The Zero Sum Nature Of Advice

So much advice is contradictory. What worked for one person may not work for another. And the soundness of any advice is entirely dependent on the context within which it’s used.

One person’s success may have been a result of their relentless work ethic, another’s may have been a result of their cunning mind for strategy and outthinking the competition. These two people may argue with one another until they run out of breath on which strategy is more effective but the fact of the matter is that their strategies were both optimal for their individual contexts while likely not optimal for other situations.

Warren Buffett is widely regarded as the best investor of all time. Under his leadership, Berkshire Hathaway grew from a faltering textile mill to the ninth-largest company in the world as I type here today on 12/29/2023. 

The interesting thing about Berkshire’s growth is that Buffett chalks it up to only a few of his many investment decisions. In his most recent letter to shareholders, Buffett said, “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

Two of the greatest “flowers” Buffett chose to invest in were Capital Cities/ABC and Apple. And while the investments were both extraordinarily successful, the irony is that the respective founder/management philosophies could not have been more different.

Tom Murphy’s tenure as CEO of Capital Cities was defined by two key events: the company’s acquisition of ABC in 1985, a transaction that was described as “the minnow swallowing the whale” and the ultimate sale of Capital Cities/ABC to Disney for $19B in 1995. 

If you had invested a single dollar in Capital Cities at the start of Murphy’s tenure and held that stake until the ultimate sale of the company to Disney, your single dollar stake would be worth $204, a staggering 19.9% internal rate of return over 29 years compared to a 10.1% return from the S&P 500.

Few saw this coming. Capital Cities was a smaller company compared to many of its peers. In 1966, the market cap of CBS was 16x larger than that of Capital Cities. While Capital Cities had five TV stations and four radio stations in mid-sized markets like Fort Worth and Raleigh, CBS had a splatter of stations in the country’s largest markets like New York and Los Angeles along with blue chip media companies like Simon & Schuster and Columbia Records.

Even when Capital Cities acquired ABC in 1985, ABC had sales of $3.7B compared to CC’s $949.7M and earnings of $195M compared to CC’s $135.2M. So how did Murphy do so well in an industry where he was so far outgunned? He focused on growing the value of his company on a per-share basis instead of focusing on pure growth like other media executives.

Murphy differed from his executive peers in that he built Capital Cities from a single station up whereas other media executives climbed the corporate ladder that naturally rewarded skills like marketing, production, engineering, administration, or institutional politics. Sound capital allocation was a core tenet of the Murphy management style and as such CC couldn’t afford to be frivolous with their spending as some of their more prestigious competitors were. 

To keep his war chest full in case an acquisition opportunity arose, Murphy watched internal costs like a hawk, and always kept on the lookout for opportunities to grow sales; both virtues he instilled in junior station managers.

Murphy’s focus on cost savings was the stuff of legend in the Capital Cities employee ranks. Reportedly, one of Murphy’s first tasks as a young executive was to paint a radio station in Albany, NY. The goal of this task was to project a more professional image to advertisers who visited the broadcast studio. Ever wary of costs, Murphy chose only to paint the front and one side of the studio building. By his logic, these were the only sides visible to the road so why spend money on the other two sides?

This economical philosophy allowed Murphy to build up cash reserves that he then deployed on asset purchases in other cities. While Dan Burke, the COO of Capital Cities, was focused on the day-to-day operations and management of the stations, Tom Murphy was solely focused on identifying and negotiating deals for assets that would prove accretive in value for Capital Cities’ shareholders.

By relentlessly focusing on keeping costs low, giving autonomy to station managers, and pursuing sound deals, Murphy rewarded shareholders many times over. Murphy’s style had a foundation in logic, reason, and thrift which earned him the high praise of Warren Buffett who named him the greatest manager ever.

The story of Apple is different. Steve Jobs is arguably the greatest entrepreneur ever. He founded Apple, the most valuable company in the history of the world known for its flagship products, the iPhone, iPad, and Mac all of which Jobs played a major role in designing.

While the generation of business executives preceding Jobs was full of Ivy League educated, Korean War and World War 2 veterans, who had strict moral standards and believed deviation from convention to be a recipe for failure, Jobs was a child of the counterculture movement.

Jobs traveled the world, dropped out of college, experimented with bizarre diets, and was anything but ordinary. His approach to business was largely rooted in art that expressed itself in his excellent taste for design in all Apple products, a philosophy still ingrained in the Apple culture today.

The focus of Steve’s legendary mind was on building brilliant products that consumers could make their own. He long espoused the belief that Apple was a company hellbent on bringing together great technology with the liberal arts. He considered Apple products a bicycle for the human mind - an intellectual multiplier.

While designing the first generation of Macintosh computers, Jobs was often as much a stickler about the exterior aesthetics of the computer as he was about the interior aesthetics of things like the circuit board. This attention to detail and complete devotion to the design of a product, even the parts the customer would never see, were often a source of both frustration and respect from employees. Jobs said of the Macintosh “I want it to be as beautiful as possible, even if it’s inside the box. A great carpenter isn’t going to use lousy wood for the back of a cabinet, even though nobody is going to see it.”

Jobs' relentless focus on design allowed him to build incredible products that inspired a cult-like following of Apple loyalists. The cult went mainstream after the launch of the iPhone and as is often said, the rest was history.

Jobs and Murphy were very dissimilar. Murphy was a stickler for costs and efficiency with a talent for capital allocation. Jobs was a designer with fantastic taste who could inspire teams to develop amazing products. Murphy went as far as to paint only the two visible sides of a building if it meant saving some cash. Jobs was relentlessly devoted to his products, going as far as designing the Mac circuit boards that end users would never see, in an aesthetically pleasing way. Murphy cared about saving a buck at the expense of appearance. Jobs believed no expense was worth avoiding in pursuit of the perfect aesthetic. Though near opposites in philosophy, interests, and management style the two both led their respective companies to huge success, enriching their shareholders (like Berkshire Hathaway) in the process.

When discussing his excellent How I Write podcast, David Perell said “The major lesson of doing this podcast so far is that everything works, you just have to be really, really, really, really, really good at whatever it is you do.” This seems obvious but is often ignored by those who seek advice before action.

Morgan Housel writes meticulously line by line. By the time he gets to the end of an article, it is pretty much ready to be published. Steven Pressfield dumps everything he can onto the page at once, only going back to review once his mind is exhausted of pent-up ideas.

Tim Ferriss believes in writing from personal experience to develop credibility. Morgan Housel believes in outsourcing credibility through the frequent use of expert quotes.

Leonard da Vinci approached his inventions from an artistic and free-flowing perspective. Thomas Edison approached his inventions from a systematic and methodical perspective.

Mark Twain said, “read widely, for in books, you’ll find the keys to understanding the world and yourself”. David Perell encourages reading a small selection of books repeatedly.

Tom Brady believes in eating a strictly regimented diet of clean foods. Tyreek Hill and Chad OchoCinco eat McDonald’s before games despite playing more physically demanding positions than Brady.

Bryson Dechambeau believes in a technical breakdown of his golf swing, guided by physics. Bobby Jones believed that each golfer needed to find their natural swing, guided by intuition.

Dan Mullen believes offensive scheme and strategy are the most important attributes of a college football offense. Kirby Smart believes that recruiting the best players trumps scheme and strategy any day of the week.

Marshawn Lynch believed in running the ball with power, actively seeking out contact. Barry Sanders based his game on agility, avoiding opposing players with speed and finesse.

All of the people mentioned above found massive amounts of success in their fields. However, the way they found success wasn’t the same and often contradicted the methods of their similarly successful peers. 

None of this is to say that advice isn’t helpful because it is. But it is to say that you need to be wary of the context of your situation. Get some experience in the field you want to pursue before you seek advice. Then when you do seek advice, see if it jives with your experience so far. If so, it is probably sound advice for your unique circumstances.

Taking all the advice you can find is a zero-sum game, all of it will cancel each other out. But to be selective in what advice you implement is a positive sum game where you can reap huge benefits.