GRAHAM DUNCAN is the co-founder of East Rock Capital, an investment firm that manages $2 billion for a small number of families and their charitable foundations. Before starting East Rock 12 years ago, Graham worked at two other investment firms. He started his career by co-founding the independent Wall Street research firm Medley Global Advisors. Graham graduated from Yale with a BA in ethics, politics, and economics. He is a member of the Council on Foreign Relations and serves as co-chair of the Sohn Conference Foundation, which funds pediatric cancer research. Josh Waitzkin calls Graham “the tip of the spear in the realms of talent tracking and judgment of human potential in high-stakes mental arenas.”
What is an unusual habit or an absurd thing that you love?
I wear a SubPac M2 Wearable Physical Sound System while I commute on the subway to my office, and sometimes while I work at my desk. The system lets you feel the vibration of music through your body. Music producers, gamers, and deaf people are the primary users. I find the full-body experience of music makes listening to music or even a podcast more of an immersive somatic experience rather than just a conceptual head thing.
If you could have a gigantic billboard anywhere with anything on it, what would it say and why? Are there any quotes you think of often or live your life by?
I have two candidates:
First, “It’s not how well you play the game, it’s deciding what game you want to play.”—Kwame Appiah. This quote separates striving from strategy and reminds me to take a macro view of what I’m doing, like in a video game where you can zoom out and you suddenly see you’ve been running around in one corner of the maze. It loosens someone’s relationship to the game, too, helping to separate having ambition from being ambitious, or accessing hustle without becoming a hustler.
Second, the Buddhist novelist George Saunders said in an interview that he has an image of people’s “nectar in decaying containers.” That image haunts me. When I think of it on a given morning, it allows me to see the Buddha nature flowing through all these lovely, flawed, living, and slowly dying creatures we encounter every day. My three-year-old daughter’s three-year-old self is so temporary. Buddhists observe that we’re all on fire. It’s so beautiful to sometimes tune in and see the flickering.
What is the book (or books) you’ve given most as a gift, and why? Or what are one to three books that have greatly influenced your life?
Sam Barondes’ book Making Sense of People has had a big impact on my thinking, and I sometimes give a copy to people in the midst of hiring someone or even deciding whether to get engaged. As part of my role as an investor, I interview 400 to 500 people a year to decide whether to hire them or invest in their various startups or investment funds, and the most useful mental model I have found to help understand what makes people tick is the one Barondes describes in his book. The model is called the “Big Five” or OCEAN: open- minded, conscientious, extroverted, agreeable, neurotic. The academics who developed the model clumped every English adjective that could be used to describe someone into categories and reduced them to as small a set of factors as they could. The Big Five is considered the equivalent of gravity in the academic literature on personality. There have been thousands of studies using it, and it’s considered much more statistically accurate than alternatives such as Myers- Briggs. The killer combination is high open-minded, high conscientious, low neurotic.
There are two other mental models that greatly influence my thinking about people and teams. The first is Harvard professor Robert Kegan’s model of adult development. Kegan argues adults develop—and make sense of reality—in five discrete phases. He lays out his theory in the 1994 book In Over Our Heads. The title is a reference to how the vast majority of adult Americans are at the “socialized” stage of development. They have difficulty taking other people’s perspectives and tend to follow assumptions given to them by society (as opposed to assumptions they freely choose). For people interested in learning more about the model, I recommend Kegan’s graduate student Jennifer Garvey Berger’s more recent and less academic book Changing on the Job.
The third mental model I find myself recommending lately is found not in a book, but on a slightly obscure website: workwithsource.com. This work is based on a European management consultant who studied hundreds of startups and realized that even when there are multiple “co-founders,” there is always a single “source”: the person who took the first risk on a new initiative. That source maintains a unique relationship with the gestalt of the original idea and has an intuitive knowledge of what the right next step for the initiative is, whereas others who join later to help with the execution often lack that intuitive connection to the founder’s original insight. Many organizational tensions and power struggles often revolve around lack of explicit acknowledgment of who the source of the initiative is. A prominent angel investor observed to me recently that many founders seem to hire friends as co-founders more to quell their own anxiety during the early, highly ambiguous days of a new company than to fulfill a specific role. This can work fine as long as everyone is clear on who the source is. The responsibility to fully own the role of source rests in large part with the source themselves.
Handing off the source role of an initiative to another person is possible but extremely difficult, and is most often mishandled. One key to a successful transition is for the original source to actually move on and allow the new leader room to move. One investment manager told me about a study he did of stock performance following founder CEOs departing their businesses: any subsequent positive stock performance was correlated with the founder completely leaving the board rather than hanging around to mentor the next CEO. Gates remaining on the Microsoft board during Ballmer’s tenure may have contributed to the subsequent lackluster stock performance, whereas Ballmer’s recent departure from the board allows Satya Nadella to fully assert his own creative vision. I encounter this dynamic in my work managing the wealth of Forbes 500 families, where second and third generations sometimes struggle with how to relate to the original patriarch and “source” of their wealth. Often the responsibility to make the room for a real transition is in the hands of the source. It’s the lesson from the George Washington song in the Hamilton musical, as Washington declines Hamilton’s plea to run for a third term and sings, “We’re going to teach them how to say good-bye.”
What purchase of $100 or less has most positively impacted your life in the last six months (or in recent memory)?
I recently bought the FINIS swim paddles (under $20; hat tip Ben Greenfield blog). They magically lengthen out my freestyle stroke, and combined with Cressi fins ($29) it feels like I’m flying through water.
How has a failure, or apparent failure, set you up for later success? Do you have a “favorite failure” of yours?
In my role investing in and seeding investment firms, I conduct extensive reference checks on people in order to try to accelerate the process of building trust. In early 2008, I was about to back a firm and conducted a final reference check with the investment manager’s former boss, who was quite negative and skeptical of his former analyst. It was enough to make me pause on proceeding with the investment, which then proceeded to work out quite well as the financial crisis unfolded. I had a lot of regret about the size of the profits I missed. Later it emerged that the reference source may have had an agenda to sabotage his former protégé’s new firm.
Five years later, I was evaluating another investment manager to partner with, and toward the end of our diligence process I got a reference that was mixed. By this point I was better able to hold multiple perspectives simultaneously without experiencing cognitive dissonance, the state of “negative capability” that Keats referred to as useful to writers. This time, the mixed data points only made me do more work, and I gained even more conviction in the character and competence of the investment manager. This investment has been one of our most profitable, and absent my earlier failure, I suspect I would have not had the ability to see the reality of the situation. Today when I speak with anyone about anything, I try to hold their perspective with a “light grip”: the knowledge that they, and I, have very incomplete maps of reality.
What are bad recommendations you hear in your profession or area of expertise?
I think people overuse the term “hedge fund.” I think we should throw the term out, perhaps start using “H Structure” instead to capture the concept of incentive compensation. I don’t think it’s useful to see a “fund” or a “product.” These are just temporary collections of flawed, brilliant people, who in any given year decide to make a sequel to the movie they made the prior year. The only product is the set of future decisions the portfolio manager makes. If they get divorced or depressed, if their second in command leaves, the “product” completely changes. Calling it a product ignores the reality that the only source of stability is whether the mindset of the team leader is resilient or even antifragile (Nassim Taleb’s notion of actually getting stronger with volatility).
What is one of the best or most worthwhile investments you’ve ever made?
I invest a disproportionate amount of my income in paying for an ever-growing collection of trainers and coaches. There are two coaches who have had enormous impact on me in the last five years: Carolyn Coughlin at Cultivating Leadership and Jim Dethmer at Conscious Leadership. Carolyn is the most gifted listener I have ever encountered. She surfaces my hidden assumptions— the ones that hold me rather than me holding them—and teaches me to ask better and better questions. Jim Dethmer may be one of the few living bodhisattvas. Jim has helped me refine my communication skills and helped me develop more conscious relationships at work and with my family. I picture masterful coaches like Jim and Carolyn playing the same role as the wizards from Lord of the Rings—they exude supportive, loving energy that creates the conditions for life feeling like an adventure from a secure base, an endless unfolding of possibility.
In the last five years, what have you become better at saying no to?
I have my assistant Google pictures of people I’m considering meeting or calling in the next two weeks and put them in Trello cards. I see meeting new people as the opportunity to open a new door to a new world that could change my or their life in some way. Seeing someone’s picture allows me to visualize their intentionality and unleashes more creative ideas about what we can discuss and how I may be able to help them. It also lets me access whether I have a “full- body yes” to actually seeing them and opening this new door, and if I don’t then I take my hand off the door handle.
When you feel overwhelmed or unfocused, what do you do? What questions do you ask yourself?
I ask myself “what would be the worst thing” about that outcome not going the way I want? I had started using it out loud with my kids, and recently my eight- year-old daughter started asking it back to me. I really like to be punctual. We were late to drop her at school and I was impatient, so she asked me, “Dad, what exactly would be the worst thing about being late?” It completely shifted my mindset in the moment. I like the question because it often surfaces a hidden assumption.
In the last five years, what new belief, behavior, or habit has most improved your life?
I’ve begun swimming most mornings, and I find it often shifts my mindset for the rest of the day. Swimmers talk about the concept of “water feel,” which is getting a grip in the water and pulling your body past that point instead of ripping your hand through the water, which moves you forward but is much less efficient, much less graceful. As David Foster Wallace points out in his speech, “This Is Water,” much of life is water to us—we are swimming in it and can’t see it because we’re either in a hurry or not awake to our context. When I stop to really feel the water before I pull, it shifts my way of being from thrashing toward the other end of the pool to a more effortless flow of working with the reality of where I am.
What advice would you give to a smart, driven college student about to enter the “real world”?
I like to think about careers through Dan Siegel’s model of a river flowing between two banks, where one side is chaos and the other side is rigidity. Dan points out that all mental illnesses reside on one bank or the other: schizophrenia is chaos, OCD is rigidity, and healthy integration is swimming in the middle of the river. Most college students have started life closer to the rigidity bank and over the course of their careers will experiment with swimming toward the middle. I have come to think of the lane next to rigidity as an appropriately conventional one for your 20s that requires the skill of “refining reality,” a place to swim where it’s important to learn the jargon of an industry and apprentice under someone, to develop judgment and discover your zone of genius.
I think swimming in the middle lane happens most often in people’s 30s or 40s, a stage where you begin crafting your own language for what you do as an increasingly “strong poet”—you make your craft your own and view your life as more self-expression than simply playing out other people’s roles for you. And then some small percentage of people will paddle over to the lane next to chaos, the place where you find novelists Robert Pirsig and David Foster Wallace, investors like Mike Burry or Eddie Lampert, or entrepreneurs like Steve Jobs and Elon Musk. I experience them as consistently “asserting reality” through their powerful storytelling, while always bearing the risk that their egos grow too big and their creative narcissism becomes too well defended. They can lose their feedback loop with reality and flop onto the bank of chaos.
Through this lens, Pirsig’s wrestling with his sanity toward the end of his life, Steve Jobs’ magical thinking about his illness, and Eddie Lampert’s Ayn Randian framing of his investment in Sears may all have been examples of strong poets losing their feel for where they can mythologize to the point of bending our collective reality and where they suddenly appear crazy. I think Musk drives hedge fund managers crazy as half of them are short his shares because he exudes so much promotional hucksterism, and half of them are long because he is actually thinking on a 100-year time scale. It’s very confusing.
In retrospect, I would tell my 21-year-old self to have a little more patience in swimming along the rigidity bank rather than constantly seeking the entrepreneurial and chaotic side of the river. In one scary moment, I managed to resign only a minute before my boss was going to fire me for working on my own agenda instead of his. But you also don’t want get stuck too close to rigidity and risk living someone else’s life instead of your own. Either way, it’s critical to remember you can always choose to course-correct and swim toward structure or chaos, apprenticeship or freedom, depending on what you need at that moment, what tempo and phase of your career you want to be in, which riverbank you’re coming from and where you want to go. I highly recommend the poem “For Julia, in the Deep Water” [by John N. Morris] to parents who, like me, are navigating the question of when and whether to let their kids swim away.