How Much to Bet Just Based on Operators

Recurrent thought

Initially, I was highly reluctant to make any investment decision without knowing as much as possible about everything involved. Time revealed to me that all decisions need to be made without perfect information. Furthermore, on the scale of knowledge, one rarely gets even close to knowing enough for a decision to be optimal. It is sometimes said that you may be entitled to 90% information only a handful of times in life, but I still find that estimation heavily flawed.

From others’ experiences, I borrowed the hypothesis, albeit not to its fullest extent, that the person who runs a business is more important than the business itself. Capable leaders bring an intangible asset to the equation that cannot even be sensed. It’s not only about the compounding of little decisions made every day but also macro picture ones, which drastically change the endeavor’s long-term direction in unpredictable ways, but on average highly skewed to favorableness.

Able people – I’m thinking about Lee Kuan Yew – can turn a nothing-place into a majestic metropolis. His genius was in picking the correct system for fixing huge societal issues, combined with pragmatism, problem-solving skills, and highly acute judgment. When complemented with LKY’s great sense of moral responsibility, for it largely appears to me that no exceptional, large-scale, achievement can be made without good, honest, stewardship, you get to one of the most impressive nation-builders in history.

People like Lee Kuan Yew are truly one of a kind. Whenever you feel like you are in the presence of another, you are most likely wrong. However, good results do not manifestly require an individual of this sort. Maybe top decile already works pretty well, with each upper percentile exponentially increasing the odds of success and the magnitude thereof.

Now, let’s presume you find a Lee Kuan Yew (extraordinary talent and high integrity) and have the opportunity to invest alongside him. Does it even matter what kind of business he is building? Is it okay to invest even if one ignores absolutely everything about the enterprise itself? What percentage allocation would you be comfortable with?

I was listening to a conference where Munger was speaking, and he said something like “the weaker the thinker, the more due diligence they need.” Highly hesitant to accept it at first, was he speaking about this? My question then is, how much can (and should) one bet based purely on their capacity to judge people, an incredibly biased skill?

Naturally, things work in degrees, not absolutes. Intellectual frameworks, mostly business ones mattering in this case, seem to help compensate for a lack of granular understanding; how things should tend to play out under a certain fact pattern. Yet, still, how far should you go based on a presumably conceptual grasp of the thing?