The Chomp #050
Framework for Decision Making, Legibility, and More...
Hey Everyone,
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With that, let’s dive into it.
Quick Bite
Framework for Decision-Making in a Time of Change: Structurally positive means that something is 10x better, 1/10th the cost (roughly speaking on improvement and cost scale!), and has finally caught on—there’s no going back to the older, worse, more expensive alternative. For ephemerally negative changes, either sentiment has soured or consumption has been rendered logistically challenging, but there is a lot of latent consumer/business demand and, from an investment lens, durability to the business that ensures that when things resume, it will still soak up that demand.
I’m a sucker for a good 4X4 matrix, and this one from Alex Rampell is one of the best I’ve come across this year. I find this type of framework incredibly helpful in trying to distill a decision down to its most basic components. Especially in times of chaos and disorder.
Our world over the past nine months has been exactly that—and more. COVID has led to the decimation of certain industries like travel while creating massive opportunities in others such as E-commerce. As a result, we’ve seen unprecedented dislocations in the markets. Which, in turn, has enabled the sharpest investors to yield outsized returns.
In instances like the S&P 500 dropping over 30% in March, it quite literally pays to make smart decisions quickly. Being able to spot, and act, on dislocations before the broader market reacts is a hallmark of a successful investor. And behind that success often lies a collection of frameworks that guide the decision-making process.
The same holds true in situations where speed isn't the primary focus. In the specific examples outlined in Alex’s article, he’s using the framework he created to guide longer-term thematic investment decisions for a venture portfolio.
Beyond investing, utilizing this type of framework can be incredibly effective in guiding decision making around the types of things to work and spend time on. To use an example from Alex’s sketch, a number of entrepreneurs realized over the past nine months that the shift to remote work was structurally positive, In turn, they shifted their focus to working on tools in that space.
On the flip side, others have concluded that areas decimated by Covid, like travel and dining out, have been so only ephemerally. By shifting their focus to these industries, they’re positioning themselves to succeed once demand normalizes.
So regardless of whether you’re looking to exploit dislocations in the public markets, constructing a long-term portfolio, or deciding what to spend your time working on, having a strong framework in your back pocket will go a long way in guiding your decision making and instilling confidence in your path forward.
Deeper Dive
A Big Little Idea Called Legibility: The high-modernist reformer does not acknowledge (and often genuinely does not understand) that he/she is engineering a shift in optima and power, with costs as well as benefits. Instead, the process is driven by a naive “best for everybody” paternalism, that genuinely intends to improve the lives of the people it affects. The high-modernist reformer is driven by a naive-scientific Utopian vision that does not tolerate dissent, because it believes it is dealing in scientific truths.
I’ve been spending a lot of time recently on Venkatesh Rao’s blog, RibbonFarm, and am fascinated by the breadth of his thinking. What first led me down the rabbit hole was this essay he wrote over a decade ago, in 2010, centered on the idea of legibility. While the idea of legibility isn’t original to Rao, his explanation of its presence in our world is second to none.
The idea of legibility initially came from James C. Scott’s book, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed. The central focus of the book is around a consistent failure pattern that keeps recurring worldwide across dozens of domains. This failure pattern is typically displayed by governments and large organizations, however, individuals can exhibit it in their endeavors as well.
In the book, Scott calls the thinking style that leads to this failure mode “authoritarian high modernism”. And as outlined by Rao in the essay, the recipe leading to this failure mode is as follows:
Look at a complex and confusing reality, such as the social dynamics of an old city
Fail to understand all the subtleties of how the complex reality works
Attribute that failure to the irrationality of what you are looking at, rather than your own limitations
Come up with an idealized blank-slate vision of what that reality ought to look like
Argue that the relative simplicity and platonic orderliness of the vision represents rationality
Use authoritarian power to impose that vision, by demolishing the old reality if necessary
Watch your rational Utopia fail horribly
To simplify as much as possible, someone or some group exhibiting this pattern categorizes something as irrational and comes up with an idealized version of how they think said thing should operate and subsequently use their power to enforce it.
For example, let’s say I play on an NFL team and my current coach has given me the autonomy to design my own training and workout regiment. I settle on something unorthodox, but it works for me. The same holds true for many of my teammates. This system works out well and we make the playoffs five years in a row. Our coach then leaves for a new position, and in turn, our organization hires a new coach.
The new coach observes the current workout regiments of his players and concludes they are irrational based on how he’s designed workout regiments in the past. Given the system's previous success, it’s difficult to agree with the coach’s conclusion of irrationality. In this case, it's likely the coach has a subjective lack of comprehension for the program and has confused that for irrationality. As Rao points out, this common mistake happens due to people’s innate longing for legibility.
Throughout the essay, Rao digs deeper into the psychology behind legibility and also walks us through both historical and modern examples. While it’s well worth reading the article in full, there’s one key takeaway worth honing in on. Legibility can be explained by the desire to quell human anxieties evoked by apparent chaos.
Rather than embracing chaos, and working with it, humans look for opportunities to restore order. And quite frequently, restoring order is not the best move. At the State level, leaders often implement policies and procedures that appear optimal for the broader group but harm or hinder individuals. This doesn’t always lead to disaster, but it does shift the balance of power from local interests to national/global interests.
As you start to unpack the idea of legibility further, it becomes clear how useful it is in explaining many of the world’s current problems. It’s an idea I’m fascinated by and look forward to thinking more about.
Chum Bucket
The High-Return activity of Raising Others’ Aspirations (Marginal Revolution)
Software is Eating the Markets (Not Boring)
Fifth-Generation Management (Breaking Smart)
Airbnb Files to Go Public (Techcrunch)
Playing on Hard Mode (Stratechery)
Tweet of the Week
Song of the Week
Apple Music Link
Books
Currently Reading
![Grant by [Ron Chernow]](https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Feb6221ed-8853-4848-8251-b88c5f52c599_324x500.jpeg "Grant by [Ron Chernow]")
Recently Read
This was my second time reading Zen Mind Befinner’s Mind, and I’m glad I went back to it. I have no doubt I’ll return for a third read at some point as well. Prior to reading this book the first time two years ago, I had dabbled with zen meditation but never found consistency. I gave it another go this year and now finally have a consistent daily practice. Shunryu Suzuki’s words have been incredibly helpful for me in getting there. Even if you’re not interested in meditation, I still think this is worth a read. There are countless quips throughout you’ll find yourself reading over and over again. (4.5/5)
Parting Thoughts
This Week in History
On November 19, 2007, Amazon introduced the Kindle e-book reader. Despite not being the first e-book reader to the market, Amazon quickly took control of the market and made e-books mainstream. (Source)
"Many are hurt by fear itself, may have come upon their fate through fear of fate."
— Seneca
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-CM
This newsletter is created and authored by Cody McCauley and is published and provided for informational purposes only. The information in the newsletter solely constitutes Cody’s own opinions. None of the information contained in the newsletter constitutes—or should be construed as—investment advice.