Tag: Warren Buffett

The Danger of Comparing Yourself to Others

The most important things in life are internal not external.

“The big question about how people behave,” says Warren Buffett, “is whether they’ve got an inner scorecard or an outer scorecard. It helps if you can be satisfied with an inner scorecard.” To make his point, Buffett often asks a simple question: Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?

Comparing ourselves to others allows them to drive our behavior. This type of comparison is between you and someone else. Sometimes it’s about something genetic, like wishing to be taller, but more often it’s about something the other person is capable of doing that we wish we could do as well. Maybe Sally writes better reports than you, and maybe Bob has a happier relationship with his spouse than you do. Sometimes this comparison is motivating and sometimes it’s destructive.

You can be anything but you can’t be everything. When we compare ourselves to others, we’re often comparing their best features against our average ones. It’s like being right-handed and trying to play an instrument with your left hand. Not only do we naturally want to be better than them, the unconscious realization that we are not often becomes self-destructive.

Comparisons between people are a recipe for unhappiness unless you are the best in the world. Which, let’s be honest, only one person is. Not only are we unhappy but the other people are as well. They are probably comparing themselves to you—maybe you’re better at networking than they are and they’re jealous. At worst, when we compare ourselves to others we end up focusing our energy on bringing them down instead of raising ourselves up.

There is one thing that you’re better at than other people: being you. This is the only game you can really win.

When you start with this mindset the world starts to look better again. No longer are you focused on where you stand relative to others. Instead, your focus and energy is placed on what you’re capable of now and how you can improve yourself.

Life becomes about being a better version of yourself. And when that happens, your effort and energy go toward upgrading your personal operating system every day, not worrying about what your coworkers are doing. You become happier, free from the shackles of false comparisons and focused on the present moment.

When what you do doesn’t meet the expectations of others, too bad. The way they look at you is the same way you were looking at them, though a distorted lens shaped by experiences and expectations. What really matters is what you think about what you do, what your standards are, what you can learn today.

That’s not an excuse to ignore thoughtful opinions—other people might give you a picture of how you fall short of being your best self. Instead, it’s a reminder to compare yourself to who you were this morning. Are you better than you were when you woke up? If not, you’ve wasted a day. It’s less about others and more about how you improve relative to who you were.

When you stop comparing between people and focus internally, you start being better at what really matters: being you. It’s simple but not easy.

The most important things in life are measured internally. Thinking about what matters to you is hard. Playing to someone else’s scoreboard is easy, that’s why a lot of people do it. But winning the wrong game is pointless and empty. You get one life. Play your own game.

An Investment Approach That Works

There are as many investment strategies as there are investment opportunities. Some are good; many are terrible. Here’s the one that I lean on the most when I’m looking for low risk and above average returns.

“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple.”

— Charlie Munger

Goal: An investment algorithm to lean on hard when it is available. Low-risk, long-duration, above-average returns.

There are many paths to investment heaven (and we’ve written on the topic before). The diversity of working approaches demonstrates that. However, fundamentally, any useful approach must do three things:

  1. It must work in all conceivable financial environments.
  2. It must be within the “circle of competence” and “circle of interestingness” of its user.
  3. It must meet the moral criteria of its user.

I believe the system below satisfies the first criterion, and allows for all three.

A 7–Element Algorithm for Equity Investing

Everyone Wins
Successful businesses have indefinitely sustainable business systems: owners, employees, customers, suppliers, all content.

Ballast for the Storm
Look for a sustainable balance sheet, given the capricious nature of the world. Past bad events do not predict future bad events. Sometimes inefficient balance sheets allow companies to survive by positioning them for all environments, not just optimizing for one.

Different and Hard to Match
Candidates must occupy a structurally profitable, indefinitely sustainable business niche, allowing for the truism that all moats are subject to being crossed eventually. There must be an element of mystery.

Operational Soundness
Reliable execution of the “blocking and tackling” of operations is a must. Getting this wrong always costs big, and can ruin a good niche.

A Few Simple Variables
Allowing for the difficulty of predicting the future, candidates should have just a few reasonably predictable economic variables that will dominate their outcomes. In the words of Warren Buffett, “There are all kinds of businesses where we have no idea what they’ll earn this year, let alone any future year.” Look for boring investments, sexy is usually complicated and full of competition. Look for what’s staying the same.

Long Runway
You should be able to foresee an indefinite period of growth ahead, through some combination of market creation, market penetration, and pricing power.

Priced Attractively
Stock should be priced so that stock returns >= business returns, always including a margin for error in forward-looking estimates.

Seemingly missing is the concept of “good management,” but I consider this redundant in light of the first four elements. Any business meeting those criteria is being managed properly, and any investment going 7/7 has a very low probability of failure.

Notice that the word indefinite is used several times. This does not mean the same thing as infinite. There are no infinities in the business world. Indefinite means “as far out as can presently be seen.”

Caution: what psychologists call the “representativeness heuristic” puts us at risk of over-fitting to this or any algorithm. Always be on guard. In the words of Richard Feynman, “Never fool yourself, and remember that you are the easiest person to fool.”

Still curious? Read the parable of how one nation came to ruin.

Compounding Knowledge

The filing cabinet of knowledge stored in Warren Buffett’s brain has helped make him the most successful investor of our time. But it takes much more than simply reading a lot. In this article, learn how to create your own “snowball effect” to compound what you know into opportunity.

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Alice Schroeder, the author of Warren Buffett’s authorized biography The Snowball, tells the story of getting into Buffet’s thinking in this informative talk. In her words,

Starting [at a young age] he’s read everything that he could find about business. The subject that interests him, he’s read newspapers, biographies, trade press. He went over to his grandfather who was a grocer and he read the progressive grocer magazine, and he read articles on how to stock a meat department. He’s gone to visit every company that he could find that was even slightly interesting to him, he went down to visit a barrel maker and spent hours talking about how to make barrels. He went to American Express, and he spent hours talking about that business, he went to GEICO and learned about the insurance business. He has stacks of reports on his desk from the companies he owns, pig stalls, jewelry, boat winches, everything you can imagine. He reads hundreds of annual reports every year from companies that he doesn’t own yet, because he just wants to understand their businesses, and then when the opportunity arises, then he’s ready and he can make a decision. What he’s really done is he’s created this immense vertical filing cabinet in his brain of layers and layers and layers of files of information that he can draw back on now for more than 70 years worth of data.

Expiring Information

A lot of us are on the treadmill of consuming expiring information. Not Buffett. He filled his mental filing cabinet with information that had a long half-life.

While most of us focus on consuming information that we won’t care about next month, let alone next year, Buffett focused on knowledge and companies that change very, very slowly or not at all. And because the information he was learning changed slowly he could compound his knowledge over time. And as Schroeder notes, Buffett has been in business for a long time, giving him incredible opportunities to create a cumulative base of knowledge.

Expiring information is sexy but it’s not knowledge. Here are a few telltale signs you’re dealing with expiring information. First, it’s marketed to you. Second, lacking details and nuance, it’s easily digestible. This is why it’s commonly telling you what happened, not why it happened or under what conditions it might happen again. Third, it won’t be relevant in a month or a year.  Expiring information is one reason I stopped reading most news. It’s a false map.

But there is another subtle difference to Buffett’s approach that often goes unnoticed and few people talk about.

Matching Patterns

Buffett insists on doing his own thinking and vacuums up the details. When we don’t think for ourselves it’s easy to put the blame on someone else, to “pass the buck” so to speak.

When we consume information that doesn’t expire or expires slowly;  is very detailed; and we spend time thinking about it not passing the buck, we can match patterns. This is how you learn to see what other people are missing. The longer you do this, the more advantage you get.

Most of us use a computer to store information so that we can retrieve it when we need it. We’ve organized our knowledge around a computer. Not Buffett.

The biggest thing he’s done is to learn and create this cumulative base of knowledge in his head. One reason that he doesn’t use a computer is that in a sense, he is one. He also needs a computer to get…he uses it for news. He wants to know what’s going on in the world. So he is on the internet a lot to get news reports, and he’s up late at night seeing what’s going on. He doesn’t use it as a filing cabinet or for computation.

Just like the rest of us, Buffett’s dependent on information and knowledge to make great decisions. Unlike most of us, he has a great memory—perhaps because he’s not trying to outsource his memory or thinking to others.

A lot of what the snowball is about the concept of learning, and creating, and the advantage of having the information and knowing it. When I came here today one of the things that I was thinking is that what you do is so much at the intersection, because retrieving information is different from having it already in your head. The internet is wonderful for being able to retrieve and get information.

What you do is different. You work on manipulating how you use the information. In fact, Warren Buffett and Charlie Munger have the files in their head. That’s why they aren’t really out there googling all the time looking for, trying to look stuff up, because they already know it.

There are applications that somebody who doesn’t have the upper digits memory and their computational power would need in order to be as successful as them. Sometimes when they say, we don’t use computers. An ordinary person can be them.

I think a lot of the work that you do here is helpful to the ordinary person, but Warren Buffett or Charlie Munger don’t need it. At the same time, the lesson that they have, which is that learning yourself, making yourself as smart as you can is extremely valid, and not just relying on a library where you can look something up all the time, because a lot of times when you need to make a decision, and you need 50 pieces of information, you need to know it then.

That’s been one of Warren Buffet’s greatest secrets of success.

I’m not suggesting we all copy Buffett.

While there is no denying he’s successful, the way we think he developed his remarkable facility owes a great deal to living in a certain time period, with a certain biology, and a level of focus and dedication to a single pursuit that few of us can manage. That doesn’t mean we should go to the other extreme and ignore him.

There is much we can learn from him. The key questions are: what’s he doing that works, why does it work, and can I adapt it to my circumstances?

Further Considerations:

  • Will you care about what you’re reading in a month? In a year? In five years?
  • Are you focused enough on the same thing to build cumulative knowledge or are you too spread out?
  • What do you spend time on that’s likely to change in the next few years? What’s not likely to change?
  • What would need to happen for you to stop outsourcing organization of information to the computer?

The Snowball is about learning, lifelong learning. Spending some time with these questions will allow you to find ways to make your own learning and your knowledge base more powerfully productive for you.

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Members of the FS Learning Community can discuss this article on the inside.

What’s Staying the Same

We all want to know the future. Yet, our desire to know the future leads us to seek answers to unanswerable questions.

The question, “What’s going to change in the next 10 years?” is a popular one in nearly all industries. The siren song of avoiding uncertainty and knowing the future is hard to resist. Having the answer is the equivalent of signaling to the world that you’re an oracle. We’re trying to get ahead of the change, so we’re ready.

The problem is we’re mostly wrong. Luckily, no one will remember how wrong.

To capitalize on what’s going to change in the future, a lot of things have to go right. Not only do you have to speculate the variables correctly, but you have to guess how they will play out in the future. On top of that, if you really want to prepare yourself, you need to go all-in on that version of the future. And you have to hope that everyone else thought you were crazy and didn’t prepare for that version of the future. This is why it rarely works, and when it does it’s mostly luck.

While predicting the future can be a fun thought experiment, it’s often not knowable. We’re speculating but our brains convince themselves otherwise. Plausible answers about the future tend to cement as a reality in our minds. We convince ourselves that we know something that is not knowable.

The range of possible futures is always changing, a lot like electrons. Electrons baffle physicists because they are hard to pin down.  Any attempts to locate them require the use of energy.  Electrons are so light that the energy we use to locate them changes their location. In the same way that shining a light on an electron will change its position ever so slightly, investing in a particular version of the future will change the probability of that particular future ever so slightly. Complicating things further, it’s not a single-player game—it’s a multi-person game and the odds are always changing.

The More Important Question

While looking to the future is fun, the more important question is, “What’s not going to change in the next ten years?”

Both Jeff Bezos and Warren Buffett agree on this question being important. Think about that for a second. The leader of one of the most innovative high-tech companies in the world and the leader of one of the most boring conglomerates in history both agree that a question about what’s not going to change is more important than one about what will change.

Bezos realizes that energy and effort put into predicting what’s going to change is a speculative bet. It might work, and it might not. The hope is that if it works, it pays off spectacularly, and if it doesn’t work, it doesn’t cost you much.

While investing in what’s changing is risky, investing in what stays the same is not. Bezos realizes investments in what doesn’t change will still be paying off in ten years. “When you have something you know is true, even over the long term,” he said, “you can afford to put a lot of energy into it.”

Predicting what’s going to change is hard. Predicting what’s going to stay the same is relatively easy. Think about the dotcoms. Everyone was running around and saying this time would be different—everyone but Warren Buffett. He was sitting in his office in Omaha asking himself what would stay the same.

Alice Schroeder, Buffett’s authorized biographer, explains it this way:

There is less emphasis on trying to reason out things on the basis that they are special because they are unique, which in a financial context is perhaps the definition of a speculation. But pattern recognition is his default way of thinking. It creates an impulse always to connect new knowledge to old and to primarily be interested in new knowledge that genuinely builds on the old.

While you can’t know what’s going to change in the future, you can intelligently speculate on it, which is the best path. The safe play is to invest resources into all probable futures. This conveniently keeps options open, allows you to tell the board of directors with a straight face that you’re working on it, and makes you better off than had you not explored the future. The problem, again, is that the game has many players. While most companies took the same safe strategy as yours, someone—somewhere—went all in on this particular version of the future. That company is now being expensively acquired, by you or someone else.

The important point is that while you’re doing that, you should be inverting the problem. Answers to what’s going to stay the same in the next ten years, while boring, offer the best investment opportunities.

Leverage: Gaining Disproportionate Strength

“It is easier to conquer than to administer.
With enough leverage, a finger could overturn the world;
but to support the world, one must have the shoulders of Hercules.”
— Jean-Jacques Rousseau, The Social Contract

***

The Basics

A good place to begin understanding the concept of leverage is the etymology of the word. We can trace its origins back to the Proto-Indo-European ‘legwh’ which described something light, agile, or easy. From this, the Latin ‘levare’ formed, which referred to something that was ‘not heavy.’ But the word absorbed into English in the 14th century from Old French, where ‘levier’ referred to raising something (hence the reflexive verb, ‘se lever’ which, in general, is used in the context of getting up in the morning.) So in essence, leverage refers to making something light by raising it in a specific manner.

The fusion of these two ideas perfectly describes a physical lever- a pole connected to a fulcrum which serves to create additional strength or force. A lever does not bend or create additional friction.

Three main types of physical levers have been identified

  1. Levers with the fulcrum in the middle. A force is applied on one side and the load is on the other side (such as a crowbar.)
  2. Levers where the load is placed in the middle and the force is applied on one side, with the fulcrum located on the other (such as a bottle opener.)
  3. Levers where the force is applied in the middle (such as our lower jaw bones.)

Archimedes is credited with establishing the concept of leverage, over 2000 years ago. He famously stated that, given a lever long enough and enough distance, he could lift the earth.

In On the Equilibrium of Planes, Archimedes wrote: “Magnitudes in equilibrium at distances are reciprocally proportional to their weights.”

However, the Peripatetic School (the followers of Aristotle) wrote of levers before the birth of Archimedes. In Mechanica, a work believed to have been written by members of this school of thought, they state:

Why is it that small forces can move great weights by means of a lever, as was said at the beginning of the treatise, seeing that one naturally adds the weight of the lever? For surely the smaller weight is easier to move, and it is smaller without the lever. Is the lever the reason, being equivalent to a beam with a cord attached below, and divided into two equal parts? For the fulcrum acts as the attached cord: for both these remain stationary, and act as a centre. For since under the impulse of the same weight the greater radius from the centre moves the more rapidly, and there are three elements in the lever, the fulcrum, that is the cord or centre, and the two weights, the one which causes the movement, and the one that is moved : now the ratio of the weight moved to the weight moving it is the inverse ratio of the distances from the centre. Now, the greater the distance from the fulcrum, the more easily it will move. The reason has been given before that the point further from the centre describes the greater circle, so that by the use of the same force, when the motive force is farther from the lever, it will cause a greater movement.

Like many of our mental models, leverage is a scientific concept which has applications in many other areas.

Leverage is an idea which humans have used to great effect for thousands of years, enabling them to gain disproportionate strength. For example, the ancient Egyptians used levers to lift stones weighing up to 100 tons in order to build the pyramids and obelisks. Many of humanity’s tools, used for centuries all over the world, incorporate levers- scissors, pliers, door handles, wheelbarrows, fishing rods and more.

The concept of leverage has been applied to other areas over the last century or so. In Decision Making, Alan C McLucas defines leverage and leverage points as:

Leverage is built on the notion that small, well-focused actions can sometimes produce significant, enduring improvements if they are applied in the right place. Tacking a difficult problem is often a matter of seeing where the high leverage lies.

… A leverage point is where a small difference can make a large difference. Leverage points provide kernel ides and procedures for formulating solutions. Identifying leverage points helps us: create new courses of action, develop increased awareness of those things that may cause a difficult before there are any obvious signs of trouble and figure out what is causing a difficult.

Leverage in Negotiations and Business

“You don’t convince people by challenging their longest and most firmly held opinions. You find common ground and work from there. Or you look for leverage to make them listen. Or you create an alternative with so much support from other people that the opposition voluntarily abandons its views and joins your camp.”
— Ryan Holiday, The Obstacle Is the Way

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Roger J Volkema provides an example of how people use leverage for their own benefit in negotiations:

It is one of the hottest days of the year and something is wrong with your refrigerator…the temperature seems too warm. You contact a repairman who promises to come that afternoon. You ask about the likely cost. He says it could be around $80… The repairman arrives, late in the afternoon. He believes the problem is with your freezer. He takes out all the frozen foods, unscrews panels, cuts wires. There is the problem: a coil had gone bad. It will cost you $230. Sound familiar? You are now at the mercy of the repairman. You know little to nothing about freezer coils…you lack a choice and agree to pay the price. This story has been repeated dozens of times in your life…in each case, you felt at a disadvantage… They had leverage.

This tactic is used commonly by businesses. Buying a drink or snack on an airplane will always be expensive because the airline knows people lack an alternative, giving them the leverage. Spotify and Youtube can subject users to endless advertisements because the service is otherwise free and this gives them control. Companies with a monopoly (due to a patent, for example) can charge more because they own a particular market. A doctor can present an extortionate bill because we have no option to return the service (“hey doc, can you undo these stitches? I can get a cheaper operation elsewhere.”)

Volkema goes on to explain the key principles of leverage:

1. Leverage is based on perceptions. If a party to a negotiation has an advantage and nobody perceives that the advantage exists…there is no leverage. This is especially true for the party with the disadvantage…Thus, it is perceived cost, real or imaginary that enables leverage.
… 2. Leverage is dynamic. Leverage can change as quickly as new information becomes available…These sorts of changes occur during formal business negotiations as well. If, for example, information central to an upcoming bidding process known only to one company becomes available to the other company, then leverage among companies has shifted.
…3. Leverage is situation specific…The aforementioned company with privileged information might have an advantage over another company, but in another situation, the advantage could be reversed (for example, the second company has just made a technical breakthrough the will revolutionize the industry.) Sometimes the situations that create leverage overlap or can be linked in some way.
…4. Leverage is a social or relational construct. Therefore, one has advantage over another individual only as long as the relationship exists. If one part leaves the relationship…leverage ceases to exist…Without another party, it is like being on a seesaw by yourself.

In one of his iconic letters to shareholders, Warren Buffett declared: “Don’t ask the barber whether you need a haircut.” To do so transfers leverage to the barber, who will always say yes. To retain leverage would necessitate telling the barber you certainly do not need a haircut, leading them to offer you an attractive deal.

Anyone who has ever haggled at a market or with a salesperson will understand the principle of using leverage in a negotiation. The trick is to declare their product or service to be so flawed and worthless that you are doing them a favor by buying it. Subsequently, the next step is usually to offer a low price which they counter with a slightly higher one that is still much lower than the asking price.

Another amusing example of leverage in negotiation comes from Jarod Kintz:

Money is not equal for all people. A strong personal brand adds more lift and leverage. One dollar from me may buy a soda from a car dealership, but one dollar from Justin Bieber may get him a Ferrari. And they would pay him to drive away.

Related Mental Models and Concepts

  • Critical mass — Also known as a boiling point or tipping point, critical mass is the point where something (an idea, belief, trend, virus, behavior etc) is prevalent enough to grow at an exponential rate. It becomes contagious and is everywhere in a short span of time. We can combine this mental model with leverage to understand how drastic changes can be created with minimal effort. The critical mass serves as a lever. Imagine a teacher who wants to encourage the 30 pupils in her class to read more. Research has shown that just 10% of a population are necessary to form a critical mass. Rather than seeking to convince all 30 pupils to read more, she needs to persuade 3 popular ones. Once they begin reading more, the teacher can leverage them to spread their new love of books. Once this is achieved, it can pass on to the rest of the school.
  • Power law — A power law is a relationship between two things when a change in one can lead to a large change in the other, regardless of the initial quantities. In the case of leverage, a power law relationship exists between the effort exerted on the lever (actual or metaphorical) and the outcome. For example, consider two children on a seesaw. If both children are an equal weight, the seesaw will go up and down with ease. If one goes away and a heavier child replaces them, a small difference in their weights will lead to a large increase in the speed at which the seesaw moves.
  • Pareto’s principle — This principle states that 80% of outcomes are the result of 20% of inputs. Recognizing the 20% can provide us with a great deal of leverage. If a business receives 80% of its income from 20% of customers, the latter group can be leveraged to increase profits (e.g. by offering special deals and treatment to them, increasing their loyalty.)If 20% of the foods we eat comprise 80% of our diets, we can leverage these to improve our health (e.g. if a person eats bread each day, they could switch from white bread to wholegrain.)
  • Tribal leadership This concept involves leveraging ‘tribes’ within an organisation to further an agenda and grow a company culture. Tribes go through five stages towards maximum productivity and each has different leverage points.
  • Outsourcing — Outsourcing certain tasks (such as cleaning or making transcripts) enables us to leverage one asset – money- to free up more time and make more money as a result.
  • Commitment consistency bias We have a desire to remain consistent with our past behaviour. Companies and manipulative people leverage this cleverly. If our favorite coffee shop raises their prices, we are unlikely to switch to somewhere else- after all, we have a loyalty card and the baristas know our usual order. If we realize the interest rates at our bank are lower than elsewhere, we are unlikely to change- we must have chosen them in the first place for a good reason. If an old friend suddenly becomes obnoxious and insulting, we are unlikely to stop spending time with them, due to the sunken costs of all the time spent together in the past
  • Activation energy — Activation energy is the initial amount of energy necessary to commence a chemical reaction. We can apply this to leverage – the energy required to move the lever is the activation energy required to create movement.

The Metagame: How Bill Belichick and Warren Buffett Play a Different Game

The metagame is playing a different game than your competitors. A game they can’t play.

The metagame is a strategy that involves understanding the structural or unconscious reasons that things are the way they are. This is the strategy that Warren Buffett and Bill Belichick use to create an advantage. It’s what smart managers like Ken Iverson do to get the best out of people.

There is an interesting section in an obscure poker book called The Raiser’s Edge that explains the concept of a metagame:

The metagame is this psychological game that exists among players, involving adjustments – adjustments based on how an opponent is likely to interpret a given set of actions. Better players adjust their strategies and styles to those of particular opponents, always analyzing how the opponents are playing in terms of how the opponents believe they’re playing.

Maintaining a well-balanced strategy, while deciphering your opponents’ strategies, is the key to the metagame. If you comprehend the concept of the metagame, accurately perceive the flow of your table and then tournament, and stay alerted to and aware of current strategy trends, you’ll be able to successfully mix up your play when considering your image and that of your opponents. In return, your game will be highly unpredictable and difficult to read, which should be your ultimate goal.

Warren Buffett and Bill Belichick both use the metagame to create an advantage that others have a hard time matching.

Let’s look at Buffett first.

Buffett is widely considered to be the best investor in the world. The company he controls, Berkshire Hathaway, often purchases companies that are public and makes them (effectively) private. For better or worse, public companies have certain environmental constraints. There are numbers to meet (or manage, depending on how you look at it). Expectations to meet. Shareholders who want different things.

The environmental impact of being public often nudges companies toward a path away from their best long-term interest. The timelines of CEOs and shareholders are often not the same.

For example, even if the investment made long-term sense, established companies would have a hard time increasing investment in research and development without an immediate impact (as this reduces earnings.) They’d also have a hard time building inventory (as this increases the amount of the capital required to operate the business).

This divide creates an interesting scenario where public companies can be at a long-term disadvantage to private companies. Private companies can do things that public companies can’t do because of the perceived (or real) environmental norms.

This is where Buffett comes in. He can encourage the CEO of the companies he acquires to take another path. They can take a longer-term view. They can make investments without penalty that won’t pay off for years. They can increase inventory. They can run the company without the worry of meeting quarterly expectations. Because they can take advantage of the environmental factors that public companies are under, private companies can’t easily be copied in this sense.

This isn’t limited to finance and investments. It relates to everything. Bill Belichick, perhaps the best coach in NFL history, uses the same strategy. He plays a different game.

Here’s an example. Last year Belichick traded away one of the team’s most gifted athletes (Jamie Collins) in the first part of the season. While Belichick never came out publicly to say the reasons Collins was traded, he effectively traded one of the teams best players for nothing. Very few coaches would have traded away a star for nothing. Belichick was playing a version of metagame. He was able to do something that was for the good of the team that would be controversial in the media. A strategy that almost no other coach could get away with.

The ancient Romans employed the same strategy. They were excellent at hand-to-hand combat but lacked the naval capabilities of Carthage. So they played a different game … one that played to their strengths and used the enemies strengths against them.

Now you can argue that Buffett and Belichick can do things no other person can. You can argue these are Hall-Of-Famers that get more leeway. But interestingly, that’s the point. Part of their greatness comes from identifying the constraints of others and capitalizing on those structural disadvantages, just like the Romans did.

In any system where there are norms, there are strengths and weaknesses to those norms. If you follow the norms of the system, the results you get are likely to be the norm. When you play a different game, a metagame, you have the opportunity to outperform.