What Investors Can Learn from Rick Rubin

The legendary producer shares tips in his new book that apply to the creative process

Rick Rubin is one of the greatest music producers of all time. He’s the founder of Def Jam Recordings. He’s worked with an eclectic group of musicians including Run-DMC, Beastie Boys, Metallica, Weezer, and Johnny Cash.

His accomplishments include being a 9-time Grammy award winner, making the list of Time’s Most Influential People, and being called the most important producer of all time by MTV.

This year, Rick published a book entitled The Creative Act and shared his tips for getting the most out of your creative endeavors. Rick defines a creative act as anything that brings something into existence, or in other words everything including investing.

Here are a few of his best tips that can be applied to the investment world:

Accept new information with delight

The investing business is the curiosity business. To be genuinely curious, it’s important to check your priors or at least acknowledge them.

Sometimes we block the flow of information being offered and compromise true listening. Our critical mind may kick in, taking note of what we agree with and what we don’t, or what we like and dislike. We may look for reasons to distrust the speaker or make them wrong.

Formulating an opinion is not listening Preparing a response is not listening. To listen impatiently is to hear nothing at all. Listening is suspending disbelief.

To get the most out of our teammates, to get the most out of the founders we partner with, and to get the most out of any relationship we must listen with no bias or intent to respond.

As my grandmother was fond of saying, there’s a reason you have two ears and one mouth.

Know the rules before breaking them

Ironically, the best part of knowing the rules is knowing when to break them. There’s no rulebook that teaches you how to build a generational company or invest in one, but understanding the frameworks and when to leave them behind will give you a chance.

All kinds of assumptions masquerade as laws: a suggestion from a self-help book, something heard in an interview, your favorite artist’s best tip, an expression in the culture, or something a teacher once told you. Rules direct us to average behaviors. If we’re aiming to create works that are exceptional, most rules don’t apply. Average is nothing to aspire to.

If we follow every rule and framework we are guaranteed to never become outliers. Investing and company building is about creating alpha which is impossible without breaking a few “rules of thumb”.

As for when we know if we’ve mastered something, I’m a big fan of Feyman’s “Explain It To Me Like I’m Five” method. If we can’t explain it to a kindergartener, we have more to learn.

Mastery requires patience

Patience is required for the nuanced development of your craft. We can’t force greatness to happen. All we can do is invite it in and await it actively.

Private markets are a game of patience - the earlier the stage, the more patience required. We live in a world where some investors chase the next big thing whether that’s climate, Web3, or AI.

Impatience creates vulnerability to the Dunning-Kruger effect. It becomes impossible to recognize what you don’t know if your expertise only goes so deep. As we learn more about a subject, the opposite happens, we realize there’s a lot we don’t know which makes us better investors.

The Dunning–Kruger effect is a cognitive bias whereby people with low ability, expertise, or experience regarding a certain type of task or area of knowledge tend to overestimate their ability or knowledge.

The only way to learn a lot about a subject, or if you are a good investor in a particular sector, strategy, or asset class is with patience. Building great businesses takes time.

Impatience is reactionary - reacting to short-term, noisy results, reacting to the latest trends, or reacting to the opinions of others.

Patience means finding the signal and riding with the waves of hype and disillusionment. Exceptional outcomes take time.

Cooperation, vulnerability, and trust unlock intellectual honesty

The best results are found when we’re impartial and detached from our own biases and we often need people we trust to help us get there. Admitting that we need to get there requires enough vulnerability to say let’s debate my idea or investment.

But, we all benefit when the best idea is chosen, regardless of it being ours or not and we have to trust our team to get there.

Cooperation supports the highest outcome. Think of cooperation as giving or getting a boost to see over a high wall. There’s no power struggle in this act. You are simply finding the best route to a new perspective.

Create an environment where you’re free to express, what you’re afraid to express.

Two things are simultaneously true in investing.

1. Contrarian bets can be the most asymmetrical and create the best returns

2. Bias / human nature can lead to bad decisions.

These two often lead to the most vigorous debates that cannot be had without vulnerability - I want the team to debate my idea and I’m open to being wrong - and trust - trust that the entire team is rowing towards a single goal what’s best for the firm.

Ideally, that trust creates the best outcomes and those outcomes create more trust. That trust creates an environment of intellectual honesty and cooperation. That’s the virtuous cycle of investing as a team.

Lately, I’ve been inspired by figures outside of investing that are known for their creativity or unique ways of thinking .

Rick Rubin started me down this path. I’ve now ventured into listening to podcasts or reading books on great artists ranging from DiVinci to McConaughey (yep, I just put those two in the same sentence) and it’s interesting that their principals remain similar to the greats in business.

Steve Schwarzman launched Blackstone before leveraged buyouts were popular - know when to break the rules.

Sequoia, NEA, and Benchmark built firms with equal partnerships and no single name in the firm brand - cooperation and trust.

Charlie Munger and Warren Buffet compounded investments for decades in only a few positions - mastery requires patience.

To be different, we have to think differently and there’s no better way to start than picking up Rick’s book.