The spark of something amazing, in this blog post, specifically refers to the idea of doing something truly legendary that creates great wealth and admiration. To do something like that, one has to be built a bit different. Morgan Housel wrote:
Reversion to the mean is one of the most common stories in history. It’s the main character in economies, markets, countries, companies, careers – everything.
Part of the reason it happens is because the same personality traits that push people to the top also increase the odds of pushing them over the edge.
He goes on to describe how it may apply to investors:
The kind of personality willing to take enough risks to earn outsized returns is generally not compatible with the kind of personality willing to shift everything into muni bonds once they’ve made enough money. They’ll keep taking risks until those risks backfire. It’s why the Forbes list of billionaires has 60% turnover per decade.
And last, he talks about how acquiring “the spark of something amazing” and keeping it are two different skills often at odds:
Long-term success in any endeavor requires two tasks: Getting something, and keeping it. Getting rich and staying rich. Getting market share and keeping market share.
These things are not only separate tasks, but often require contradictory skills. Getting something often requires risk-taking and confidence. Keeping it often requires room for error and paranoia. Sometimes a person masters both skills – Warren Buffett is a good example. But it’s rare. Far more common is big success occurring because a person had a set of traits that also come at the direct cost of keeping their success. Which is why downside reversion to the mean is such a repeating theme in history.
For me, investing has never really involved “getting rich” as much as I hoped it would in the earlier years. I would dream about finding a 100x investment, or perhaps even a 5x investment, and realizing that big score with fists pounding the table thinking I did it. But frankly, it isn’t how I’m wired. I’m not someone who is willing to swing the bat so hard that I become the outlier statistic of the one who earned the outsized returns. But I am the person who is willing to invest in muni bonds ;).
As such, investing to just make a reasonable return via current income to enable a relatively freedom-full life is in fact up my alley. It foregoes the idea that I have “asymmetric” investments that can produce life-changing returns. It narrows the investment universe to things with more certain outcomes versus uncertain. It removes me from fooling myself that I have differentially good insight on the future of various businesses across different industries.
It’s why credit has been so intellectually interesting to me lately. One credit investor outlined with respect to CLOs:
So you’re not exposed to management, you’re not exposed to R&D, you’re not exposed to weak documentation or leaking of proceeds. You’ll have a very tight closed loop system defined by rules where you’re taking asset level risk from predictable cash flows from a diverse set of borrowers or a diverse set of consumers.
It’s less the CLO product level insight that I find interesting, more the idea that there are ways to invest that expunge with having to predict the future. Predicting the future is an exceedingly interesting intellectual pursuit but one that few master.
To that end, I continue to think I’m positively evolving by virtue of letting go of the idea that I’m somebody special. That it is okay to target modest returns that achieve a specific psychological goal and sleep well at night. And with that mindset, my investing continues to get better each day.