Workshop Note: Reality Tunnels
“They just have a different reality tunnel, and every reality tunnel might tell us something interesting about our world, if we are willing to listen.” Robert Anton Wilson
In The Family Office Conundrum I wrote that the very wealthy live in a different reality, without money worries but plagued by a concern about the authenticity of their relationships. Taking this one step further, we all live in our own versions of reality. A useful metaphor I picked up from Jim O’Shaughnessy is that of the “reality tunnel” - our very own tunnel vision of reality shaped by our beliefs and past experiences. While the term emerged from figures of the counterculture, it seems even more applicable today when much of our view of the world is shaped by whatever social media echo chamber we choose to step into.
It’s not hard to find examples and I’ll just use one: consumer sentiment. “Sentiment fell throughout January, … sinking to its lowest level since November 2011.” That’s the headline. But it’s a composite of two worlds. The gap in expectations between Democrats and Republicans “rose from 21.3 for Bush and 25.0 for Obama, and then doubled to 53.1 for Trump and 52.3 for Biden.” This chart is from November 2021 but you’ll get the point:
This is neither a novel nor interesting take, merely an obvious illustration that people occupying the same space can live in opposite versions of reality.
“Each and every reality-tunnel created by a domesticated primate brain is a finite cross-section of that brain's personal history; and each such finite reality-tunnel is as "personalized" as the music of Bach or Beethoven, the paintings of Rembrandt or Picasso, the novels of Joyce or Raymond Chandler, the comedy of the Three Stooges or Monty Python, the religions of Roman Catholicism or Zen Buddhism, the politics of Libertarianism or the IRA, the architecture of St. Peter's or Disney land... And each of these art-works seems like "reality" to the people who have created them and live in them.” Robert Anton Wilson, Prometheus Rising
We can experience both of those reality tunnels by turning on TV news. But I would rather not step into that toxic sludge. Instead, Jim pointed out a much more interesting exercise: creating new reality tunnels on Twitter.
Set up a new account and pick a tunnel by following a couple dozen big accounts in one ecosystem: crypto, trading, tech, market bears, Democrats, Republicans, self-help gurus, fitness, architecture, law, astrophysics, geopolitics. That account’s feed offers you a tunnel completely different from your own.
In Rick And Morty, crazy drunk scientist Rick invents a box that provides access to “Interdimensional Cable,” an infinite number of TV channels across the multiverse. Needless to say, the episodes were an outlet for some of the writers’ quirkiest ideas. But while you won’t encounter hardware salesmen with ants in their eyes on Twitter, you can find anger and despair, vanity, greed, vitriol, all kinds of conspiracy theories (as well as occasionally a real conspiracy I suppose) – and, yes, also hope, collaboration, encouragement, and connection. It’s all there, every day. Your own miniature media multiverse.
The secondary benefit of this exercise is that it increases randomness and can lead you to new ideas that would never have crossed your radar screen. Stir up the pot.
But the primary use is an increase in awareness. It is a reminder that everyone is experiencing a different reality tunnel – one that may be all about the price of Bitcoin, or some convoy of truckers, or COVID, or looming war in Ukraine, or morning routines and fortune cookie quotes and the grind to get rich – and that you have one, too.
My point is not that one tunnel is better than another (although some tunnels seem miserable), but merely that it’s helpful to occasionally and viscerally remind yourself of this concept. Whenever we meet someone, when we step into a shared world of conversation, we do so coming from possibly vastly different experiences of reality.
Graham Duncan framed a similar idea in “what is going on here with this human” by using the metaphor of both participants of a conversation riding an elephant of the sub-conscious mind. One of Duncan’s goals in an interview is to a get a glimpse of the other person’s elephant. “I try to create a stillness that helps separate signal from noise, elephants from riders,” he wrote.
“While you may be able to catch glimpses of the elephant in your meeting, it’s important to remember that you’re basically blind.”
I would simply amend his metaphor by strapping an Oculus VR headset to each rider’s head. Both people are gently being carried around by their elephant and both are observing reality through their own tunnels – shaped by whatever the algorithm is serving up.
That’s it. That’s the message. If you’re trying to connect with someone, keep in mind that you have no idea what show is playing on their chosen channel. I bet you can’t imagine how weird their reality tunnel would seem to you at times – or yours to them.
All we can do is to try and be more present, ask better questions, offer fewer opinions, listen more, try to understand “why do they think that” rather than get angry that different views exist. We can use this exercise to remind ourselves that our view of the world is just one of an infinite number of weird cable channels.
This thread by Dan Luu about the difficulty of nuanced communication which “usually doesn't work at scale.”
“When I joined Azure, I asked people what the biggest risk to Azure was and the dominant answer was that if we had more global outages, major customers would lose trust in us and we'd lose them forever, permanently crippling the business. Meanwhile, the only message VPs communicated was the need for high velocity. When I asked why there was no communication about the thing considered the highest risk to the business, the answer was if they sent out a mixed message that included reliability, nothing would get done.”
“If I write a blog post and 5% of readers get it and 95% miss the point, I view that as a good outcome since was useful for 5% of people. … But it's different if you run a large org. If you send out a nuanced message and 5% of people get it and 95% of people do contradictory things because they understood different parts of the message, that's a disaster.”
“MS leadership eventually changed the message from velocity to reliability. First one message, then the next. Not both at once.”
This essay by Tim Denning on Anthony Bourdain. Talk about a very different reality tunnel. There was something magical about Bourdain and his unquenchable thirst for exploring the world through food and the people connected to it. I listened to the Kitchen Confidential audio book last year, read by Bourdain himself, and it was easily one of my favorite books. I highly recommend it. Knowing about his demons and his death makes it a haunting experience. I think he has much to teach us and feel tempted to read and watch the rest of his life’s work.
“Certainty is my enemy. I’m all about doubt.”
“Life starts at the edge of the unknown.”
“Skills can be taught. Character you either have or you don't have.”
“I've long believed that good food, good eating, is all about risk. Whether we're talking about unpasteurized Stilton, raw oysters or working for organized crime 'associates,' food, for me, has always been an adventure.”
“I'm not going anywhere. I hope. It's been an adventure. We took some casualties over the years. Things got broken. Things got lost. But I wouldn't have missed it for the world.”
This terrific interview by Liberty with David Kim, writer of Scuttleblurb.
“Most people, including me, will flip through one essay after the next like nothing, oblivious to all the hard work and creativity that went into it. Some will cancel their subscription if they have to waste even 5 seconds logging in to read a 5,000 word post. "Too much friction". We are spoiled with great content. I personally subscribe to over a dozen newsletters. Most sit in my inbox unread.”
“Fluff” is also friction, avoid fluff, of which there are two kinds … There’s the stylistic kind where you overwhelm the reader with jargon and needless sentences. And then there’s the more insidious content-specific kind where you don’t make a meaningful point.”
“I think young fund managers have a tendency to over-intellectualize and complicate investing. Some of this is theater. To stand out and appear deep, one quotes Marcus Aurelius and draws facile analogies between physics and investing. By comparison, wisdom from experienced veterans can often appear trite and simplistic. But I've come to believe that that's often because they're done trying to impress.”
“TV shows and movies emphasize silver bullet events - Bobby Axelrod lays down a big hero bet after finagling a key piece of information. Reality is far less exciting. What really happens is you build muscle memory about a company and its ecosystem over years and calibrate conviction along the way. That’s why I would caution against buying after a first deep dive. Research should be exploratory, not confirmatory.”
I’m going to start sharing the books I’ve recently finished. I also plan on sharing a list of investment books since that question comes up all the time.
Moneyball, Michael Lewis. I'm not big into baseball or sports in general and perhaps it's because of Michael Lewis's background in writing about Wall Street, but this entire book reads like a metaphor for investing. Billy Beane, manager of the Oakland A’s, found an edge by picking up strategies from obscure baseball quants who were decoding the game, disentangling luck and skill, yet were entirely ignored by the establishment. Beane was a former player whose own career also holds lessons about the need for mental resilience. He failed despite being athletically gifted because he struggled to move past mistakes.
Like Michael Milken who found Braddock Hickman's study of bond performance data, Beane built an edge through a better understanding of the data and the valuation of its assets (players). Beane the value investor picked up players that were systematically undervalued because the game was misunderstood, or because of short-term disappointment (injury), or because losing teams were dumping them at the lows mid-season.
Like any contrarian, Beane wanted to prove that he was right and the market was wrong. And so he decided to stay with the A’s and forego the opportunity of making life-changing money by joining a bigger team. Interestingly, Wikipedia mentions that after the book made his methods widely known, the types of players he had identified as undervalued became overvalued. The market overcorrected and Beane had to adapt again. I’d recommend the book for anyone interested in investing, even if they have zero interest in baseball.
How to Change Your Mind, Michael Pollan. This book recounts the history of psychedelic research. I was astonished to see how an entire area of promising research was killed off because the drugs had been adopted by the hippie movement and were deemed dangerous and corrosive to society. The book connected the dots for me on a number of names and events around the counterculture. It’s a good introduction to the characters and research efforts in the field of psychedelic research and I’d recommend it if you’re interested in that space.
Ready Player One, Ernest Cline. Part of my “metaverse” reading list. Frankly, I found it a little tedious and overindulgent with its adoration for 80s trivia. I love music from the 80s but this was simply too much. Still, the vision of the metaverse as a grand multiplayer game, which offers an escape from a dystopian and deteriorating reality, resonated with me. Whoever holds the keys to that world by extension controls much of people’s reality and therefore the “real” world. I preferred Snow Crash’s quirky story and more imaginative version of the future. But as Snow Crash was written in 1992, its vision of the metaverse is necessarily dated.
In my last note I noted the emphasis on culture by Bloomberg and the founders of Atlassian. After finishing Lessons from the Titans, the subject is fresh on my mind. Firms like WCM Investment Management have incorporated it into their investment process and it feels really important - but also difficult to assess. What does a great culture look like? How different is it across industries? How does one measure this? The longer your investment time horizon, the more important this question becomes:
Even at companies in the same industry, culture can look completely different. For example, take Snowflake’s performance culture under Frank Slootman:
"I'm looking for maladjusted people. People who have a chip on their shoulder, something to prove. Versus people who are so well-balanced they have to think about a reason to get out of bed. We like people that have that high variance between where they are and where they need to be. That propulsion and drive is very powerful. I like to bet on that."
"Most of the entrepreneurs that I know that are very successful, there is a deep-seated imbalance about these people. People like that become a very valuable asset. They may also be difficult to be around. That's just the cost of doing business."
Compare that to Atlassian which wants their culture to be “adaptable, scalable, impact-obsessed”:
“I think the biggest thing we've done well is to build a fantastic company culture. … really believing deeply that technology's built by people and we want to build the best place for those people to work. And the best place doesn't mean we've got fancy ping-pong tables and some sort of five-star chef catered food … The best work place is somewhere where people feel valued, where people feel like they're doing the best work of their lives, where they feel like their work is making a difference … We believe in work-life balance and that people have other things to do as well, and we take our people and our culture very, very seriously and spend a lot of time in making sure it's healthy, I suppose is the best word for it. And I think that has a big long-term advantage for us. In the short term it's hard to see how it's an advantage, but over the decade I think it's been a huge advantage for us.”
These are examples of technology companies where attracting and retaining high performing talent is paramount. Compare this to industrials or retail in which companies deal with enormous workforces. From Lessons from the Titans:
“Getting average people to perform at a higher level is the key. And we find that “average” may be a pretty fat middle of employees, perhaps 80 percent.”
“A healthy and supportive culture is absolutely critical to any company’s long-term success. But we’ve found it to be a by-product of actions and incentives, not a driver.”
“Culture is encouraged from the top but is actually built from the bottom—on the factory floor or in the cubicles where the actual work gets done.
“Culture is an output: actions of leadership and incentives drilled into an organization over time.”
The book also highlighted the issue with culture. Everyone knows it’s important. But it’s easier to write an ex-post narrative than identifying a winning culture when it emerges:
“Part of the problem with the longstanding emphasis on culture is that analysts, journalists, investors, employees, and executives use it as an explanation for successes. But does culture drive performance, or does performance drive the perception of culture? We can’t think of a failed company that at one point didn’t describe its culture in glowing terms.”
I’d love to collect and share more examples, case studies, quotes, and useful frameworks related to culture in companies and investing. Feel free to email me with your favorite examples🙏
“After we closed our Series C with Peter Thiel in 2012, we invited him to our office. This was late last year, and we were in the Berlin room showing him various metrics. Midway through the conversation, I asked him what was the single most important piece of advice he had for us.
He replied, “Don’t fuck up the culture.” AirBnB’s Brian Chesky
So long - have a great week!
If you need a quick break, watch the Falcon 9 make its way to space (and its first stage separate and return to earth).
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