A compelling case for optimism (and long-term thinking)

“In the long run, optimists shape the future.” This line came from a remarkably thought-provoking essay last week by Kevin Kelly, founder of Wired Magazine. The essay is a quasi-philosophical meditation on a number of wide-ranging subjects—the exponential nature of innovation, the sustainable energy revolution, future ingenuity and adaptable resilience—but at its core, his essay offers a few profoundly simple observations that serve as a refreshing rejoinder to the 24/7 negativity promoted by modern media. (“If newspapers and websites were only updated every 50 years, they might report: literacy is up, longevity increased, violence is down,” he writes.) Kelly makes the case, rather convincingly I think, that optimism isn’t some pollyanna attitude endemic among the naive, but rather a “skill that bestows resilience and adaptability” in an increasingly connected world.

“Humanity progresses by accruing advantages that operate over the long term. The best civilizations create things that take generations to build and whose benefits reward not the builders but those who come after them. Present benefits in fact may be sacrificed for greater benefits to future generations. That is called being a good ancestor. To be a good ancestor one must assume that good things can be forwarded. Thus, in order to think long term, you can’t be pessimistic. In a real sense, you must trust the future — and that is optimism.”

By avoiding short-term risk, do institutional allocators actually increase long-term tail risk?

One somewhat idiosyncratic fascination of mine is the business of institutional asset allocation. I suppose it’s the perfect cross-section of my interests: something that’s needlessly opaque and enormously consequential. Every year, thousands of investment professionals at endowments, pensions, and foundations—representing trillions of dollars of capital—allocate billions of dollars to investment managers based on… what criteria exactly? With that preamble, I found this week’s piece by John-Austin Saviano, Managing Partner of Cyan Capital Partners (and former CIO at UC Berkeley), to be wonderful clarion call to allocators to embrace new out-of-the-box thinking. “The fiduciary mindset is often one of defense. Protection,” Saviano writes. “Investment committees often gravitate toward a ‘do no harm’ posture which, while understandable, can work against the practice of investment management that actually requires the taking of well-reasoned risks.” He continues:

“As fiduciaries, we need to embrace the constantly changing nature of our world and have a strategy for addressing it. Newer GPs are one such tool. Investment teams at LPs need encouragement and resources from their investment committees and CIOs to support less conventional ideas and newer firms that foster innovation. The rewards for these efforts will be realized in improving portfolio returns, manager concentration, GP-LP alignment and insights, as well as protecting against obsolescence.” [H/T to my colleague Zak Lash for pointing me to this piece.]”

•••••••

The “uncoachable” traits of an exceptional investor (podcast)

This week, our pal Tilman Versch of the Good Investing Talks podcast published a stellar interview with Dennis Hong, founder/CIO of ShawSpring Partners, an investment firm based out of Boston. The entire 90-minute episode is worth a listen, but I particularly enjoyed the 27-minute mark when Hong describes 4 “uncoachable” traits of an exceptional investor—that part resonated with me. In reality, pedigree has very little correlation to long-term success—but curiosity and passion (bordering on obsession) with business models, technology, and investing theory itself are better determinants for positive long-term outcomes.

“The most successful investors, they tend to have like an insane work ethic—they are just learning and working machines. They think about this business 24 hours a day, 7 days a week, and actually many of these individuals probably don’t even think of what they’re doing as work. It’s just built into their life—that’s what makes this business so hard. There’s so many smart people, so many motivated people, so many passionate people—and it’s what makes this business really, really fun.”

•••••••

A few more links I enjoyed:

How Millennial Investors Lost Millions on Bill Ackman’s SPAC – via Institutional Investor
“The Reddit gang had convinced themselves that Ackman’s Tontine was going to merge with a unicorn like Stripe, the online payments processor, or Elon Musk’s Starlink — largely because Ackman himself had joked about “marrying a unicorn” when he launched his SPAC last July. The media was also obsessed with the unicorn theme. But most everyone seemed to ignore the fact that Tontine’s prospectus listed unicorns as just one type of company that Ackman was chasing.”
Q2 2021 Investor Letter – via RGA Investment Advisors LLC
“There is no precise moment when “structure” becomes “not structure.” Instead, there is a period wrought with tension that inevitably must be released in a push to unity in purpose and direction. Consequently, when structure is left, both risk and reward are amplified by several degrees in contrast to the simpler noodling around a core. Without structure, each specific moment becomes the sole driver for the next direction, with the choice of one individual musician potentially (though not necessarily) steering his peers into a new direction. There is a dynamic feedback loop whereby each musician is listening to the sum of the whole to individually drive his or her own instrument forward, with one bandmate’s choices feeding into the future direction of the group as a whole.”
GHOSTS – via The Believer Magazine
“I contacted the CEO of OpenAI, the research-and-development company that created GPT-3, and asked if I could try it out. Soon, I received an email inviting me to access a web app called the Playground. On it, I found a big box in which I could write text. Then, by clicking a button, I could prompt the model to complete the story. I began by feeding GPT-3 a couple of words at a time, and then—as we got to know each other—entire sentences and paragraphs.”

This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.