Episode summary
$20B Investor on Risk, Uncertainty & Adaptability
How I Invest With David Weisburd
· · 1 hr 6 min · Hosts: David Weisburd · Guests: Alec Litowitz
Summary
Alec Litowitz argues that the real edge in investing comes from distinguishing risk, where probabilities can be modeled, from uncertainty, where no reliable model exists yet. He says his best work has come from finding situations where the market has not yet priced in the answer, then building information-gathering systems that can resolve the uncertainty before others do. He uses merger arbitrage, especially antitrust-heavy deals, as the clearest example of how he built an internal network of experts and feedback loops to map unknowns.
He also says that not every uncertainty is worth pursuing. The AbbVie-Shire deal is his cautionary example: he had conviction, but the relevant decision sat inside Treasury and could not be probed the way antitrust issues could. That lesson feeds his broader framework: learn when to engage, when to probe, and when to move on.
The conversation then broadens into culture, leadership, and his upcoming book on the Adaptability Quotient. Litowitz says great organizations reward adaptability, weakly held strong opinions, and rapid learning over ego or rigid certainty. He argues that the best investors and builders think in systems, hire for character and flexibility, and create firms that learn faster than competitors.
Key takeaways
- Alec Litowitz says the best investing edge comes from resolving uncertainty before it becomes widely understood risk.
- He cites merger arbitrage as a case where he built internal feedback loops by talking to customers, competitors, suppliers, and experts.
- He says the AbbVie-Shire trade failed because Treasury-related uncertainty could not be probed the way antitrust uncertainty could.
- He argues that Magnetar’s culture was built around "strong opinions weakly held," collective learning, and low ego.
- He says adaptability matters more than raw IQ because knowledge is getting commoditized and AI will outperform humans in convergent tasks.
Notable quotes
“Risk is a world where you have possibilities and probabilities. And so, with possibilities and probabilities, I can do expected value”
“Uncertainty is slightly different. My focus has been on where is there no model? Where are things changing so much there just is no model”
“I want to go where uncertainty is, but I want to go where it's resolvable”
“it's better to make decisions right than make the right decision”
“when you're not sure of something, what do you do? Well, when you go experiment, you make bets that you can recover from”
How the episode opens
Alec, I'd like to start with the idea that seems to tie together your investing career. The difference between pricing risk and uncertainty. What's the difference?
Risk is a world where you have possibilities and probabilities. And so, with possibilities and probabilities, I can do expected value. I can do mean variance optimization.
It's a casino. It's rolling dice. I know there's a 1 2 3 4 5 or 6, and I know there's a 1/6 chance.
Doesn't mean you and I know what the next roll is going to be, but we can do the math around it. Uncertainty is slightly different. My focus has been on where is there no model?
Where are things changing so much there just is no model. And if I can go into those spaces and I can resolve the uncertainty, let me try to model where that world's going before everybody else does. Then I think that you can structure much better risk upside downside opportunities.
And then as other people catch on and it compresses over to risk, that's where you make your money.
And you've obviously become a billionaire pricing uncertainty. Give me an example of investment you made pricing uncertainty versus risk.
So, when I had graduated from grad school and I was at investment banking, I was hired in to go work with Ken at Citadel. It wasn't called Citadel at the time. I was there right before we had a name the firm contest in 1994 and Citadel won.
And he had a convertible bond arb business and he wanted me to do risk arb because he was worried about the impact of mergers on convertible bond pricing and particular ones that we hold. So, he said, "Alec, you got to was February of '94.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- risk vs uncertainty
- investing decision making
- adaptability mindset
- building hedge fund culture
- feedback loops and organizational learning
Companies and tickers mentioned
- Qstar Capital
- Magnetar Capital
- Citadel Investment Group
- Citadel
- Magnetar Academy
Watch the episode
Watch “$20B Investor on Risk, Uncertainty & Adaptability” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
