Walk into a music store in the 1970s, and you were almost certainly looking at a product made by General Recorded Tape.
GRT made 8-track tapes. It was very good at it. So it built a nice business from the mid-1960s to the late 1970s, when 8-tracks were popular. By the time GRT went public in 1968 it was partnering with 67 record labels. Its products sold in 90% of music stores.
But GRT went bankrupt in 1979, 14 years after its founding. Turns out it was very good at making 8-tracks, but not much else. As 8-tracks lost favor to cassette tapes, business plunged. The company prospered under one set of conditions, but couldn’t move in another.
GRT built an organization few entrepreneurs will ever pull off. But it was kind of success that’s specific to one thing in one moment in time. I’d call that a skill.
Contrast that with Disney, Xerox, or IBM.
All have made money on different things when the old thing stopped working. Disney has prospered selling 7-minute black-and-white cartoons, theme park tickets, and cable channels. Xerox made money selling copy machines, the computer mouse, and marketing solutions. IBM developed computers, then sold computers, then sold services that let you get rid of computers.
That’s different than a skill. The ability to drop what you’re doing, learn something new, and prosper again, is a behavior.
Behavior, in business and investing, is the art of putting skills to use. It’s probably the hardest part of this game. It’s not analytical. It’s often counterintuitive. But it’s the secret ingredient most of us are after. Skills should be praised. But skill without the right behavior often has a ceiling and an expiration date.
It’s an important distinction to make because of how we think about performance. Bill Gates writes often about the importance of measurement when pursuing goals. Hard to argue. But skills are easier to measure than behaviors. Behaviors can be hard to define, and often manifest in the things you don’t do. The relative ease skills can be measured over behavior means we sometimes chase and reward the wrong traits. Google learned this when it eventually devalued SAT scores for job applicants, realizing it had little predictive signal of a hire’s subsequent career success.
A few other examples of the distinction stick out:
Gathering statistics is a skill. Finding facts is a behavior. The former is a set of numbers; the latter is a complete set of numbers calibrated with enough context to provide a model of how the world actually works.
Identifying smart people is a skill. Managing smart people is a behavior. The latter requires sussing out what motivates people and dealing with difficult personalities.
Being good at your job is a skill. Working well with others is a behavior. The latter generally dictates the duration of the former.
Successfully managing money during calm times is a skill. Successfully managing money during a recession is a behavior. Recessions require all the skills of managing money during expansions, but with an added worry about career risk, whether your past success was due to luck, and whether good times will return.
Interpreting data is a skill. Understanding your tendency toward confirmation bias is a behavior. Charlie Munger on Charles Darwin: “He trained himself to consider any evidence tending to disconfirm any hypothesis of his, especially if he thought his hypothesis was a particularly good one.”
Keep this stuff in mind and you’ll start asking questions like:
Would I want to work at this company I’m thinking about investing in?
Would I want to hang out with this person after work?
How has this person/company responded when they were proven wrong?
How often do I change my own mind when previous views are contradicted?
How willing am I to adapt, especially from an old skill that was once profitable?
What percentage of my skills am I able to maintain when I’m under stress?
What trends are happening that contradict how I’ve been taught the world is supposed to work?
Those aren’t skills; they’re behaviors that guide how useful skills will be in the future. Which, as GRT might attest, make the most difference in the end.