Welcome to the twenty-seventh Pari Passu newsletter,

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Today, we will learn more about:

1. When To Quit - Book Summary

2. Morgan Stanley Default Outlook

When to Quit - Book Summary

Today, we will be highlighting the most salient examples, potent concepts, and actionable steps that you can take from Annie Duke’s novel “Quit: The Power of Knowing When to Walk Away.” Duke, nicknamed “The Duchess of Poker” and a prominent decision scientist, offers her perspective on how to decide when to give up, a stimulating topic in a world where endless persistence and resilience are praised in all dimensions of our lives. We listened to Quit on Audible and encourage all of our listeners to do the same for free here*.

Salient Examples

• Mohammad Ali

  • Named the greatest boxer of all time with impressive victories in the 1960s and 1970s

  • Continued to fight from 1975-1981 despite obvious signs of degrading health

  • Incurred many losses to novice boxers and diagnosed with Parkinson’s disease in 1984, which is attributed to the brutal beatings he suffered towards the end of his career

  • “The same grit that helped Ali become such a great champion—admired and revered almost without equal—became his undoing when it drove him to ignore signs that were obvious to anyone on the outside looking in that he should quit.”

• Turnaround times on Mount Everest

  • The turnaround time is a strictly observed time in in which clients need to stop ascending the mountain and need to return to base camp, regardless of whether they reached their intended destination

  • The descent requires more skill than ascending the mountain, with 8x more people dying on the way down than on the way up

  • Three crucial concepts of a climbing plan:

    • 1. Patience is not always a virtue

    • 2. Making a plan for when to quit should be done long before you are facing the quitting decision

    • 3. The turnaround time is a vivid reminder of the most important goal, which is not to summit Mt. Everest but to return home safely

  • The expedition leader and four clients, who did not observe the turnaround time, eventually made it to the summit but died during the descent

  • “Grit is what gets you up the mountain, but quit is what tells you when to come down. In fact, it is the option to turn around that allows you to make the decision to climb the mountain in the first place.”

• Slack

  • Stewart Butterfield first created a game called Game Neverending but was not able to secure sufficient capital for it during the dot-com bubble burst

  • He salvaged one part of the game and made Flickr, which he sold to YouTube for $25mm

  • He then founded a new game called Glitch and poured incredible capital into user acquisition

    • Glitch enjoyed a high growth rate and had enough money, but one day, he decided to end the game and return $6mm of remaining capital to investors

    • He determined that Glitch had insufficient probability of metamorphosing into a unicorn to make it worth preserving

  • Now, he was refine another internal project, known as Searchable Log of All Conversation and Knowledge, which became Slack

    • Slack went public in June 2019 with a market capitalization of $19.5bn and was acquired by Salesforce in December 2020 for $27.7bn

• California High Speed Rail System

  • In 2008, the State of California issued $9bn in bonds to fund the construction of a high-speed rail system that would connect San Francisco and Los Angeles

  • When completed in 2020, it was estimated that the project would have cost $33bn and would generate annual revenue of $1.3bn, according to the CA High-Speed Rail Authority

  • These estimates were later revised to 2029 for initial service and 2033 for completion

  • It was not until 2020 that the CA High-Speed Rail Authority rightfully acknowledged the impossibility of blasting through/building track over two dense mountain ranges

    • Instead of ceasing construction, they started building another part of the track that was already well connected with roadways (“in a move that defies common sense, the plan is to keep building without addressing the issues that will eventually be responsible for at least 80% of the cost of the bullet train”)

• People often think that the only way to recover or justify already paid costs is if they continue on

• Alphabet’s X System of Quitting

  • X is an innovation hub owned by Alphabet that is dedicated to making an impact on the world’s most intractable problems in a 5-10 year time horizon

  • X uses the mental model of monkeys on pedestals to decide whether or not to proceed with an initiative

    • Your goal is to train a monkey to juggle flaming torches while standing on a pedestal in a public park

    • There are two parts to this goal: training the monkey (the bottleneck) and building the pedestal (the bait)

    • There is no point in building the pedestal if you cannot train the monkey, in fact, pedestal building merely creates the illusion of progress (people have known how to build pedestals for thousands of years)

  • Project Foghorn intended to convert seawater into fuel

    • Engineers successfully developed the technology and partnerships to extract seawater and process it at sufficient capacity

    • However, the cost per gallon of the resulting product was uncompetitive ($8/gallon), and the project was shut down

  • It is a win if you are able to cut your losses earlier than you otherwise would have

    • This frees your attention and resources to more fruitful endeavors that generate a higher expected value, reducing opportunity costs and pushing you towards where you actually want to go

Potent Concepts

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