The Case for "Ruthless Prioritization"
At a recent investor conference, Airbnb CEO Brian Chesky was asked about the company’s eventual roll-out of a consumer rewards / loyalty program.
In response to that question, Chesky spoke about an important lesson that he was required to learn as CEO, particularly during the heart of the pandemic:
“We were actually working on something before the pandemic. We decided to pause it. And so what I've decided is to adopt the Jeff Bezos framework of perishability. It reminds me of something a teacher said to me in college. He said, ‘Brian, you can do everything you want in your life, you just can't do them all at the same time.’ One of the lessons I learned in the crisis is you can't do everything at once… I had an idea that started in my living room. Within years, hundreds of millions of people used it, and we had access to billions of dollars of capital… You convince yourself, ‘I can now do that ten more times’. How many entrepreneurs try to do ten things at once? It doesn't work. One of the lessons I learned was to focus and to have ruthless prioritization. You don't just do all these aimless bets that have a 1% chance of working. You put the entire weight of the company behind a few large bets, and you nearly guarantee they're going to work.”
While Chesky is speaking about the need for “ruthless prioritization” from the perspective of an entrepreneur / CEO, I think this idea is perfectly applicable to long-term investors. It reminds me of something Alice Schroder, the author of “The Snowball”, once said about Warren Buffett’s decision-making process:
“I have seen him make his famous five-minute decisions on the phone. Five minutes is the outside amount of time it takes him to decide. If the person can be succinct and convey the salient points, he’ll say ‘yes’ or ‘no’ in 60 seconds. The time is determined by how long it takes the person to convey the salient points, not how long it takes him to think about it. It’s virtually instant once he has grasped the two or three variables that are important to him. Typically, and this is not well understood, his way of thinking is that there are disqualifying features to an investment. So he rifles through and as soon as you hit one of those, it’s done. Doesn’t like the CEO, forget it. Too much tail risk, forget it. Low-margin business, forget it. Many people would try to see whether a balance of other factors made up for these things [like a cheap valuation]. He doesn’t analyze from A to Z; it’s a time-waster.”
While those phone calls likely skew to private transactions, my sense is that Buffett thinks very similarly when it comes to investing in public markets. He’s quick to write-off ideas that do not pass some key filters, those “disqualifying features to an investment”. In my own investment process, I take this idea very seriously. It’s something I’ve learned from studying investors that I’ve come to revere like Buffett, Munger, Chuck Akre, and others. By the way, I think this input is directly related to the output – a willingness to hold a small number of positions for the long-term (“If you look at all the great investors, and they’re as different as Warren Buffett, Carl Icahn, and Ken Langone, they tend to make very, very concentrated bets. They see something, they bet it, and they bet the ranch. And that’s the way my philosophy evolved… there may be only one or two times a year that you see something that really, really excites you… The mistake 98% of money managers and individuals make is they feel like they’ve got to be playing in a bunch of stuff. If you really see it, put all your eggs in one basket and watch that basket very carefully.”)
As it relates to Akre’s investment approach, and that of his team at Akre Capital Management, consider this comment from “The Art of (Not) Selling” (which I’ve previously discussed in “I Don't Defend This Logic”):