The Agency Problem is the conflict of interest that exists when one party is expected to act on behalf of someone else. In investing, you can try aligning interests, but the reality is you cannot put everyone in the same boat. Even if it is the same storm. If someone is rewarded for performance (deservedly or luckily), there is a butterfly effect. Money is in part made through merit, but also made through capital and containers. As you build capital, you have capacity to have a longer time horizon. You no longer live hand-to-mouth. You can say “No” more often. As you build capital, you can create barriers to entry to protect your “merit”. The key competitive advantage in investing is not the skill of investing. It is the club that has been built. The container used to gather investments of others. The vehicle that gives certain people the privilege to invest other people’s capital. Even when they are not performing. The club buys time for the storm to pass… for the agent.
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