Constant Reinvention

In order to be successful in the long run, I believe people and companies have to reinvent themselves constantly.  What worked yesterday isn’t necessarily going to work tomorrow, at least without some tweaking.  At a minimum, you need to constantly reassess your current business or investment strategy because there is always a change in the markets and/or a new technology that is nipping at your heals.  If you have found something that works or makes you money, chances are someone else out there has also figured that out and will have priced you out of the market at some level.

Andy Grove

The late Andy Grove, one of the founders of Intel, titled his memoir “Only the Paranoid Survive.”  In order to employ the mentality that you constantly need to reinvent what you are doing, you have to be paranoid that you are one step away from being obsolete.

Quant Investing

I believe one of the most glaring, real-time examples of constant reinvention is Quant Investing.  By Quant Investing, I mean investors who take mega-terabytes of data from the past performance of securities, put all of that data into a supercomputer, and then try to divine patterns from the data that the investors will then try to exploit in the markets in the future.  The very best Quant investors, by their own admission, are correct only a little better than half of the time.  And, what worked 2 minutes ago may not work in the next minute because the input factors may have changed.  That’s why the best Quant investors, firms like Renaissance Technologies and Two Sigma, hire and overpay for Physics Ph.d.’s and the like – the biggest brainiacs on the planet – people who can figure out an edge to exploit that may only work for a fraction of a second, and who then can move on and find the next investing edge to exploit.  All in a hope to bat a little better than .500, which, if enough money is allocated toward it, can result in outrageous profits.

IMO

On one level, mere mortals probably won’t be successful at Quant Investing.  Only the best can succeed.  You may think you have a “system” that works for you in the market, but it is likely that other factors or even luck caused you to win.  However, on another level, I think it is very appropriate to have a mindset that you need to constantly reinvent yourself.  Such a mentality is focused on the future instead of the past.  Use the past as a basis, but always be on your toes in an effort to make sure your strategy is appropriate for what you believe is going to happen over the next few months or a year.  Don’t rest on your laurels – or any other decorative flora.  You don’t need to have psychological paranoia, but you need to be on the lookout.  I love learning new stuff every day and thinking about how what I have learned applies to the future investing world.

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