1.“For me, first of all, dopeness is what I like the most. Dopeness. People who want to make things as dope as possible, and, by default, make money from it.”

As everyone who is dope knows, “dopeness” is an adjective used to describe the awesomeness of a person, place or a thing. In these sentences Kanye is in effect repeating the Y Combinator motto as stated by Jessica Livingston: “Make something that people want. If you create something and no one uses it, you’re dead. Nothing else you do is going to matter if people don’t like your product.” https://25iq.com/2016/04/09/a-dozen-things-ive-learned-from-jessica-livingston-about-business-and-investing-2/ Kanye understands that the establishing the “value hypothesis” (finding product/market fit) must precede the “growth hypothesis.”

2. “Please avoid trying to talk me out of being me in the future.”

Kayne wouldn’t be interesting if he wasn’t Kanye. In making this statement about “me being me” he is channeling a point made by people like Bill Gurley about the importance of sometimes being a contrarian if you want to outperform a market. Gurley has said in this point: “Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right.” Andy Rachleff agrees: “What most people don’t realize is if you’re right and consensus you don’t make money. The returns get arbitraged away. The only way as an investor and as an entrepreneur to make outsized returns is by being right and non-consensus.”

3. “One of my biggest Achilles heels has been my ego. And if I, Kanye West, can remove my ego, I think there’s hope for everyone.”

Kayne recognizes in these sentences a point made Howard Marks: “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.”  Paul Tudor Jones feels the same way: “Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”  Phil Fisher had a similar view:  “There is a complicating factor that makes the handling of investment mistakes more difficult. This is the ego in each of us.”

4. “If you read books – which I don’t, none at all – about how to become a billionaire, they always say, ‘You learn more from your mistakes.’ So if you learn from your mistakes, then I’m a f*cking genius.”

This statement about the importance of learning from mistakes is straight up Charlie Munger: who has made these same points about mistakes which are quite similar to Kayne’s thesis: (1) “There’s no way that you can live an adequate life without many mistakes.” (2) “Of course, there’s going to be some failure in making the correct decisions. Nobody ‘bats a thousand.’” (3) “I don’t want you to think we have any way of learning or behaving so you won’t make mistakes.” Munger is a self-described “book with legs sticking out” and reads constantly.  But he would never read a book about how to become a billionaire. 

5. “Having money isn’t everything, not having it is.” 

In my blog post abut what you can learn from comedians I pointed out that Johnny Carson once said: “The only thing money gives you, is the freedom of not worrying about money.” Kayne seems to understand why Seth Klarman said: “The trick of successful investors is to sell when they want to, not when they have to.” People who don’t have cash can be forced to sell other assets when they do not want to. Cash is always valuable, but there are times in the business cycle when cash is particularly valuable and planning ahead for those times is wise.

6. “I just have to look at say, ‘What do I have to lose? We only have everything to gain.’”

Kayne is thinking like Nassim Taleb on the value of convexity: “Optionality is the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny).”  Sam Zell said something very similar in a New Yorker profile: “Listen, business is easy. If you’ve got a low downside and a big upside, you go do it. If you’ve got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and a big upside.” This statement from Kanye is all about the value of seeking positive optionality. Every once in a while, if you are looking hard for opportunities, you will find a mis-priced bet within your circle of competence with a relatively capped downside and a huge potential upside. 

7. “Visiting my mind is like visiting the Hermès factory. Sh*t is real.” 

Kanye appears to be comparing himself to certain hedge fund founders in terms of his self-appraisal of his own IQ.  Many hedge fund greats are unabashed fans of their own mental competence like Kanye. John Bogle pointed out the dangers of overestimating one’s own IQ when he said: “We all think we’re above average investors just like we all think we’re above average dressers, I suppose, above average intelligence. Probably we all think we’re above average lovers for all I know.”

8. “I am so credible and so influential and so relevant that I will change things.”

Kanye is channeling George Soros on reflexivity.  Soros believes: “Markets can influence the events that they anticipate. Markets and the views of people about markets interact dynamically in their effect on each other. There is a two-way reflexive connection between perception and reality which can give rise to initially self-reinforcing but eventually self-defeating boom-bust processes, or bubbles. Every bubble consists of a trend and a misconception that interact in a reflexive manner.” Kanye understands that people almost never make decisions independently. Duncan Watts writes: 

“when people tend to like what other people like, differences in popularity are subject to what is called “cumulative advantage,” or the “rich get richer” effect. This means that if one object {like Kanye] happens to be slightly more popular than another at just the right point, it will tend to become more popular still. As a result, even tiny, random fluctuations can blow up, generating potentially enormous long-run differences among even indistinguishable competitors — a phenomenon that is similar in some ways to the famous “butterfly effect” from chaos theory….n such a world, in fact, the question “Why did X succeed?” may not have any better answer than the one given by the publisher of Lynne Truss’s surprise best seller, “Eats, Shoots & Leaves,” who, when asked to explain its success, replied that “it sold well because lots of people bought it.””

9. “I’ve gotta get my money up to another level cause it ain’t on Jay Z level, it ain’t on Diddy level yet. I’m talking about economic empowerment because the economics give you choices, the choices can help give you joy and freedom. And I’m trying to find that joy.”

Kayne seems to be talking about issues that Bruce Berkowitz identifies in this quote: “Cash is the equivalent of financial Valium. It keeps you cool, calm and collected.” In my blog post on what you can learn from comedians I note that Chris Rock once said: “Wealth is not about having a lot of money; it’s about having a lot of options.”

10. “I think business has to be stupider. I want to do really straightforward, stupid business — just talk to me like a 4-year-old.”

Kanye is advocating the same game plan Warren Buffett does here: “We try to stick with businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change we’re not smart enough to predict future cash flows.”  Risk comes from not knowing what you are doing and keeping it simple lowers risk for that reason.Business is hard. Vanity Fair notes about Kanye’s business efforts so far:  

“In 2009, he put all of his musical endeavors aside to work on his label, Pastelle—which then shuttered after seven months. Add to that however much it cost to create his line of G.O.O.D. merchandise, marketed to fans of his record label. He was chewed up and spit out for his attempt at a high-end women’s-wear line called Kanye West in 2011. The line never made it to stores.”

Good judgement comes from experience and a lot of that come from bad judgement said Will Rodgers and hopefully Kayne is learning from his troubles as well all should.

11. “One of my courses was piano. I actually went to college to learn how to play piano. Talk about wastin’ some money.”

Kanye is expressing concern about the value of some aspects of college that he shares with Peter Thiel who has said: “I’ve never claimed that nobody should go to college or that we should shut down all the universities in this country or anything like that. What I have argued is that there is no one-size-fits-all, and that we need to have a more diverse array of things that people, including our most talented people, can be doing.” Learning should not start or stop with college.

 12. “My definition of success is dropping a Charlie Sheen-level tweet and being like, ‘I am in debt and f— you.’” “Also for anyone that has money they know the first rule is to use other people’s money.”

Kayne has probably not thought a lot about the ideas of Mike Milken. But Milken did once say something that Kanye should know:  “Debt isn’t good. Debt isn’t bad. For some companies, close to zero debt is too much leverage. For other companies, nearly 100 percent much higher levels of debt can easily be absorbed.” The same idea applies to people. As Charlie Munger has said: “I’ve seen more people fail because of liquor and leverage – leverage being borrowed money.” Montier adds: “Leverage can’t ever turn a bad investment good, but it can turn a good investment bad.  When you are leveraged you can run into volatility that impairs your ability to stay in an investment which can result in “a permanent loss of capital.”

P.s., Kanye is Kanye, and I am not. Why is Tren writing about people like Kanye? First, I think you can learn something from everyone. Second, it is hard to get people to read anything about finance.  Adding someone like Kayne to the mix increase the number of people who will read the post. I can see it in the data. Why do I care about page views if I have no advertising or other business model?  As you may know I am fond of quoting Charlie Munger who once said: “The best thing a human being can do is to help another human being know more.” If people don’t read they can’t learn.

You may ask: “Why can’t Tren just write in a ‘seven simple rules for success’ format?  Unfortunately the world does not work that way.  A step-by-step formula for achieving wealth and happiness does not exist. Over the course of over 215 blog posts I have been advocating that readers adopt the “worldly wisdom” approach of  Charlie Munger which is based on the concept of a “lattice of mental models.” Your task, if you decide to adopt this approach, is to combine a range of mental models into a lattice and acquire “worldly wisdom.” A premise of the worldly wisdom approach is that there is no precise recipe for success. Munger instead suggests that individuals combine attributes like patience, rationality, cultivating optionality and aggressive opportunism. While the combination of attributes like patience and pouncing on opportunities may seem a bit strange at first, it is an approach that can lead to a highly favorable outcome. Munger says: “You’ve got to array your experience ‑ both vicarious and direct ‑ on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life.” By reading about the approaches of others and their successes and failures, you can begin to spot patterns that can help you make decisions in life. For example, you can do things like learn not to pee on an electric fence without doing it yourself. Be careful out there.

 Notes: 

Duncan Watts:  http://www.nytimes.com/2007/04/15/magazine/15wwlnidealab.t.html?_r=1&ref=magazine&pagewanted=all&oref=slogin

 

• Core Product Value and Entrepreneurial Success
• A Dozen Lessons about Business, Investing and Money from Lil Wayne (Weezy)

Categories: Uncategorized