Changing and not changing

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Two weeks ago in this august newsletter we talked about a paradox of incentives, and once I got my head into the paradox vector, I just couldn't get it out. So we're going to delve into one more paradox today. This one is about change.

Jeff Bezos released the annual letter for Amazon last week, and notched another victory in the annals of corporate writing. It's here on the SEC website. And while it's named "Exhibit 99.1," the title does not do it justice. (As a sidenote, this letter is short and to the point - I suspect his wife MacKenzie Bezos, a professional writer, helps with it. But that's just a hunch.)

Bezos makes two arguments, both about change. Consumers love change, and that drives Amazon's business. And people are capable of change: high standards are teachable and achievable.

The tech industry is rooted in change: with annual conferences titled with words like "Disrupt!" and social media updating so fast the endorphins never quite wear off, change is the industry's best friend forever (bff). Facing his own mortality, Steve Jobs implored Stanford graduates to recognize death as the ultimate change-agent, allowing old ideas to fade away while young perspectives take root.

And yet, there is much value in stability. Take, for example, marriage. "We've got to disrupt this" or "let's blow this thing up and analyze the building blocks" may sound good in a boardroom, but they won't earn me the shiny red husband apple. Abraham Lincoln understood that change could only come so fast - his whole career was a series of calculated progressions. Hence the Emancipation Proclamation in 1863 instead of 1860.

Shunning stability, investors tend to display recency bias - they overweight the importance of that which is recent. At One Day In July, we put much effort into not changing, or at least not changing too quickly. And that's the paradox. We need the momentum of a loaded oil tanker to ignore short-term news distraction, and yet we cannot shut ourselves off to new ideas. While most will fade like a fourth of July sparkler, every now and then one starts a forest fire.

Don't conflate "change" with "new." Charlie Munger, the vice-chairman of Berkshire Hathaway, stresses that there are many billion dollar ideas in history books. And Manoj Bhargava, the genius-level founder of 5 Hour Energy, spends much of his time combing through old ideas, trying to unearth concepts that worked well years ago and have potential for re-introduction.

There's no clean answer to this paradox. And that's probably for the best.

Dan Cunningham

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