they can realistically achieve going into the track meet. Investors sometimes need to be surfers; turning down their focus, waiting patiently for the wave.
This is easier said than done, because these two sentiments can be discordant. Having intensely prepared with world-class focus doesn’t always jive with willful patience.In our world, investment styles can fall out of favor irrespective of one’s acumen. Sometimes, they are simply arbitraged away. Other times, returns can be pushed out into the future by exogenous forces. They can also be pulled forward in a hurry, leaving one with little to do for extended periods of time (years). You can be sitting on your (metaphorical) investment board for quite some time, waiting for the next wave. But you have to be prepared to paddle in a hurry to the opportunity of your lifetime. There is a certain amount of serendipity involved.
Some investment styles are more conducive to the intensity of training. Take short-term catalytic investments. There is always an event on the horizon, and it is often a race to unpack its complexity that delivers abnormal returns. These investors often have the Olympic sprinter mentality. There are plenty of firms with this investment style who matriculate athletes, given their ability to grind through oppressive timelines, delivering exacting results. On the other hand, longer-arc, thematic investing often comes in waves. These investors can appear lackadaisical on any given day. Their routines are abnormal, even concerning to the casual observer. But when that wave comes by, they’re the first one’s racing to get on their board.
Finding your spot on the spectrum of intensity to patience (kaizen / zen) is key aspect of knowing your stripes as an investor. Once you find that niche, you have to cultivate relationships that allow you to maintain that balance. The relationship between manager and client is centered not only around the stewardship of capital and ongoing delivery of value; it is also founded upon trust, built through a candid dialogue on opportunity set. Great relationships are ones where an investor can remain in a holding pattern for the right opportunity to strike (zen) and have the firepower and alignment to drive through when the opportunity is ripe (kaizen).
Without a solid relationship, the carrying costs of doing so become untenable, and can be perceived as abusive. We most often see this with patient investors, sitting on cash, drawing criticism for the management fees they generate doing so. Cultivating relationships should be reciprocal. It is not all about LPs understanding why a GP is holding onto dry-powder, or GPs making the case for a capital call. Some of the bravest acts I’ve seen by managers over the years have been returning capital when the manager alone knows that the opportunity has extinguished itself. Examples include famed short-sellers who returned capital after the financial crisis, even when there was enough anxiety in the market place to continue raising money.
As someone who runs an investment management firm, I have to balance these two dynamics: the daily pursuit of kaizen (how can I be better, how can I be stronger, how can I get smarter) with a zen acquiescence to serendipity (have the right mindset, know when the turn it on and off, trust in the process not the short-term, be ready to pounce on opportunities within our core competencies). This is a difficult balancing act which is unique to each firm, strategy, and style. I applaud investors who have found their happy medium. Given the way our industry develops talent, we believe most investors could use a little more zen in their mindset.
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