Countering Cute Storytelling

[Note: this post is intended as a companion to “Ten Commandments From 1.5 Centuries Of American Retail Dominance (And Failure)”]

Dry, theoretical, textbook-style instruction is generally agreed to be suboptimal for learning about most topics; hands-on work – case studies, lab experiments, or so on – is a major improvement.

But it isn’t perfect!  We’ll set aside lab work for now and focus on the softer sciences.  As it concerns history, whether that of business/finance/investing or that of nations and ideas, all that case studies give us is one possible outcome of many – while in some cases you can come up with enough sample size to draw definitive conclusions, oftentimes, “major” events (whether strategic decisions by businesses or major empires) have such unique circumstances and limited replicability that you can’t have a high degree of confidence in the positive takeaways from studying them (this is discussed in-depth in Phil Rosenzweig’s excellent The Halo Effect.)

So first-level thinkers get blown up: “oh, Buffett did XYZ, so I will too.”  Well, no, that opportunity set doesn’t exist anymore – so the somewhat more sophisticated second-level thinkers think instead, “oh, Wal-Mart built a successful business because the company had ABC traits and followed QRS process, so let me look for businesses that model those traits and that process.”  And that’s directionally better than trying to plaster discount stores all over small-town America circa 2017, but we’re still not quite there yet.

Take a seemingly easy/simple takeaway like “be honest and have integrity.”  This seems to be a commonality among leaders who are widely admired, from Benjamin Franklin to Abe Lincoln right on through Charlie Munger, and it feels like the sort of thing that should be universally true.

But is that always and everywhere the case, or are we not thinking deeply enough?  Indeed, one of the few redeeming qualities of The Moral Animal (emphasis on “few”) was an interesting discussion of the multiple potential “stable” equilibria in some classic game theory exercise – I forget the details, but basically the takeaway is that in a world where everyone plays “tit for tat” and recognizes the benefits of cooperation, then that is the right strategy… but if you get enough people who will default to being mean all the time, that becomes the only workable strategy.

Obviously, “be a jerk to everyone” isn’t my takeaway from that – but the analog in the modern business world could be the question of: what’s the most effective way to read a company?  I want the answer to be “kindness and puppies,” because I’m the kind of guy who is going to follow that approach damn the empirics, but unfortunately for me, what I want is not always what’s true.  For every business that succeeded because of its cute, cuddly culture (Zappos, The Container Store, no okay look I swear this post isn’t just an excuse to stuff Amazon affiliate links all over my blog), there’s a clear counterexample of a CEO that reached previously unimagined heights by berating the !@#$ out of employees (Musk, Bezos – and note that I have no opinion on TSLA as a financial success or otherwise; I’m referring purely to technical accomplishments, of which it seems they have had many.)  

These are contradictory and to some extent irreconcilable lessons – is the answer that leadership style doesn’t matter?  That seems unlikely.  It seems more likely that there’s nuance: in certain industries, under certain conditions, with a certain compensation structure and a certain kind of employee… one or the other is correct.  Maybe.  But are we able, from this small sample size, to ascertain in exactly what situations brutality is superior to empathy?  Maybe you’re smart enough to determine that with a high degree of confidence; I’m certainly not.

So what, then?  Abandon vivid, engaging stories and instead rely purely on dry, dull, uninteresting research papers that perform rigorous statistical analysis?  Well, no, there are plenty of flaws in that approach too, as Nate Silver himself points out in The Signal and the Noise.  There’s the issue of backtest overfitting to deal with, confusing correlation with causality, etc etc.

Here are a few simple rules I propose for getting the most out of reading stories:


  • Think probabilistically and make allowances for data which is not included.Certain entrepreneur stories – Phil Knight’s

    Shoe Dog and Richard Branson’s Losing My Virginity come to mind – could be reductionistically expressed as, “I spent a lot of my young adulthood screwing around doing what felt right, and ended up becoming a billionaire.”  It’s a compelling narrative, but also a dangerous one – it’s easy for someone who is a billionaire to look back and say ah, don’t be a corporate square, follow your passion and go on a mystical journey and everything will work out… 

    … but I’m almost certain that if you had access to aggregate statistics, the life outcomes (in pure financial terms rather than more holistic life satisfaction) for 20somethings who, at least at first, pursue serious corporate jobs to build a resume, experience, and a nest egg before branching out, are probably way beyond those who meander along without much direction and hope things will just fall into place.  I know some really smart and talented “high-potential” people from high school who, the better part of a decade later, are now taking that latter route, and financial stability ain’t on the horizon, let alone billions.(Yes, there is an irony in me saying this, given that I’m, uh, not and never intending to hold down a serious corporate job – but then again, I did do that for at least long enough to figure out what was going on…)

    More broadly, many entrepreneur stories include some episode where everything was mortgaged to keep the business going… often including the houses or credit cards of family/friends/etc.  That doesn’t mean it was the right decision – it just means it worked out.

    By reminding yourself that the story you’re reading is merely one example that may or may not be representative (and in this case is not), you’re better able to contextualize the learning and think in terms of, “doing XYZ might increase my probability of success”, rather than the directly causal, “XYZ -> success”.  Attempting to read over a longer period of time (ex. covering the long-term history of retail dominance in America rather than just one isolated story) also helps to build context and figure out what was common to success or failure under different circumstances and environments, providing a higher level of confidence in takeaways.

  • Assign “inversion” takeaways a higher level of confidence than “positive” takeaways.

    Every story has multiple sides: if someone wins, someone else probably fails (a competitor, an enemy, someone whose business gets disrupted under the same circumstances).  Saying that “oh, X Y and Z led to successful businesses over time” is likely a weaker takeaway than “well, clearly A B and C led to failure in almost all circumstances.”  For example, in the history of retail, businesses that focused on protecting legacy profit streams in the face of competition, vs. going full-throttle after new/evolving markets, generally tended to lose both their profit stream and their right to continue in business at the end.

    How could things have turned out differently – were there disaster paths that were avoided at the last second?  As another example, in Benjamin Franklin’s autobiography, many seemingly promising/intellectual friends of Franklin succumbed to vices like drink and gambling – which Franklin largely avoided.

    Similar to the prescriptions for a miserable life in Munger’s famous speech, focusing on how losers lost rather than on how winners won might be more educational, if less heartwarming.  This isn’t perfect, of course, but it may at least help frame things in a useful manner.

  • Go for third-level thinking, not platitudes.
    We’ve already discussed first-level thinking (direct cloning) and second-level thinking (cloning of what led to the approach, rather than the approach itself).  In the case of retailers, the latter could be, for example –
    relentlessly focus on the customer.  Going only one step beyond often leads to unhelpful platitudes, though.  Third-level thinking is going even deeper – what are the little nuances people miss?

    Amazon, for example, showed an almost alarming willingness to burn money going after new categories (to further its mission of providing its customers with what they wanted), but it seemed to do a very good job of quickly retreating in categories like jewelry, or formats like auctions, when it became clear that there were relatively insurmountable barriers to entry.  Wal-Mart, for its part, had plenty of innovations of its own but also methodically borrowed every good idea everyone else came up with.

    So maybe the real lesson to build a successful retail business is: relentlessly focus on the customer in areas where you’re actually cut out to hack it, but leave no stone unturned in figuring out what works and what doesn’t.  

  • Be aware of the author’s biases.
    It’s important to remember that no book is an
    entirely accurate account of what happened – rather, it’s the author’s interpretation of the facts that were available to him, filtered by his schema.  Obviously, an autobiography is usually going to present things in a more favorable light than a third-party biographer would, and this is not just for ego reasons, but rather because when you’re working more off your memory than objective third-party source material, you’re not necessarily going to have an accurate picture (as discussed in Schacter’s excellent The Seven Sins of Memory.)

    That said, third-party biographers aren’t perfect either – often, they have their own agenda to promote, whether intentionally or not – one thing to watch out for is “man with a hammer” syndrome where an author has a certain strong ideological view of the world (say, an economic or sociopolitical view – think about all the crazy super-political people you know who are blinded to reality) and/or believes strongly in some intellectual theory (environmental determinism, etc), and they’re going to naturally (not maliciously) tend to emphasize the factors that support their theory and crowd out any possible explanations, due to confirmation bias.

    As an example, Marc Levinson (The Box, The Great A&P) spends what seems like an inordinate amount of time focusing on regulatory and labor relations issues – clearly these were important issues in both stories, but at the same time, might there be more (or less) to the story than meets the eye?  Or other angles that were equally important but got short shrift?  Questions to ponder.

    As another example from the reader’s side, given that I grew up in Texas and hold a strong philosophical belief in the agency (free will) and self-efficacy, I have a natural tendency to focus on actors and their choices rather than circumstances/context – which is part of the reason I try to balance it out and pay more attention to the context rather than the protagonist when reading business narratives.

  • Read more stories (critically).

    I realize this is somewhat counterintuitive advice given that I’ve spent quite a bit of time talking about all the potential pitfalls of buying well-told stories hook, line, and sinker, but the more you read while thinking about these issues, the more you get a feel for quality “business journalism” compared to what I’ll term “too-cute,” “just-so” storytelling that is fun to read but not very substantial – ex. Malcolm Gladwell, Jim Collins, etc.  One general heuristic I use is: how hard does the author try to fit the world into their preferred box, vs. acknowledging (implicitly or explicitly) the other potential explanations for what they cite?

Stories are here to stay, and almost certainly for the better – but it’s important not to confuse a good story with factual reality.  I love well-told narratives about great businesses, and have learn a lot from them – time will tell if I learn the right lessons…


[$25 prize] Recommendation Request: Six-Star Books

Hey y’all: as part of a project I’m working on, I’d like some recommendations: what books have you read, either recently or in the course of your life, that would deserve six stars on a standard 1 – 5 star rating scale?  i.e. books that weren’t just good or great, but truly life-changing, and had a lasting impact on how you viewed the world.  $25 Amazon gift certificate and public credit to whoever’s recommendation(s) I like the most.  Contest open to the general public, but to win the certificate, you do have to be on my mailing list as of 9/1/2017.  (#incentives)

Please don’t send names of commonly-cited investing books (i.e. Poor Charlie’s Almanack or The Most Important Thing or so on), because I’ve already read all of those.  Please also nothing political or in the field of traditional economics (behavioral econ is allowed though) – it needs to be stuff that’s directly applicable to decision-making in work and life.

I’m looking more for books that make (or break) paradigms in other fields – stuff like Misbehaving by Richard Thaler or The Design of Everyday Things by Don Norman – or anything else that has a near-infinity return-on-time-invested.  My general criteria is utility (i.e. some function of enjoyment and learning) divided by time invested, contextualized by opportunity cost, i.e. differentiation from the category (for example, it’s hard to merit “truly life-changing” status in the category of entrepreneur/business biographies, since there are so many of them that are really good.)

In the spirit of the books needing to be truly exceptional, please cite no more than three… runners-up / honorable mentions are welcome and encouraged, but not prize-eligible.  Contest open through September 1st… winner will be decided sometime later in the fall (after I’ve had time to read all the recommendations!)

Don’t Hire Me As Your CMO…

There are a number of things I am good at, such as: playing with dogs!  Writing research reports!  Making risotto!

Unfortunately, it turns out those skills do not translate to, uh, basic internet marketing 101, and a thing that I am *not* good at is running an automated, RSS-driven email distribution list.  I was informed by multiple readers and friends that they weren’t getting notification emails on new posts… and lo and behold, MailChimp apparently had never actually sent out a campaign since I started the website in January.  (Oops.)

I guess the moral of the story is: don’t hire me as your CMO.  And also, going forward, you *should* get a weekly email on Thursday afternoons (Central Time) if there are any new posts.  (You won’t get an email if there aren’t any new posts.)


Be A Filter, Not A Sponge

I try very hard to avoid strong ideology; I have, as best I can tell, one core postulate that I have no interest in debating (free will exists), one core universal framework for approaching life (rationality), and everything else is nuanced and up for grabs with only the level of confidence justified by my knowledge base (occasionally moderate to high; usually pretty low).

If I have anything resembling a core credo, though, it’s probably “be a filter, not a sponge.”  This is a line I stole from The Perks Of Being A Wallflower (which I’ve watched… an embarrassing number of times… while consuming an embarrassing amount of ice cream.)  Charlie’s teacher gives him, ironically, The Fountainhead (a great book… in moderation) and advises Charlie, basically, to be open to new ideas, but not to let others do his thinking for him.  He needs to stand between his brain and new information and let the good stuff through while filtering out the chaff.

I’ve talked about this before a little bit (Grit Is Overrated), but the problem with advice, or even ideas more broadly, is that they don’t exist in a vacuum: they exist with certain premises and goals in mind, in a certain environment, and even to the extent that they are valid for those premises and goals in that environment, they will not necessarily stay valid (in whole or in part) when placed into different circumstances.

In other words: it’s important to learn from those who came before you (whether via their writing, or from speaking to them), but you need to be an active listener/learner and calibrate what they’re saying to account for any differences.  Essentially it’s a game of five-whys, dimensionalizing what you learn to find the root/core idea and separate that from its packaging.  For example, that could go something like:

  • entrepreneurs say you have to get up at 5 AM if you want to be successful
  • why? because they need uninterrupted time to work and once the day starts, there are lots of interruptions
  • therefore: there’s nothing magical about getting up at 5 AM, other than it gives you a few hours to work before the distractions start
  • therefore: if 5 AM isn’t your thing and you can find other times of day to do focused work without distractions, that’s perfectly acceptable as well

Altogether too often, both inside and outside of the value investing world, I see people acting as “sponges” – “oh, let me just do what he did/does” – to the extent, sometimes, of cloning investment ideas or strategies (both of which are generally terrible ideas for intuitive reasons).  I suppose to some degree this is marginally better than not being a sponge at all… but it’s certainly not as productive as being a filter.