Selva Book Club: What It Takes by Stephen Schwarzman
The below is taken from Selva Ventures’ Q1 2023 Quarterly Investor Letter
This section of our letters will take passages from a relevant investment or business book and share learnings and reflections directly related to Selva Ventures.
The 8th installment gives a nod to the entrepreneurial side of fund management. What It Takes is the memoir of Stephen Schwarzman, founder and CEO of Blackstone, the largest alternative asset manager in the world, and a pioneer of modern day private equity.
Passage: Once you succeed, people see only the success. If you fail, they see only the failure. Rarely do they see the turning points that could have taken you in a completely different direction. But it’s at these inflection points that the most important lessons in business and life are learned.
It’s hard for me to imagine a time when Blackstone, who now manages nearly $1 trillion in assets, was nothing more than an idea (and an uncertain one at that). We grow so used to thinking of characters in business as “successes” or “failures” and forget how thin the margins between these two labels can be. I often look back on a few distinct and pivotal moments of chance which opened the doors to eventually become the firm we have today, but it hits different to hear that kind of reflection from one of the greatest of all time.
Passage: What I lacked in basic economics, I made up for with my ability to see patterns and develop new solutions and paradigms, and with the sheer will to turn my ideas into reality. Finance proved to be the means for me to learn about the world, form relationships, tackle significant challenges, and channel my ambition. It also allowed me to refine my ability to simplify complex problems by focusing on only the two or three issues that will determine the outcome.
This passage reminds me of how many people swear off finance as a career because they think it’s simply a “quantitative” field. I’ve written in the past about how turned off I initially was by “finance culture” in college but later discovered the field as a fascinating world of problem solving, pattern recognition and relationship building. Schwarzman is a great example of how a start in finance opened the door to a career of entrepreneurship.
Passage: Shortly before I graduated, I was asked in a job interview what I wanted to be. I didn’t have a conventional answer. “I want to be a telephone switchboard,” I told my interviewer, “taking in information from countless feeds, sorting it, and sending it back out into the world.”
This is my favorite passage in the book, because it nails the essence of what a great private investor should be. You are as good as your access to information and your ability to create solutions with that information. If you have the credibility and reputation to be the first phone call when the smartest people in a community need help with an important problem, then outsized returns will follow. Put differently, our job is to solve the most important problems for the highest potential leaders, and funds are just our model of monetizing that work.
Passage: While most investors say they are interested in making money, they are actually interested in psychological comfort. They would rather be part of the herd, even when the herd is losing money, than make the hard decisions that yield the greatest rewards.
A motto that I commonly remind myself of while doing my job is “if you’re afraid of being alone and wrong then you’ll never be alone and right”. That mindset helps me avoid the psychological trap of going risk-off in a risk-on business. It’s interesting to hear Schwarzman describe this dynamic in such a large firm whose stated goal is to never lose money on a single investment. To him, rejecting psychological comfort is less about finding needles in haystacks and more about controlling the emotional response to economic cycles. Either way, he has shown real intention in building a process that seeks truth rather than encourages members to sound smart to their peers.
Please drop a comment on what you think of the format and what suggestions you have for future books. Next quarter’s book will be The Energy Bus by Jon Gordon.
