Podcast Summary: The Knowledge Project with Shane Parrish

Episode: How to Think (and Work) Like a Billion Dollar Investor | Adam Carr
Release Date: November 12, 2024
Host: Farnam Street (Shane Parrish)
Guest: Adam Carr, President and Portfolio Manager at Orbis

Introduction: Selecting the Right Game

In this episode of The Knowledge Project, host Shane Parrish engages in an insightful conversation with Adam Carr, President and Portfolio Manager at Orbis. The discussion centers around the critical concept of game selection—choosing the right arena in life and investing to leverage one’s strengths effectively.

Key Insights:

• Game Selection: Carr emphasizes the importance of being clear about the “game” one is playing. In investing, for instance, the strategies range from high-frequency algos to long-term value investing. Selecting the appropriate game aligns one’s approach with their strengths and resources.

"[00:03] Adam Carr: ... depending on what game you're playing, you're going to approach it quite differently."

The Blueprint: A System for Success

Adam Carr introduces his blueprint system, a battle-tested framework designed to create competitive advantages, identify unique patterns, and build repeatable success across various domains. Unlike generic advice, the blueprint is a practical and proven method tailored to outperform competition without advocating for merely working harder.

Key Components:

1. Know Yourself: Understanding one’s strengths, weaknesses, and intrinsic motivations.
2. Be Clear on the Game: Precisely defining the arena and strategy one intends to pursue.
3. Develop a Blueprint: Creating a detailed plan modeled after successful mentors or role models.

"[12:22] Adam Carr: ... have a clear blueprint of somebody that does what they want to do, has done it really well."

Investing Psychology: Recognizing and Admitting Mistakes

Carr delves into the psychological aspects of investing, particularly the importance of recognizing when one is wrong and the discipline to act accordingly.

Key Practices:

• Writing and Journaling: Documenting investment theses, decisions, and reasoning to maintain objectivity and track performance.
• Accountability: Regularly reviewing decisions to identify patterns, biases, and areas for improvement.
• Emotional Awareness: Understanding and managing emotions to avoid decisions driven by fear or overconfidence.

"[19:40] Shane Parrish: Talk to me about being wrong. How do you recognize you're wrong and then do the hard thing?"
"[19:45] Adam Carr: Write it down, show your work, track it, measure it. ... Having your own investment journal."

Interacting with CEOs: Identifying Obsession and Alignment

A significant portion of the conversation focuses on how to evaluate CEOs and their alignment with long-term investment strategies.

Strategies for Evaluation:

• Track Record: Assessing a CEO’s past decisions and their alignment with the company’s success.
• Cultural Fit: Understanding the company’s culture and how it supports long-term goals.
• Obsession Level: Determining the CEO’s passion and dedication through their actions and responses to challenges.

"[07:19] Adam Carr: ... look at their track record, demonstrated action."
"[07:53] Adam Carr: ... Tell me about your culture and what's important here to be successful."

Learning and Feedback: Accelerating Improvement

Carr highlights the importance of a learning loop—experiencing, reflecting, compressing (distilling), and acting. This cycle is essential for continuous improvement and mastering complex skills.

Components of the Learning Loop:

• Experience: Engaging directly with the subject matter or challenges.
• Reflection: Thinking critically about experiences to extract lessons.
• Compression: Distilling complex information into simple, actionable insights.
• Action: Implementing learned concepts to reinforce and test understanding.

"[22:19] Adam Carr: ... all of our analysts run paper portfolios or model portfolios. ... tracking and measuring."
"[26:12] Adam Carr: ... writing things down helps you crystallize the why and putting it down and then tracking it."

Time Management vs. Capital Allocation

Carr draws a parallel between time management and capital allocation, emphasizing that while capital can be increased, time is finite and must be allocated judiciously.

Key Points:

• Return on Time: Prioritizing activities that yield the highest returns or align closely with long-term objectives.
• Avoiding Distractions: Focusing on what truly matters and resisting the urge to spread efforts too thin across multiple initiatives.
• Strategic Focus: Ensuring that time investments complement capital allocation strategies to maximize overall effectiveness.

"[53:42] Adam Carr: ... how you allocate your time. People just don't think about it enough, and they fall into these patterns without really thinking about the most important question."
"[55:15] Shane Parrish: I like the notion of time allocation and capital allocation."

Personal Life and Professional Alignment

Carr discusses the interplay between personal life and professional decisions, underscoring how personal choices and lifestyle can impact one’s ability to make sound investments.

Key Insights:

• Lifestyle Choices: Maintaining a flexible and low fixed-cost lifestyle reduces dependency on investment success and enhances decision-making freedom.
• Family and Personal Time: Allocating time for family and personal activities can provide emotional balance and prevent burnout.
• Cultural Influence: Creating a supportive and aligned culture within one’s personal and professional life fosters better overall performance.

"[63:05] Shane Parrish: ... how you run your personal life. ... if you fall into needing to work."
"[55:22] Adam Carr: ... family dinners together ... just totally in that moment."

Case Studies: Navigating Setbacks and Building Conviction

Two notable case studies discussed by Carr illustrate the application of his blueprint and the importance of deep conviction and thorough research.

1. Symantec Investment:

   • Initial Thesis: Confidence in Symantec’s technological direction and leadership.
   • Setback: Emergence of financial review leading to stock decline.
   • Response: Rigorous investigation and reaffirmation of the investment thesis, demonstrating resilience and adaptability.

2. Brad Jacobs' Leadership:

   • Scenario: Jacobs’ strategic pivot and capital allocation decisions.
   • Outcome: Deep conviction built through understanding Jacobs’ track record and strategic thinking, leading to significant investment success despite initial skepticism.

"[29:52] Shane Parrish: ... bear case is the bull case."
"[35:17] Adam Carr: ... put a billion dollars into it on the back of that."
"[43:54] Adam Carr: ... seeking it, and ... wrestling with intellectually opposing views."

The Role of Focus and First Principles Thinking

Carr underscores the necessity of focus and first principles thinking in achieving exceptional investment performance. By breaking down complex problems into fundamental truths, investors can develop unique and effective strategies.

Key Concepts:

• First Principles: Deconstructing problems to their basic elements to build innovative solutions.
• Independent Thinking: Formulating investment decisions based on personal analysis rather than conforming to market sentiments.
• Advantageous Divergence: Ensuring that divergence from the crowd is based on accurate and beneficial reasoning.

"[66:53] Shane Parrish: ... first principles, independent thinking."
"[68:39] Adam Carr: ... what is the real truth here?"

Success and Continuous Evolution

In concluding the episode, Carr reflects on his evolving definition of success, which now centers on meaningful contributions and helping others achieve their dreams.

Personal Definition of Success:

• Meaningful Impact: Utilizing one’s strengths to contribute positively to others’ lives.
• Continuous Development: Embracing lifelong learning and adaptation to stay relevant and effective.

"[68:43] Shane Parrish: ... what is success for you?"
"[69:52] Adam Carr: ... success to me is like having something that's meaningful to you that you're really going after and helping other people."

Conclusion: Embracing a Rigorous and Adaptable Framework

The episode concludes with a reinforcement of the importance of a disciplined, adaptable, and deeply rooted approach to investing and personal growth. By adhering to the blueprint, maintaining alignment between personal and professional goals, and fostering a mindset geared towards continuous improvement, individuals can position themselves for sustained success.

Final Takeaways:

• Discipline and Consistency: Essential for long-term success and overcoming setbacks.
• Alignment and Culture: Critical for ensuring that all aspects of one’s life and work are synergistic.
• Continuous Learning: Fundamental for adapting to changing environments and improving decision-making processes.

"[64:55] Shane Parrish: ... three simple ideas that you take seriously?"
"[65:03] Adam Carr: ... alignment ... first principles, independent thinking."

Notable Quotes:

• "Depending on what game you're playing, you're going to approach it quite differently." — Adam Carr [00:03]
• "Write it down, show your work, track it, measure it." — Adam Carr [19:45]
• "Take a simple idea and take it seriously." — Adam Carr [12:22]
• "The magic's in the last 5%." — Adam Carr [29:52]
• "What is the real truth here?" — Adam Carr [68:39]

This episode provides a comprehensive look into Adam Carr’s investment philosophy, emphasizing the significance of strategic game selection, disciplined frameworks, psychological resilience, and continuous learning. Listeners gain actionable insights into building a robust investing mindset and creating sustainable success through thoughtful alignment and relentless practice.