Brad Pitt once said, “Some projects work and some don’t. Just get on to the next.” That nugget of wisdom turns out to be super relevant whether you’re an artist, investor, or even a regular Joe trying to figure out life.
So, this guy Heinz Berggruen isn’t your typical run-of-the-mill dude. He fled Nazi Germany back in 1936, landed in America, and studied literature at U.C. Berkeley. Now, nobody saw him as a prodigy back then. Fast forward to the 1990s, this guy becomes one of the top-notch art dealers ever known. In 2000, he sold a bundle of Picassos, Braques, Klees, and Matisses to Germany for over 100 million euros. Small change compared to the actual market value, which was over a billion bucks.
The craziest part? Art is super subjective. Predicting which pieces would become gold mines was no walk in the park. When you think about it, his success was a mix of skill, luck, and maybe a sprinkle of magic. Imagine collecting all sorts of art blindly, hoping a few pieces would turn out to be Picassos in the rough. Horizon Research hit the nail on the head; Berggruen’s method was just like an index fund. Buy a ton of stuff, sit back, and wait for the winners. Most pieces turned out to be duds, but the few that didn't—boom, jackpot.
This whole deal isn’t just for the art world. Business and investing work the same way. Think about tails of outcomes—those rare, extreme ends where the magic happens. A few tiny events can account for the most significant outcomes, financially speaking. Heck, venture capitalists live this reality. They fund a stack of startups, knowing half will tank, a few will float, and maybe one or two will be smashing successes covering all the losses. Out of 21,000 venture capital deals from 2004 to 2014, only half a percent made more than 50 times their investment. Yet that small portion caused the majority of returns.
Think Walt Disney. Before Snow White and the Seven Dwarfs, Disney made hundreds of shorts that lost a fortune. Snow White turned it all around, raking in $8 million in just six months of 1938, saving the company. Disney’s studio got new digs, paid off its debts, and Walt became a national treasure. Those 83 minutes of brilliance outweighed everything else Disney did up to that point. It’s often one or two home runs that matter most.
And it’s not just startups and legendary figures either. Even big public companies play in this zone. The Russell 3000 Index tells the tale: since 1980, 40% of these companies lost at least 70% of their value and never bounced back. Yet the index grew 73 times over due to the 7% of companies that hit it out of the park. This pattern crosses all industries, from tech to utilities.
Picture Carolco, the studio behind Rambo and Terminator 2. It was a Russell 3000 star but went under in the ‘90s. Big movies dried up, and with them, the company too. They went bankrupt. Yet the overall index thrived. It's a mix of winners and many losers where the winners pull all the weight.
Even within these winners, it’s a few specific products or services driving the gains. Amazon’s incredible success mostly comes from Prime and AWS, not the Fire Phone or other experiments. Same with Apple, where the iPhone is the cash cow. The people crafting these successful products? They're rare finds too; consider that Google’s acceptance rate is 0.2%.
It translates into investing as well. Warren Buffett, the Oracle of Omaha, didn’t get there without a bunch of duds. He openly admitted at a 2013 Berkshire Hathaway meeting that most of his money came from just 10 out of the 400-500 stocks he’d invested in.
It’s a reminder that genius isn't about being right all the time. It's about getting the few big things right. When Napoleon said, “The man who can do the average thing when all those around him are going crazy,” it rings true in finance too. Most advice focuses on the immediate—what to buy today. The reality? Over your investing life, decisions made during just a few critical moments will impact your returns the most.
Take a century-long view. Imagine investing a dollar every month from 1900 to 2019, rain or shine. Stick through recessions, ignore the noise, and just keep investing. An investor who does this ends up with almost three-quarters more money than one who sells during recessions and buys back in later. It's the tortoise and the hare all over again.
Let’s dial it back to everyday life. Cooking up a storm in finance, business, or investing? You’re gonna have flops. Even the top investors or entrepreneurs are riddled with failed ideas and junk decisions. Take Amazon—Jeff Bezos was upfront about the Fire Phone disaster, noting that much bigger blunders were in the pipeline. Reed Hastings of Netflix echoed similar thoughts, encouraging more risk-taking and accepting higher cancellation rates.
Investing is like being a big-time comedian. Chris Rock preps his big shows by testing material in small clubs, tossing out what doesn’t land. The polished Netflix special you watch is the cream of a massive crop. Rock's success doesn’t negate the hundreds of jokes that bombed.
Warren Buffett’s story again—he’s known for his big wins, but less for his missteps. On record, he’s mentioned that removing a few top investments would flatten Berkshire Hathaway’s stellar track record. We idolize their successes, often ignoring that they, too, mess up plenty.
George Soros famously said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” This is profound, emphasizing that a few right moves can dwarf many wrong ones.
In the grand scheme of the universe with its hundred billion planets, our very existence is a tail event—a one-in-a-billion shot that panned out. That’s something to cherish. Embrace the randomness and remember, in investing, business, or life, it’s those unique, rare moments where we make it big. Tails drive everything. And when you know that, you stop stressing about the small stuff.
