The Tyranny of the Playbook

Given the vast number of different strategies employed by professional investors, a revelatory question when you meet someone might be, “What game are you playing?”

While that inquiry is phrased in a more casual way than found in most initial encounters, after some give-and-take you’d probably get a good idea of where that person fits in the ecosystem and what type of investment philosophy they employ.

You’d also come away with a sense of the narrative elements that they use to tell others what they do.

This posting is not about those investment games or marketing games, but rather the inclinations of individuals and organizations to accept or challenge the status quo industry practices in their playground of choice.

Playing to win

Phil Bak wrote a piece entitled “Playing to Win.”  The subheading — “You can’t be loved by your industry’s incumbents and be a disruptor at the same time” — tells you where he is on the innovation spectrum, which is borne out by the anecdotes he conveys.  One example:

So I am getting ready for the final big boss level meetings with this company, and I had a choice to make.  Do I tell them what they want to hear, which will lock in the deal, or do I tell them what they need to hear?

Being the idiot that I am, I chose the latter.

A choice he then termed “playing to win.”  In contrast:

There are a lot of people in the finance industry who aren’t playing to win.  They think they are, but the game they are trying to win is one of career ascension.  A game of politics.  A game of love-me.  A game of being nice.

A game of not wanting to upset their competitors, especially not the biggest ones. After all, they might have a job for me one day.

That’s not playing to win.  They aren’t going for the kill.  Good people, nice people, smart people.  Good at what they do.  Professionals.  But the killer instinct?  They don’t have it in them.

That speaks to the career risk that constrains investment professionals and the stasis that plagues the organizations they inhabit.

Which is why it is essential to incorporate new ways of thinking into an industry that despite the dynamism of the markets can be resistant to change.

Doing both things

The always-entertaining Rory Sutherland gave a presentation at Nudgestock 2025 on “Soft Power in a Hard World.”  His thesis was that we get stuck in an either-or mode when we make decisions — including hewing to our native side of the explore-exploit tradeoff.

To Sutherland, it shouldn’t be a tradeoff at all; we ought to always be doing both.  To illustrate his point, he referenced the famous “waggle dance” of bees, which directs the members of the hive to the most attractive sources of nectar and pollen.  It turns out that about twenty percent of the bees aren’t following the dance at all.  (Another example of the Pareto principle.)  Consider this description of the complex system in which bees have evolved over millions of years (a bit longer period of development than the modern investment industry):

If you don’t have the rogue bees, the random bees, the hive gets trapped in a local maximum and starves to death.  It gets overoptimized on the past, because all big data comes from the same place, the past.  The hive will then become preoccupied in harvesting sources of pollen that it knows about and completely underinvest in discovering new fields where flowers may have come into bloom or new opportunities.

To succeed you need to do both short-term things and long-term things.  The mindset is different for each of those pursuits and organizations tend to focus on what can be quantified, playing to that local maximum.  But the real world is one of fat tails and the big wins aren’t found in a spreadsheet or model, certainly not one that projects thin tails:

Most of business is probabilistic.  The most effort in business is devoted to pretending that it isn’t.  It’s the pretense effectively of certainty, the pretense of knowledge.

Sutherland has many other worthy ideas, including observations on the success of long-standing family businesses (and the risks inherent in an obsession with “shareholder value”).  He also quotes Benjamin Braun:  “You have to dare to be different otherwise you do not cut through the noise.”

The tyranny of the playbook

In Bak’s posting, he recounted an opportunity to present to a venture capitalist:

I went through our rationale.  I’m talking about outsourced capital markets services for independent asset managers.  I’m talking about my reverse cap fund and index concentration.  And she was horrified by my presentation.  I shit you not:  horrified.

“Where is the problem slide?  Where is the solution slide?  Where is the TAM?”

And I’m like, you want me to disrupt the entire finance industry but you can’t handle me disrupting the standard pitch deck formula?

Bottom line is, she was playing one game.  A game where a pitch deck is a book report and should be done the correct way.  I was playing a different game.  I was focused on clients and opportunity.  She was playing to check off boxes.

That vignette encapsulates the tyranny of the playbook — the career playbook, the organizational playbook, the industry playbook.

More than anyone, you would expect a venture capitalist to be among the most imaginative listeners around.  But if you’ve seen how formulaic venture pitch books are, you know that the decision makers can be as hidebound as anyone else, thinking that the current playbook captures the way of the world.

Rogue bees

In most investment organizations, there is a severe shortage of rogue bees, of people who aren’t satisfied following the swarm in the direction called for by today’s waggle dance.

To mix metaphors, we need to foster those who don’t stick to the current playbook but think about the kinds of ideas and resources and talent the next game will require — and are willing to push for them.

Seeing the value of those rogue bees has always been a challenge in the investment world, where their contributions can’t be measured in basis points and the changes they propose can’t be backtested to “prove” that they work.

Finding those people and effectively leveraging them is the missing art in the management of investment organizations.

 

If you found this of interest, check out “The Active Management Reinvention Project,” published in 2024.