202. Are you seizing opportunities… the right ones?
“80% of the effects come from 20% of the causes.” — Pareto principle
Most consequential changes in life happen as a result of a few infrequent events. Most job changes or promotions do not lead to accelerated career growth. If at all, they generally result in deceleration of further job growth. It is only a precious few such changes that generally account for most of the growth (or fall).
Rakesh Jhunjhunwala was a legend in Indian stock markets. He was generally referred to as the Big Bull of India. Most of his superlative performance (60%+ compounded annual return over 37 years!) resulted from a handful of investments — not from spreading out investments across a plethora of companies. While it was hard to gather authentic data, it seems that at the time of his passing (2022), over 60% of his portfolio was held in just two companies.
“Ironically enough, the aggregate of profits accruing from this single investment decision far exceed the sum of all the others realized through 20 years of wide-ranging operations in the partners’ specialized fields, involving much investigation, endless pondering, and countless individual decisions” — Benjamin Graham in The Intelligent Investor.
Earthquakes of varying strengths occur at different frequencies. According to a Earthscope Consortium report, of the 12000 to 14000 earthquakes that occur worldwide every year, small earthquakes (< 2 on Ritcher Scale) occur several times a day, “major” earthquakes (> 7) occur more than once a month and the “great” quakes (> 8) occur about once a year. The largest recorded earthquake was the Great Chilean Earthquake of 1960 at a magnitude of 9.5. The overall loss of life caused by this quake was less than 2000. Loss of even one life is too big to be taken lightly but when you apply the context of it being the largest ever recorded earthquake, its casualty figure surely feels small. Contrast this with the Haiti earthquake of 2010 — at a magnitude 7.0, it caused a loss of life of over 220,00. Interestingly and pertinently, it was not the largest earthquake that caused the biggest consequence in terms of loss of human lives.
The above are examples of complex adaptive systems. If there is one empirical law that Complex Adaptive systems seem to follow, it is the Power Law, y = m * (x^n) + c, which implies that consequences scale exponentially to observations. Most wealth (and/or power) is concentrated among few people, few traffic jams cause most delays, few forest fires account for most damage, few earthquakes make up for most of the energy released etc.
“We don’t live in a normal world; we live under a power law.” ― Peter Thiel
Power law applies to all complex adaptive systems — not just to these impersonal, global phenomena but also to personal priorities like health, wealth, careers etc. If you trace back extraordinary success stories, you will notice that most of the success is generally accounted by a few inflection points.
So, what is the big deal about this?
All of us experience these potentially “high-impact” causes in our lives but very few benefit from their disproportional impact. So, what is limiting most of us from exploiting these small number of high-potential-impact causes.
Aside from randomness/luck, the biggest reason could be that we do not recognize or value these special opportunities. We let them pass by.
I am lucky enough to have studied from a premier educational institution. Nothing in my educational background really marked me out for such privilege. My academic performances until then were decent but not particularly remarkable. There was no family background of “good” education too. In my 12th class, I got access to good quality study material. With no real “entertainment” options to while my time away, I ended up studying more than I ever did until then. The only time I prepared well for an exam happened to be for the exam that mattered most in my life. I ended up putting in extraordinary effort for the most important opportunity of my life.
“Potentially” extraordinary opportunities are presented to all and exploiting such opportunities makes all the difference but very few end up doing that.
This is quite apparent in personal finance matters. Even when many people realize the importance of investing money for their future financial well-being, very few really end up investing “enough”. Many people shy away from investing in a concentrated fashion. People diversify way beyond reasonable measure. Very rarely do people back their investment ideas with large enough capital allocation, so that, when the ideas do play out, it changes their financial condition meaningfully. Identifying a multi-bagger opportunity is not quite useful if you do not allocate serious quantity of capital to it.
“Man, wear your seat belts. That’s all I can tell everybody. You never know.” — Tom Brady
This applies conversely too but not quite intuitively. Consider the use of seat belt while travelling in a car. I once travelled to New Hampshire in the US. One of the first things I noticed the state’s motto: “Live Free or Die”. Perhaps in the spirit with this motto, in New Hampshire, one was not required by law to wear a seatbelt. But does it really make practical sense? One could die in an accident even at such low speeds of 30 miles per hour (~50Kms per hour) or perhaps even slower. Many times, wearing a seat belt may make the difference between serious injury/death and getting away with normal life. The probability of an accident on the road is rare but in case of an accident, a seat belt can make the real difference many times.
So, do you not wear a seat belt because accidents are rare or do you wear seat belt because consequence of accidents could be dire.
Bottomline
“Few people take objectives really seriously. They put average effort into too many things, rather than superior thought and effort into a few important things. People who achieve the most are selective as well as determined.” — Richard Koch
If you are oriented towards progress and live long enough, you will occasionally but surely be presented with life altering opportunities. There is no question about it. But this does not mean that your life will materially change. Consequential progress comes not from recognizing but exploiting such opportunities. And this generally does not happen by default. I believe that a purpose driven approach builds the necessary basis to be able to seek and take advantage of such rare opportunities.
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