Playing to win seems to be the preferred course of action for finite games but playing not to lose seems to win out in the infinite game.

Adam Robinson, the co-founder of the Princeton Review, chess master and macro investor, was mentored by Bobby Fischer, the famed chess prodigy and world champion. According to Robinson, Fischer played to win vs. playing not to lose, in a game where a draw was a possible outcome. This changed how Fischer played as he would make moves that might result in a loss but still gave him a chance of winning. It’s also a different mentality to the game itself. This made me think about whether some games were better suited for one or the other.

In hockey, there’s Wayne Gretzky’s "You miss 100% of the shots you don't take." Gretzky holds the record for both most goals in a season (92 goals after 370 shots) and in a career (894 goals after 5088 shots). There is no denying he was a very skilled player but he also took a lot of shots. In baseball, there’s Bath Ruth who has the highest slugging percentage. He was the home run king with 714 career home runs but also the king of strikeouts with 1,330 strikeouts. When you play to win, you take all the shots. It ain’t about padding stats and having nice averages. Win first.

On the other hand, family is a game where one is better off playing not to lose. The impetus comes from Leo Tolstoy’s Anna Karenina: “All happy families are alike; each unhappy family is unhappy in its own way.”

One can say the goal of having a family is to have a happy family. Most families would aspire for that and it would seem there is a ceiling to what this could be. A wealthy family isn’t necessarily a happy family. Rather, a happy family is probably one filled with love, trust, and respect for one another. A place of support and growth. I think a family is a clear example of trying to avoid the stupid things. Not lying, not cheating, not ignoring, not screaming, not hitting, not abusing, etc… A family is one that is played over generations as effects of upbringing compound over to the next generation and on and on. Closer to an infinite game.

Most of life is an infinite game. Finite games (i.e. sports) are easy to research and analyze so various aspects from there are applied into the more complex and wicked environments of life (i.e. business, investing). The error seems to be in assuming business to be a finite game where winning in the short term is what matters above everything else.

What about in business?

When looking at fast-growing VC-backed startups, they appear to be playing to win. A fair assumption given VCs all want massive 1,000%+ returns on their investment. On the other side, a large public company with thousands of employees and a CEO hired in with a fat salary and bonus check appears to be playing not to lose. They’re already big, they’re probably focused on not losing their lunch, the proverbial fat, and lazy behemoth…..so one might think.

Most small companies aren’t VC backed startups. Probably ~90% aren’t. For these companies, I think the mentality is closer to not losing than winning. They’re not incentivized to provide big returns for investors. They could but they don’t have to. Most focus on cash flow for a good living. A few VC-backed companies would fit in this bracket. The truly successful ones actually seem to be very focused on costs and risk mitigation. A kind of paranoia that keeps them alive. I think most founders start off like this but many cannot overcome the inertia of a system that wants them to focus on winning at all costs. There are obvious exceptions but they seem to be exceptions than norms….but we won’t know for sure until the dust settles from the knife fighting.

I’m also inclined to think that most large public companies focus on winning. Most executives are measured by quarterly results with annual incentive bonuses and most can be fired by the board so they need to focus on winning. The CEO job is a finite game for them. In a way, playing to not lose may require greater discipline for these large companies because they need to move away from all the shiny things they could do with the money they have. They probably face more noise from the world too. The rare companies are the large ones that focus on not losing.

Finite games have resets but infinite games don’t. It’s not like a video game where you get to restart. If you die, you die. There is no next game to play in your seven-game series of life. The main objective of such an unending game is survival. Only by surviving will you know if the next turn brings good or bad fortune. So, by playing to not lose each and every day, I think a business is put on a path to win over a long time horizon. Now, they might never win. But I think they have a better chance of winning by surviving long enough. Especially if most of your competitors are busy knifing each other because they want to win right now. When the last one standing is all tired from killing all competitors, couldn’t the quiet one that survived tack on the finishing blow? I think this is how Buffett and Bezos play.

And investing?

It may follow a similar vine if one saw it as a long game and not a two-year game. If one only had two years, then maybe going for broke and playing to win makes sense. But if one saw it as similar to a long term game, then one would need to focus on not losing. How will one compound returns after blowing up the previous year? Charlie Munger said “the first rule of compounding: Never interrupt it unnecessarily” and that’s attributed to selling an investment but that seems to apply to blowing up parts of one’s portfolio in the grand scheme of things.

I’ve been formulating a view that to build wealth, one needs to play to win while to stay wealthy one needs to play to not lose. But you can’t get to the nice problem of staying wealthy if you blow up on the way to becoming wealthy. Some do get there even after losing everything but, once again, it seems to be an exception to the norm. It’s also true that those who focus on not losing may never win (i.e. be wealthy) over their life span but I think they have better odds. Especially if everyone fought to get rich quick and all blew up. Comparatively, the one who did nothing might come out on top.

They say that concentration is what’s required to build wealth, even if that is how one may blow up. Buffett and Munger have emphasized betting heavily but they are extremely disciplined on having a massive margin of safety….or they had influence over the outcome of their investment. Even the best entrepreneurs who seem to go all-in on building a company have hedges the public won’t know about. The message is still the same. You play not to lose.

Whether it’s being wealthy, healthy, wise, or happy, these are games you focus on not losing. To focus on avoiding mistakes because these games don’t end until you drop dead. A near term focus on not losing is how you end up winning in the end. If you’re playing a hockey game, then yeah you take as many shots because you are playing to win. You swing at all the pitches because you are playing to win. The game ends after x minutes and you get to reset for the next one. That’s not how life plays out. You don’t get to restart from the beginning. So you have to focus on not losing.