Analysis of New Zealand Super's performance revealed a mediocre "batting average" (hit rate of successful investments) but an amazing "slugging average." They succeeded by allocating disproportionately large amounts of risk to their highest-conviction ideas. The magnitude of wins, not their frequency, drives long-term outperformance.
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Howard Marks highlights a pension fund that, by never ranking above the 27th or below the 47th percentile annually, achieved 4th percentile performance over 14 years. This mathematical paradox demonstrates that avoiding major losses is more powerful for long-term compounding than chasing huge, inconsistent wins.
The highly successful NZ Superfund derives its value from a few large, high-conviction strategic bets where it has a unique edge, rejecting the conventional wisdom of broad global diversification for large asset owners.
Superior long-term returns come from consistency, not chasing top rankings each year. A pension fund that never ranked above the 27th percentile in any single year ended up in the top 4% overall after 14 years. The key is to avoid big losses and let steady compounding win over time.
Top growth investors deliberately allocate more of their diligence effort to understanding and underwriting massive upside scenarios (10x+ returns) rather than concentrating on mitigating potential downside. The power-law nature of venture returns makes this a rational focus for generating exceptional performance.
Top tennis players like Rafael Nadal win only ~55% of total points but triumph by winning the *important* ones. This analogy illustrates that successful investing isn't about being right every time. It's about consistently tilting small odds in your favor across many bets, like a casino, to ensure long-term success.
The asymmetrical nature of stock returns, driven by power laws, means a handful of massive winners can more than compensate for numerous losers, even if half your investments fail. This is due to convex compounding, where upside is unlimited but downside is capped at 100%.
A study in the book "Art of Execution" found the world's best investors have a win rate equivalent to a coin flip on their top 10 ideas. This proves superior returns come from how positions are managed after the initial buy decision, not from superior stock picking alone.
Successful investing isn't about being right all the time; it's about making your wins exponentially larger than your losses. Top investors like Paul Tudor Jones only enter trades where the potential reward is at least five times the risk, allowing them to be wrong often and still profit.
VC outcomes aren't a bell curve; a tiny fraction of investments deliver exponential returns covering all losses. This 'power law' dynamic means VCs must hunt for massive outliers, not just 'good' companies. Thiel only invests in startups with the potential to return his whole fund.
The secret to top-tier long-term results is not achieving the highest returns in any single year. Instead, it's about achieving average returns that can be sustained for an exceptionally long time. This "strategic mediocrity" allows compounding to work its magic, outperforming more volatile strategies over decades.