Contrary to popular belief, many large financial transactions are based on verbal agreements. In a world where reputation is everything, your word is your bond because, as Lloyd Blankfein says, if you break it, "you'll never eat lunch in this town again."

Merchant bankers operate on the belief that "lawyers like to complicate matters; we like to simplify them." Echoing Charlie Munger's advice to "not let lawyers kill deals," they prioritize trust and verbal agreements. This allows them to execute transactions with a speed and simplicity that would be impossible under a more legalistic, risk-averse framework.

Being a good person in business isn't just a moral choice; it's a long-term strategy. Over decades, a positive reputation compounds into a significant competitive advantage, generating trust and opening doors to major business opportunities at scale.

In elite merchant banks, critical lending decisions are made based on informal conversations about hobbies like farming or horses, not business plans. This practice of 'indirect vetting' allows them to carefully scrutinize a person's character and integrity—the true collateral—before extending massive, often unsecured, loans.

View trust not as a soft virtue but as a tangible financial asset of immense value. Mission-driven organizations stockpile this asset, which powers their economic advantages. This value, however, also makes it a prime target for extraction by those with short-term, selfish interests.

Merchant banks consciously limit their size and reject rigid corporate structures to maintain flexibility. This is a core competitive strategy against larger, slower institutions. Decisions are made through quiet, direct conversations between principals, not through committees or formal channels, enabling them to move with unparalleled speed and agility.

Tim Ferriss's success as an angel investor was built on a reputation for discretion and trustworthiness. Founders entrusted him with confidential information, giving him access to top-tier deals. This shows that reputation is a tangible asset that can yield greater returns than direct monetization schemes.

A merchant bank's primary assets are intangible: the accumulated experience of its internal experts and its vast network of external contacts. This irreplaceable human capital provides the proprietary information and trust needed for rapid, high-stakes decisions. These crucial elements of their competitive advantage are completely absent from any financial statement.

In a relationship-driven business, veteran firms like Brown Brothers Harriman consider the borrower's character the most crucial of the "five C's of credit." This subjective measure is deemed more important than collateral or capital, especially during market volatility.