Defining Success

Guest post by Ted Lamade, Managing Director at The Carnegie Institution for Science

What does success look like these days?

Is it obtaining a certain number of followers?

Getting a specific number of “impressions”?

Becoming a YouTube sensation?

Passing a piece of legislation purely along party lines?

Doubling or tripling your money on a meme stock or an NFT?

Generating first quartile (or better yet, first decile) performance for a trailing twelve-month period?

Before you answer that, let me tell you about three people who appear to have very little in common, but are all connected by achieving a unique type of success that is too often overlooked.

The Highest Grossing Actor of All-Time

If I asked you to name the highest grossing actor of all-time, who would you guess? Tom Cruise? Julia Roberts? Tom Hanks? Each has won an Oscar and was the highest paid actor in Hollywood at some stage, but none are even in the top ten. That title goes to an actor who has never won an Oscar, has made far less per film than other leading stars, and whose films have on average grossed roughly half of Cruise’s, Roberts’, and Hanks’. So, how did he do it? By sustaining a successful career for more than four decades through remarkable stamina and flexibility.

Samuel L. Jackson’s films have generated more than $20 billion dollars (and over $27 billion if you include cameos and voice acting roles). For comparison sake, films starring Cruise, Hanks, and Roberts have generated roughly $10.5, $7.7 and $6 billion respectively (link). The secret to Jackson’s success? Starring in a lot of movies that have done better than average, a few blockbusters, and in a wide variety of roles, from action blockbusters to dramas, comedies, superhero movies, and animated films. This means roles such as Carl Lee Hailey in A Time to Kill, Zeus Carver in Die Hard, the voice of Frozone in The Incredibles, Nick Fury in Marvel movies, and of course, Neville Flynn in Snakes on a Plane.

PGA Money Leader

Around the same time that Samuel L. Jackson was hitting his stride, a golfer on the PGA Tour was doing so as well. Yet, if you ask any golf aficionado who the most successful players in the 1980’s were, they would likely rattle off names like Tom Watson, Greg Norman, Seve Ballesteros, or Nick Faldo. Few would say Tom Kite. On the surface this is understandable. Physically, he was unimposing at 5’9 170 pounds and wore coke bottle glasses. He didn’t win a single major during the decade and won far fewer tournaments than his peers. Yet, he still managed to finish near the top of the money list each year and was the first golfer to amass $6, $7, $8, and $9 million dollars in career earnings. So how did he do it? Like Samuel L. Jackson, Kite simply showed up more often than most, was willing to try new approaches (i.e., club combinations, fitness regiments, psychiatry, etc.), and almost always finished “in the money”.

Getting Stuff Done

As Samuel L. Jackson and Tom Kite’s careers were kicking off, Tip O’Neill was wrapping up his. After serving in Congress since the early 1950’s, O’Neill became the Speaker of the House in 1977. When he retired a decade later, he was the only Speaker of the House to have served in five consecutive Congresses and was the third longest-serving Speaker in American history. He served while his party was in the majority and minority, under presidents of both parties (three Republicans and one Democrat), and managed to get quite a bit done along the way (regardless of your feelings about his politics). So, in the cut-throat world of American politics, how did O’Neill manage to do this? An innate ability to navigate a radically changing political landscape, which was most evident in how he worked with his ideological opposite, Ronald Reagan. As Chris Matthews points out in his book, “Tip and the Gipper”,

“O’Neill and Reagan were old-school guys who were so different, yet not. They had a commitment to comity that came out of their shared integrity. They disagreed on the role of government, knew it, and admitted it face-to-face. But they put a concentrated effort into trying to get along even as they challenged each other.”

So, what did these men with radically different objectives accomplish together? Some of the most enduring legislation in generations, notably the Tax Equity and Fiscal Responsibility Act of 1982, bipartisan agreements on social security, and reforms to the public retirement system’s finances. Maybe most importantly though, while Reagan certainly spearheaded the end to the Cold War, O’Neill played an important role as well by empowering the president to represent the entire country as opposed to just the Republican party, despite objections from members of his own party.

Common Thread

The common thread? Long lasting success that resulted from consistently showing up, adjusting to changing circumstances, and sustaining above average performance for long periods of time.

Showing Up: Woody Allen once said that “80 percent of success is just showing up”. This logic could aptly be applied to many parts of life, but especially to investing over the past decade. With the S&P 500 compounding at more than 15% annually, investors have simply needed to “show up” to be rewarded. This said, showing up is just the first step. You need something more to navigate your way through the remaining 20 percent, which tends to be a bigger challenge.

Being Flexible: Flexibility is something that is often in short supply, yet is a big part of what gets you through the difficult stretches. Samuel L. Jackson displayed flexibility through a willingness and ability to play a wide variety of roles. Tom Kite did it by constantly looking for an edge by trying new approaches. Tip O’Neill did it by adjusting to the power nexuses around him. Investors like Bill Miller, Warren Buffett, and Don Valentine did a bit of all three. The fact is that markets, like life, are constantly changing. Growth outpaces value, until it doesn’t. The dollar appreciates for a while, then falls without notice. Commodities are one moment in a glut, the next in a shortage. Venture capital is the “in vogue” asset class one decade, then anything but the next. Concentration is an advantage, until it is not. Diversification works, then it doesn’t. Even though these patterns are as old as time, few investors manage to sustain success through it all. So, what do those that do have in common? The flexibility to change with the markets.

*Sustaining Performance:* The final part of this “three-legged stool” is an ability to sustain above average performance, which is largely the product of showing up and remaining flexible. This means sticking to your core principles, but calibrating how you express them. It means having the willingness to adjust, adapt, and get off your ideological island when necessary. It means not getting swept up in a bull market’s exuberance or a bear market’s pessimism.

Defining Success

Getting through the 20 percent of the time when showing up is not enough is a large part of the reason why survivorship bias exists in the investment business. What works in one cycle, rarely works in the next. Styles, geographies, and asset classes go in and out of favor, and it is difficult to modify your approach as they do. It is why I am not surprised that so many of the managers I have met with over the past few years have inception dates of 2009 or later. The fact is, the winners of the 2000-2008 cycle (energy, financials, value, international markets, commodities) look very different than the winners of the 2009-2021 cycle (venture capital, technology, growth, The United States).

I get it. Change isn’t easy, especially for investors. The temptation to “not upset the apple cart” and to “stay in your lane” is strong. Allocators and limited partners (“LPs”) tend to be very process-oriented, so any sniff of a “style drift” can send them running for the hills. Yet, this is precisely why investors who can calibrate their approach over time, effectively communicate why they are doing so, and post strong and durable performance should be held in such high regard. Said another way, they have demonstrated true skill. Given where the markets find themselves today with valuations elevated, complacency increasing, and long duration assets having performed so well, this skill is as valuable as ever.

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