Silicon Valley’s Power-Law Investing and Taiwanese Investors’ Grounded Approach

Great entrepreneurs are not simply people who go wherever an opportunity appears and make money there. If an opportunity can be quantified, you do not even need AI: a computer program can automatically find the price difference. The entrepreneurs George Gilder describes create opportunities themselves. They have a vision they long to realize, and the oracles they produce cannot be predicted by a model or reduced to something simpler. Gilder identifies three characteristics of entrepreneurs— You must seek distinctiveness and reject mediocrity. You cannot discover the new in the old, or secure your future path merely by examining the scene in front of you. Data and experience may help, but they cannot give you safety. However much preparation you do, eventually there comes a moment when you act first and set everything else aside. Real surprise is created in that moment, driven by your conviction. --- Entrepreneurs must therefore be both dreamers and doers. Then, to get others to work with you, you must persuade them to accept your dream. Put bluntly, you have to know how to sell them on it. Chinese economist Zhang Weiying says: ‘To turn imagined things into reality, entrepreneurs need the ability to change other people’s beliefs and persuade them to do what they want them to do.’ ...That is Steve Jobs’s ‘Reality Distortion Field.’ Entrepreneurs live in a distorted reality, which is why they can distort reality. ---- The degree of distortion depends on how much of a ‘surprise’ your creation delivers. One of the central insights of Shannon’s information theory is that the information in something depends on how much uncertainty it resolves—in other words, information is surprise. Suppose you pay for an investment class and the speaker dazzles you for three hours, but everything discussed is an opportunity already familiar to everyone. You know the class was a waste. If everyone knows it is an opportunity, it is not one: either it cannot be executed, or competition has already left very little room for arbitrage. What you want is the surprising news that something no one expected to make money has, in fact, made money. Markets like surprises. In the stock market, the more unexpected the news, the greater the resulting movement. Surprise is what has value. This pattern fits the logic of scientific discovery. The philosopher of science Karl Popper recognized long ago that discovery does not proceed step by step. You cannot simply continue in the direction of Newtonian mechanics and arrive at relativity. Relativity overturned Newtonian mechanics; to that generation of physicists, it was an enormous surprise. Popper proposed that the significance of scientific progress should be judged by how surprising it is. Is entrepreneurship not the same? The most valuable startups create surprises. They go from zero to one. You might say that going from one to N can also make money. True, but it is hard-earned money: what you see, others see too, and you will predictably have to compete on price. Price wars do not make a country developed. The world needs many people who create new niches and deliver surprises. But such people are exceedingly rare, and they do not appear at random. #Wan Weigang’s Elite Daily Course 5 ---- Robin: ‘There is an investment approach in Silicon Valley that deliberately seeks deals whose startup ideas astonish investors. Some investors want ideas that sound outrageous and wildly imaginative because they pursue power-law outcomes: in a portfolio of 100 investments, only one succeeds and the other 99 die, but that one investment produces a 10,000-fold return. Across the portfolio, that works out to a hundredfold return. That is one type of Silicon Valley investor, and perhaps there are not actually many of them. Most Taiwanese investors remain grounded, working through feasibility and future prospects with you point by point. But if everything can be calculated clearly and no fog lies ahead, you often cannot invest in the extraordinary companies that endure through the ages.’