Asset allocation as a mental model
Life and business through the lens of portfolio construction.
Something I’ve been thinking about a lot recently is asset allocation as a mental model, painlessly applicable to life and business. I’ve been considering it as a different lense for building the forward movement of my world. Generally, when you think of asset allocation, you may imagine something akin to portfolio construction (and in a way, that’s what I’ll be doing here), something in the vein of that old school (and irrelevant) adage about allocating 60% of your investment portfolio to equities and 40% to bonds. This framework of asset allocation is old news in the universe of growth engineering, and even older in contemporary investment portfolio management.
I was first introduced to the model of asset allocation as a cross disciplinary mental model in the article, Managing Your Growth Team’s Portfolio by John Egan, who at the time of writing was (and perhaps still is) the Head of Growth Engineering at Pinterest (he’s got street cred). The framework John introduces is a tri-sliced “portfolio,” synthesizing the Iterative, Investments, and Big Bets. He goes on to explain that the stage your business is in determines how much you should allocate to each of these three buckets. I’ve thought deeply and read much about time and resource allocation in life and business, but his introduction of a pie chart (because “mmmmhhh, pieee”) gave me a visual representation triggering some pattern-recognizing part of my brain, helping the mental model settle as a valuable framework for thinking about how to improve as a human, father, husband, manager and leader.
I think I can safely prescribe this framework as a powerful approach to personal, business and thought development. I’ll endeavor to describe each asset class and leave you to determine the actual allocations in the portfolio of your life and business. The following is a description of how I personally have been thinking about these three asset classes in my life and business. When I think of investing in each one, it becomes a function of where I’m putting my time, money, and energy (both physical and emotional, and for those of you operating on a higher plane than I am… spiritual). I’ve been actively optimizing, experimenting, and making big bets for quite some time - all my life really, although it has been only in recent years that design and intentionality have been at the forefront of my escapades. I find, as always, that the exercise of writing and thinking about these things deliberately helps my thoughts and behavior better align with the image I have of my future self, my values, and my ambitions.
The Iterative
This is the world of management and small optimizations. It’s the cultivation of good habits and the paring down of bad ones. I believe James Clear (although this may be a misattribution) made the point that there are no good or bad habits, just habits that do or do not align with your perception of your ideal future self. The Iterative is the compound interest of life and business in which you make small daily nudges in the direction of your desired medium or long term outcome, with nonlinear returns (think of a compound interest visualization… all the good stuff that comes after you’d been depositing and reinvesting in small increments for a long time). These are the minor improvements and tests that cumulatively, and over a long enough period of time, leave glacially manipulated valleys of awesomeness in their wake. A key to the classification of the Iterative in my opinion is that these iterations (in this particular capacity) do not materially affect your day-to-day life. They are low friction and can easily ebb in and out of your days.
Examples of the Iterative in business:
Marketing
Create and launch new ads
A/B test a new CTA
Test some new search terms
Sales
Make 10 extra outbound calls you wouldn’t normally make
Email clients you haven’t engaged with in the last 6 months
Spend time getting to know your CRM’s functionalities better
Management
Create a 30 minute block on your schedule for deep thinking
Have an extra one-on-one with someone you don’t regularly interact with
Don’t speak in a meeting, except to ask questions
Examples of the Iterative in personal life:
Write for 5 more minutes today
Read to your child before bedtime
Leg day
Do a gratitude exercise before getting out of bed
In both business and personal capacities, an easy iteration or optimization for me is almost always to (1) do the one thing I’ve been procrastinating on the longest or (2) do something that makes me uncomfortable or vulnerable. Writing something like this and sharing it generally accomplishes both for me 11 times out of 10. The iterative component of my asset allocation strategy takes the largest allotment of investment (time + energy) because it’s what happens all day, every day in my life. It’s all the little things, in aggregate, that make up the majority of our days.
Some of these iterations may seem like they should be classified in Experiments, and perhaps you’re right (or wrong). This is just my perspective and I encourage you to make it your own. To me, a small , low friction experiment with a high likelihood of positive outcome (in either knowledge or outputs) is an iteration. Iteration is all about habits. As a side note, there happens to be some excellent literature on the subject. I suggest James Clear’s Atomic Habits as a perfect place to explore habit formation and cultivation. If you’ve already read that book, try his blog too.
Experiments
“It’s alive!” Chill out. Actually, in the book when Victor Frankstein sees that “it’s alive,” he doesn’t say shit. He runs and hides. OK, back to the story at hand. The next asset class is Experiments, not be confused with sticking your finger in an outlet or pouring salt on an innocent slug (rude). Let’s consider experiments as activities that can be performed in a somewhat controlled environment and measured. We aren’t trying to develop a vaccine on this one. We are however ensuring that if we indulge ourselves with some interesting experiments, the outcomes will be decipherable and actionable (ie. measurable). Things get more interesting as frictions increase and potential positive outcomes start to become more asymmetric as related to inputs. I look at experiments as somewhat significant changes to larger chunks of days and weeks, generally over a period of time, that are medium/medium-high friction and have a good likelihood of a positive outcome with some, albeit limited risk.
Examples of Experiments in business:
Launching a new ad channel (and committing enough capital to accumulate actionable, non-anecdotal data)
A cultural experiment creating recurring, organized personal team check-ins (or any activity that is probably healthy for the team but requires a heavy buy-in)
A new software for scoring, task management, visualizations, or something else that transcends company units
A new key hire (you may not want to call it an experiment, but within this asset allocation framework, that’s what it is)
Examples of Experiments in personal life:
No [insert vice] for a week
Going vegan for a month
Writing for 10 minutes a day for 1 month
Reading 30 minutes per day before bed for 1 month
I notice that for myself, personal experiments remain in the habit arena, and I think it’s because our unconscious, robotic habits play a far more substantial role in our lives than we (or I) acknowledge. When we do things subconsciously (and most of our activities are subconsciously pre-written), we don’t think about them as we’re doing (or not doing) them; and we are certainly less likely to contemplate them later. This also applies perhaps moreso to cognitive biases.
Big Bets
High friction, very low probability of the “best” positive outcome (but a reasonable probability of at least some small positive outcome), ginormous potential rewards: we’ll call these gray swans because we’re betting on something we know we don't know (vs the black swan paradigm introduced by the truly brilliant and equally condescending nassim nicholas taleb).
Big Bets form the smallest sliver of the portfolio pie (“mmmmhhh, more pieee”), and maybe it’s something you can only commit to once in a year. It depends on where you are in life and business (as to available time, money, and emotional fortitude). Oddly enough, enough small iterations and optimizations moving in the right direction often form the foundation of the Big Bet. These bets require measured contemplation, decision trees and feedback from peers, colleagues, family and friends. They are the highest friction and highest cost in terms of time, economics, and emotional commitment. As explored above though, they have the potential to provide for the most substantially outsized benefits, possibly more than those of all other experiments and iterations combined, but it comes at a cost.
The litmus test: it is easy to measure a Big Bet by its costs, but a better measure is to invert it and look at the gains first. Is this possible tectonic plate shifting meaningful? Can the process be a positive learning experience if we don’t hit the mega millions jackpot (a lottery ticket is a good example of a poor Big Bet)? If not, then it probably isn’t worthwhile as the rewards have to outstrip the risks by orders of magnitude, while still providing some likelihood of benefits, for a big bet to make sense. If you can’t find good Big Bets, you’re looking in the wrong places or asking the wrong questions. There are always good Big Bets to make, and we can usually identify them as things we avoid like the plague.
Examples of Big Bets in business:
Pivot the company’s business model
Invest in a large scale video campaign
Re-brand
Make a substantial (expensive) hire
Examples of Big Bets in personal life:
Write a book
Go back to school
Have another kid (whoa)
When I reflect back on this exercise and ask myself who I want to be as a person, husband, father, brother, son, CEO, and manager… It makes choosing the right kinds of investments much easier. All of these things from the Iterative, to Experiments and to Big Bets are investments in my future self, life, business, family, employees, investors, and peers. I’ll keep iterating, experimenting and betting until I get it right.
Did you enjoy this read? Weird, you probably did. Maybe there are some other folks out there as bored as you are. Click the button below and share me with your universe. It took me an hour to write and edit this. Don’t be selfish.