Saturday, November 27, 2021

First Explore. Then Exploit.

Albert einstein in the early 1900s. Aretha Franklin in the 1960s. Steve Jobs in the 2000s. There are certain spans of time when scientists, artists, and inventors have phenomenal periods of productivity.

This is also true of most people—at least on a smaller scale. Aren’t there periods when you feel like you’re effortlessly flourishing at work, while other times you feel incompetent and uninspired? You might recognize these periods of concentrated success among your friends, peers, and competitors too.
The Northwestern University economist Dashun Wang calls these special bursts of creativity “hot streaks”—a term usually reserved for sports. “Ninety percent of people have a hot streak in their career,” Wang told me. “Most people have just one. Some people have two. It’d be nice to have more.”

In the past few years, Wang has peeled back the mystery of why these special creativity clusters happen and how individuals and companies can multiply and extend them. Three years ago, he co-wrote a paper with researchers at Northwestern, the University of Miami, Penn State, and Central European University, in Budapest, that used large data sets to trace the career outputs of more than 20,000 artists, film directors, and scientists. The researchers found that almost all of them had clusters of highly successful work, as determined by higher-than-average art-auction prices, IMDb film ratings, or scientific-journal citations. “Bursts of high-impact works [are] remarkably universal across diverse domains,” he and his co-authors wrote. Just about everybody has a period in their life when they produce at their best, even if, unlike Aretha, they aren’t pumping out some of the greatest work of the 20th century.

So where do hot streaks come from? And how can each of us plan for one, or two—or 100? Wang spent several years trying to answer that question. His search uncovered mostly dead ends. “The more we tried and the more failed attempts we had, the idea of hot streaks seemed very random,” he said.
The conventional wisdom is that hot streaks happen in our middle age. One famous analysis of scientists and inventors found that their ability to produce Nobel Prize–winning insights and landmark technological contributions peaks between the ages of 35 and 40. Another analysis of “age-genius curves” for jazz musicians found that musical productivity rises steadily until about the age of 40 and then declines sharply.

Wang’s analysis—which used a broader measure of productivity for a much larger group of people—didn’t find anything special about the productivity of middle-aged people. Instead, hot streaks were equally likely to happen among young, mid-career, and late-career artists and scientists. Other theories fell flat too. Maybe, he thought, getting hot is a numbers game, and hot streaks happen when you produce the most work. Or maybe extremely successful work periods are all about focusing on one specific type of art or scientific discipline—as the 10,000-hours-of-practice rule popularized in Malcolm Gladwell’s book Outliers suggests. Or maybe hot streaks are more about who else we’re working with, and we’re most successful when we cozy up to superstars in our domain. But no explanation fit the data set.

Until this year. This summer, Wang and his co-authors published their first grand theory of the origin of hot streaks. It’s a complicated idea that comes down to three words: Explore, then exploit.

In 1991, the Stanford Graduate School of Business professor James G. March published an influential paper, “Exploration and Exploitation in Organizational Learning,” which broke down work into two big categories: exploring new ideas and exploiting old certainties. Say you’re a car manufacturer. Every year, you must decide between investing in future innovations, such as self-driving software, and finding ways to squeeze new revenue out of existing technologies and materials. Too much fanciful R&D spending, and this year’s profit plummets. Too much emphasis on tweaking existing product lines, and you get squashed by some fresh upstart in a decade.
Individuals face the same choice. Every week, I can write about pretty much whatever I want. I love exploring new ideas and emerging industries. But if I write an article about a totally new subject, it’s possible that I’ll do a bad job, or that nobody will want to read about it. Meanwhile, whenever I write articles about the future of work, a lot of people read them. Should I allow my curiosity to wander into new fields that might be dead ends for my career, or should I double down on becoming a full-time work futurist? It’s the same tension: explore or exploit?
In Wang’s most recent analysis, he found that artists and scientists tend to experiment with diverse styles or topics before their hot streak begins. This period of exploration is followed by a period of creatively productive focus. “Our data shows that people ought to explore a bunch of things at work, deliberate about the best fit for their skills, and then exploit what they’ve learned,” Wang said. This precise sequence—exploration, followed by exploitation—was the single best predictor of the onset of a hot streak.

Wang pointed to Jackson Pollock, the artist known for splashing and dribbling paint on a canvas. When Pollock started painting, in the early 1930s, he experimented with a variety of styles, including abstract art and surrealism reminiscent of Marc Chagall’s work. Suddenly, in the mid-’40s, he honed a mystically messy “drip style,” in which he painted almost exclusively for about four years. In 1949, Life magazine made him a household name and asked if he was “the greatest living painter in the United States.” The next year, at the height of his fame, Pollock abruptly abandoned his drip method—and started experimenting again, until his death.

At least for artists, film directors, and scientists, neither exploration nor exploitation does much good on its own. “When exploitation occurs by itself,” Wang and his co-authors wrote, “the chance that such episodes coincide with a hot streak is significantly lower than expected, not higher, across all three domains.” Only when periods of trial and error are followed right away by periods of deliberate focus does the probability of a hot streak increase significantly.

The research suggests something fundamentally hopeful: that periods of failure can be periods of growth, but only if we understand when to shift our work from exploration to exploitation. If you look around you at this very moment, you will see people in your field who seem wayward and unfocused, and you might assume they’ll always be that way. You will also see people in your field who seem extremely focused and highly successful, and you might make the same assumption. But Wang’s paper asks us to consider the possibility that many of today’s wanderers are also tomorrow’s superstars, just a few months or years away from their own personal hot streak. Periods of exploration can be like winter farming; nothing is visibly growing, but a subterranean process is at work and will in time yield a bounty.

Several years ago, the journalist David Epstein wrote the book Range: Why Generalists Triumph in a Specialized World, which argued that early specialization was a poor strategy for succeeding in a world of complex problems that defy easy answers. Instead, Epstein said, people are better off exploring a variety of fields and approaches and braiding their knowledge to produce new solutions. Wang’s research seems to back up that claim. The central paradox of the explore-exploit sequence is that hot streaks are examples of specialization, but specialization itself doesn’t lead to hot streaks. Today’s best exploiters were yesterday’s best explorers.

Sunday, November 14, 2021

Internal Vs External Benchmarks

There are two ways to measure how you’re doing: Against yourself and against others. Internal vs. external benchmarks.

There’s a time and a place for both, but I’ve come to appreciate how much happier you can be if you appreciate when internal benchmarks should get the spotlight.

If Jeff Bezos started a new company that got to $100 million in revenue and sold for a billion dollars, it would mean … nothing to him, both financially and on his list of accomplishments.

But if I did it, it would be … unbelievable. Everything would change.

So accomplishments have a cost basis. What you gain or lose is always relative to where you began. And since we all begin at different spots, there’s a range in how people feel when experiencing the same thing.

In his book on the final days of World War II, Stephen Ambrose writes about a wounded American soldier who’s carried back to the medic tent. He knows he’s going home – his war is over. “Clean sheets boys!” he yells back to his comrades still fighting. “Clean sheets, can you believe it! Clean sheets!” Living in foxholes for weeks caused soldiers to daydream about normal life, and few things tickled their imaginations like the dignity of clean sheets. Not money or status or respect or glory. Just the absolute pleasure of clean sheets. It’s an extreme example of when the outside world ceases to exist and everything becomes relative to an internal benchmark.

A lighter version of this happens in business and finance, which are home to so many staggeringly successful people whose lives are broadcast over a staggeringly loud social media system.

If you measure your career solely relative to them – the external benchmark – you’re on the never ending path of feeling inadequate, incompetent, and poor. Nothing you do will ever feel that great because someone is always smarter than you, more popular than you, better looking than you, getting richer faster than you, and making sure you know about it.

It’s not until you focus on internal benchmarks and see how far you’ve come, relative to where you began – the gap between today and your own cost basis – that you have a good view of where you stand and what you’ve accomplished. Even if it’s the career equivalent of clean sheets.

External benchmarks can be great because so much innovation comes from the urge to chase whoever’s in front of you. They’re also just necessary to survive a competitive environment.

But great things backfire when taken to an extreme, and external benchmarks are no different:

External benchmarks are deceiving because accomplishments are advertised while the ugly, hard, and painful parts of life are often hidden from view. Almost everything looks better from the outside. When you’re keenly aware of your own struggles but blind to others’, it’s easy to assume you’re missing some skill or secret that others have. Few things are as awful as chasing something you eventually realize you never actually wanted.

People play different games, some of which might not be related to your own goals. Investors range from nineteen-year-olds learning how to day trade to endowments with century-long time horizons and everything in between. But so often there is just one external benchmark: How you have performed in the last 365 days relative to the S&P 500. Can we not imagine a world where different people have different goals stemming from the different games they play?

Another version: Working 100-hour weeks and squeezing every penny out of your career potential is the ultimate goal for some people, but a nightmare for others whose priority is, say, quality time with their kids. “To each their own” only works when benchmarks are internalized.

The key to a lot of investing success is to be motivated by opportunity while immune to FOMO. The difference is subtle, but mostly comes down to FOMO being a byproduct of anchoring on the external benchmark of how rich other people are getting.

It’s hard to know how much of some external benchmarks owe their performance luck, which you cannot replicate no matter how smart you are or how hard you try. This is especially true when you’re anchoring to a specific person or company’s success.

The most important point may be this: Internal benchmarks are only possible when you have some degree of independence.

The only way to consistently do what you want, when you want, with whom you want, for as long as you want, is to detach from other peoples’ benchmarks and judge everything simply by whether you’re happy and fulfilled, which varies person to person.

I recently had dinner with a financial advisor who has a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client; All he cares about is whether he has enough money to keep traveling with his wife. That’s his sole benchmark.

“Everyone else can stress out about outperforming each other,” he says. “I just like Europe.”

Maybe he’s got it all figured out.

Source –

Internal vs. External Benchmarks · Collaborative Fund