April 2, 2013
I jumped into a taxi on my way to JFK airport from Manhattan with only 90 minutes to my flight. It was the last flight out to Boston, and I was stressed about making it in time. The driver asked which way I’d like to go and suggested the Midtown Tunnel. I took out Waze on my iPhone and looked up routes. 55 minutes via Queens Blvd local roads and 75 minutes via the Midtown Tunnel. I opted for the local roads. The driver immediately protested that we really shouldn’t go that way, insisting that the Midtown Tunnel was better. I’m a zealot for Waze and told him to take the local roads.
He incessantly complained about my not trusting his experience until we arrived at JFK. Every time we stopped at a light he decided to exclaim again that the local roads are a crazy way to go to JFK.
My driver was wise, but blind.
Perhaps nine out of ten times he was right that his route was better, but without real time on-the-ground data, he didn’t know which way to go. As I became exasperated listening to his groans, I realized, he’s exactly the same as a bad Venture Capitalist.
Good investors understand their role. They know what they are good at and what they are bad at. They know where to push and when to stay back. Good investors have some confidence that they have some wisdom to share, but also know that they are blind.
Wisdom comes as a result of experience and pattern recognition. Good investors have years of experience and a range of current case studies informing what makes companies succeed and fail and learn they from and share these experiences. In our view, the best investors also have operating experience and have lived through many similar pains that are facing their investments. That helps investors see patterns that lead to good outcomes and bad outcomes and bring those learnings to the company as helpful data to influence decisions. This is where the role of the good investor ends.
Bad investors think that based on that wisdom, they know definitively what the company should do. Unfortunately, like my taxi driver, they lack self-awareness of how blind they are. They don’t acknowledge that they have a tiny fraction of the data that management has to make those decisions. Management may lack the wisdom that their investors have, but at least they can see what’s happening in the business and the market. Good management teams digest the wisdom, factor it into their decision process, and then follow their own beliefs about what to do. Good investors know the importance of ground truth and are comfortable with management going against their wisdom.
We arrived at JFK in 55 minutes and I made my flight. Best not to let the blind lead those who can see.