ExpertsFMComplexity Investing & Semiconductors (with NZS Capital)
Acquired · November 3, 2021
5 Selected Lessons:
heuristic · 3 reasoning_pattern · 1 framework · 1
Leaving value on the table buys 'duration' which compounds non-linearly
Source
Acquired — Complexity Investing & Semiconductors (with NZS Capital) (November 3, 2021) · at 1:29:48 ▸
When this applies
when deciding whether to capture maximum near-term value from a relationship/ecosystem or to deliberately leave value on the table to sustain the relationship longer
The takeaway
Frame strategic trade-offs explicitly as 'buying duration' rather than 'giving up margin,' since duration is usually the higher-leverage lever in a compounding system.
Why it works
Leaving value on the table builds goodwill/trust that extends the duration over which a company can keep compounding growth; because compounding is highly non-linear in duration, buying extra years of growth is often worth far more than capturing extra margin today — but human brains are poorly calibrated to this non-linearity.
One level up
Because people systematically underweight non-linear, long-duration effects, deliberately building frameworks (like NZS's) to force attention onto duration is a source of analytical edge over others who default to linear thinking.
Where it stops holding
This stops working when there is no real compounding growth opportunity to extend (e.g., a mature/declining business), making near-term value capture the only real lever left.
Detail
procedure:
- Identify where a company/investor could extract more value near-term vs. preserve goodwill for longer relationships
- Reframe the trade-off explicitly as 'how much duration am I buying' rather than 'how much margin am I giving up'
- Recognize duration compounds non-linearly (most of the value shows up far in the future, as in the 15%-growth-for-15-years math), so protecting duration is usually the higher-leverage choice
rationale: Honam's Roblox thesis kept 'seeing the value accrue' beyond the original investment case because the ecosystem kept compounding — understanding this duration dynamic let them keep adding capital with conviction others lacked.
In their words
When you leave money on the table, what you're doing is you're creating goodwill for your customers and you're buying the company duration, which is oftentimes the way to maximize total value
Complex adaptive systems make prediction useless; optimize for adaptability instead
Source
Acquired — Complexity Investing & Semiconductors (with NZS Capital) (November 3, 2021) · at 4:10 ▸ · at 7:42 ▸
When this applies
when operating in any system with many interacting agents whose aggregate behavior is emergent and not forecastable from the parts
The takeaway
When a system is complex and adaptive, shift from trying to predict outcomes to building guidelines/heuristics and maximizing your own adaptability to a range of futures.
Why it works
Interacting agents in a complex system produce emergent behavior that cannot be deduced from individual components, so point predictions about the future are structurally unreliable even with more data or better models.
One level up
Match your epistemic posture (predict vs. adapt) to the actual nature of the system you're operating in, not to the posture your industry conventionally assumes.
Where it stops holding
This stops working when the system in question is genuinely simple or linear enough that precise forecasting models (like physics-style precision) actually hold.
Detail
approach: Reject point-prediction investing; instead build a portfolio around resilience (durable compounders) and optionality (asymmetric long-shot bets), using heuristics rather than precise forecasts.
signals:
- math/models that 'don't work' when tested against reality
- repeated 'three-sigma events' happening far more often than statistics predict
- emergent, interacting subsystems (markets, biology, ecosystems)
rationale: Physicists found economists' precise models failed in practice; complexity theory explains why, reframing the goal from prediction to adaptability.
In their words
Complex adaptive systems are all around us, right? That's what governs the world. That's how the world works. We don't know how the future is going to unfold because these systems are interacting together and it creates what's called emergent behavior. And emergent behavior makes predicting useless in most cases.
Durable mid-teens growth compounds far more than it appears
Source
Acquired — Complexity Investing & Semiconductors (with NZS Capital) (November 3, 2021) · at 11:21 ▸ · at 17:39 ▸ · at 1:34:25 ▸
When this applies
when deciding whether to chase a fast-but-fragile growth rate versus a slower but sustainable one over a long horizon
The takeaway
When evaluating growth, weight duration of sustainable growth at least as heavily as the growth rate itself.
Why it works
Compounding is strongly convex in the number of years sustained, so extending the growth period matters more than modestly raising the growth rate, especially because most absolute value accrues in the late years.
One level up
In any compounding process, protecting the number of periods you can keep compounding is often higher-leverage than optimizing the per-period rate.
Where it stops holding
This stops working when the compounding asset has a hard ceiling or short natural life, where duration can't realistically be extended regardless of strategy.
Detail
rule: Prefer companies that can sustain moderate growth for decades over companies maximizing short-term growth rate
threshold: 15% growth over 10 years ≈ 300%+ return; 15% growth over 15 years nearly doubles that 10-year return; TSMC sustained ~17.7% annual growth for 30 years
rationale: Almost all the absolute dollar value of compounding shows up in the 'out years', so duration dominates the math
In their words
15% growth over 10 years would deliver more than a 300% return. Not bad. But 15% growth over 15 years would almost double the 10-year return.
Avoid moats built on maximal value extraction
Source
Acquired — Complexity Investing & Semiconductors (with NZS Capital) (November 3, 2021) · at 14:48 ▸ · at 17:39 ▸ · at 1:29:48 ▸
When this applies
when a business has pricing power and must decide how much of the surplus to extract from customers/partners versus leave on the table
The takeaway
A moat used to extract maximum value is less resilient than one used to create shared value, because the former invites competitive and regulatory responses that shrink the compounding horizon.
Why it works
Extracting maximum economics from customers/partners invites undercutting, regulatory/legal backlash, and erosion of goodwill, all of which shorten the duration over which the advantage can be monetized — and nearly all compounding value lives in the far-out years.
One level up
The value-maximizing strategy over a long horizon is often not the profit-maximizing strategy in any given year.
Where it stops holding
This stops working when there genuinely is no viable undercutting competitor or regulatory recourse, so extraction carries no real counter-risk (rare, and the speakers acknowledge Apple 'might work out perfectly').
Detail
rule: Look for companies creating more value than they capture across the whole value chain (employees, customers, suppliers, society); avoid companies whose 'moat' is inserting themselves to extract maximum economics from customers
threshold: e.g., cutting Apple's App Store take rate from 30% to 15% would cost ~5% of gross profits but 'create so much value' — a trade the speakers argue a long-term-thinking management should take
rationale: TSMC runs ~50% gross margins (lower than many customers) by design, to fund customer success and lock in decades of platform growth, rather than taking margins to 60% today
In their words
We're looking for non-zero sumness. So looking for a win-win outcome for all constituencies across kind of the value chain that includes a company's employees and their customers and also kind of society and the environment at large.
Never let an optionality bet grow into a mid-sized, non-resilient position
Source
Acquired — Complexity Investing & Semiconductors (with NZS Capital) (November 3, 2021) · at 38:40 ▸ · at 41:48 ▸
When this applies
when a small speculative bet in any portfolio (financial, product, personnel) grows large on momentum alone, without the underlying case for durability actually strengthening
The takeaway
Explicitly cap the size of unproven/high-volatility bets regardless of recent performance, and only resize them once durability is structurally proven (not just priced in by the market).
Why it works
A stock capable of a 50-70% drawdown, if allowed to grow into a large position, both crushes overall performance when it falls and leaves the holder 'hamstrung' — too big to comfortably add to, too risky to hold passively.
One level up
Size of a commitment should track the strength of the evidence for its durability, not its recent trajectory.
Where it stops holding
This stops working when the position's volatility is genuinely not correlated with capital preservation needs (e.g., the capital is permanent/patient and drawdowns don't force liquidation).
Detail
rule: Trim optionality positions that run up on momentum rather than letting them become large, undiversified bets, unless durability structurally changes
threshold: if a stock can have a 50-70% drawdown and started as a 5% position, it both crushes performance and leaves you hamstrung on adding more
rationale: Learned through experience that unmanaged winners in the speculative bucket create asymmetric downside risk without the corresponding resilience
In their words
If you have a stock that can have a 50 to 70% drawdown, you know, and it's the starting point is a 5% position. Not only does it crush your performance, but then you're also probably hamstrung where you've got a stock that's still a relatively big position and you don't really want to add to it.