The Power of Creativity in Investing
Creativity isn't just for artists.
When we think of successful capital allocators, names like Warren Buffet, Charlie Munger, Stephen Schwarzman, and John Malone might come to mind. However, we rarely associate them with creativity.
Traditionally, we see creativity as the domain of artists, builders, and engineers. Yet, creative thinking plays a vital, underappreciated role in investment success.
On a recent Masters in Business podcast, Mathieu Chabran revealed the north star that made Tikeahu Capital one of the best firms founded post-dot-com crash - "create, not compete."
By challenging traditional investment norms and exploring uncharted territories, creative investors create value where others see none.
Thanks for reading! Subscribe for free to receive new posts.
Creativity When It Matters Most
Creativity is crucial in identifying opportunities where others do not. We must be open to unconventional ideas and approaches to harness the power of creativity. Two of the best examples come from dealmakers on the cusp of market downturns.
The imagination has no limits. The physical world does. The work exists in both. - Rick Rubin
In the 1980s, cable companies held significant power in the television industry. However, the rise of satellite TV threatened their dominance, offering consumers more choices in how they accessed programming and creating pricing power for the channels themselves. John Malone, the CEO of TCI (Tele-Communications Inc.), recognized the shifting landscape and realized that TCI needed to have a stake in the channels themselves.
This idea of owning content alongside the infrastructure business was unconventional at the time. Malone famously said, "We can own the water and the pipes." Eventually, TCI was sold to ATT in the 1990s, but Malone retained the content company - Liberty Media. Today, Liberty Media is valued at $30 billion and owns prestigious assets such as Formula 1 (F1) and the Atlanta Braves. They also own roughly 1/3 of Charter Communications, a stake worth approximately $15B.
Fast forward almost 20 years, with the US on the verge of the greatest financial collapse since the Great Depression. The late Sam Zell wants to sell the 573 office properties that his company, Equity Office REIT, owns. He approaches Steve Schwarzman and Blackstone.
With the storm clouds gathering, Schwarzman realizes that buying office space is incredibly risky but knows owning it is also a chance of a lifetime. He proposes to Zell that Blackstone will buy the properties on one condition - that they can line up the buyers ahead of closing in the greatest flip of all time.
Zell agrees, and within just a few months, Blackstone nets 3x on a $35B deal. Lehman Brothers went under, and the Great Financial Crisis began the same year.
Why Creativity is So Hard
Genuine creativity is elusive because we often fail to recognize that our ideas are shared - and in part created - by others.
Rene Girard was a French teacher famous for observing that people eventually want the same things that others want and that the longer literary structures were around, the more they converged. From there, he coined the term mimetic desire, which Luke Burgis made more widely famous in his book Wanting: The Power of Mimetic Desire in Everyday Life.
Girard discovered that most of what we desire is mimetic (mi-met-ik) or imitative, not intrinsic. Humans learn—through imitation—to want the same things other people want, just as they learn to speak the same language and play by the same cultural rules.
In our totally connected world, we are more or less influenced by others at all times; our social conditioning comes at us infinitely from parents, peers, media, and society. We do not think as independently as we think we do. Our desires are mimetic—we imitate each other to know what is socially acceptable or good for our social status. We don't have ideas; ideas have us.
The more that people are forced to be the same—the more pressure they feel to think and feel and want the same things—the more intensely they should fight to differentiate themselves. - Luke Burgis, Wanting
Consider how quickly podcasts like All In, 20VC, and This Week in Startups all rose to the top of the charts. The virality of these podcasts happened in part due to social media (Twitter) and users' desire to show they were listening to the top minds in their industry. The same thing happens with books and newsletters, albeit more slowly and on a smaller magnitude.
For investors, this creates a unique problem. To create returns that are differentiated from the market, especially in private equity, you have to think differently than the market. Unique thinking stagnates without the ability to think beyond popular content, and investors flock to the same idea of the moment (see crypto and now AI). Creativity thrives on breaking norms and forging new paths. Returns thrive on creativity.
Creating and Connecting Different Building Blocks
Most popular books and podcasts all start to blend together. Recognizing this, I've attempted to spend more time with stories of artists, engineers, and historical figures in an effort to understand different problem solving techniques and timeless ideas.
“I loved big ideas that had a lot of instructive power. And I liked them so well … I paid no attention to the territorial boundaries of academic disciplines and I just grabbed all the big ideas that I could. And then I used them in daily activity to solve problems and amuse myself and do self-education and so forth” - Charlie Munger
It takes purposeful effort to change my consumption habits because the paths of least resistance generally guide me towards the same content consumed by those in and around investing. Similarity breeds mediocrity.
Each morning, I spend a few minutes connecting those ideas to my work and business content in a hopefully novel way by the time it's completely fleshed out.
By combining ideas, experiences, and observations, the goal is to create new (to me at least) solutions or frameworks that create differentiated strategies and returns.