Improvement is easier if we inverse the way we emulate our idols. Stop trying to do what they do best, concentrate on not doing what they don’t do!
Following a process to making better investment decisions is difficult to achieve and sustain. The variables are many and most of them are out of our control. A useful idea I use comes from the great 19th Century German mathematician Carl Jacobi who, when looking at problems investors face said, “Invert, always invert”. In other words, he believed the solutions to problems could be found if the problems were expressed in reverse.
With that concept in mind, I've come to the belief, through my own experiences, and that of others, we’ve been cloning our idols the wrong way and here's why:
I’ve always found it interesting that when a superstar of the AFL or a successful investor gets interviewed, the question used to extract valuable advice from them is usually centered around, ‘What can people do to become a better footballer or better investor?” and not, ‘What should people not do to come close to achieving what you have?’.
Just about all of us have idols or mentors that we look up. These are people who we may, or may not know, that we believe have achieved extraordinary things in life, achievements that we value. These people may be parents, athletes, entertainers, investors etc. In most cases, and usually from a subconscious level, we attempt to replicate what they do.
For example, when I first started in the industry, one of my colleagues imported cases of Cherry Coke from the United States simply because Warren Buffett drinks it by the gallon. No doubt, he subconsciously believed the next great investment was around the corner if he consumed the same staff Buffett does. I'm convinced he hated the taste but drunk it anyway. There is also the suburban footballer (we know who they are) who unnecessarily strap their shoulders so that they look like Juddy. We aim to emulate our idols, sometimes look like them in hope of replicating their success and even, in some cases, want to live the life they live.
What we don’t realise is that attempting to clone our idols can be, albeit fun, a very unsuccessful and unforgiving sport. It can leave you despondent and it can take quite a long time before you realise you are your own person and have inherited biases, physical/mental attributes and that you are wired completely differently to them. No matter how many hours I spend on the running track, I’m not going to have the running capacity of Isaac Smith from the Hawks. My chances of improving my performance as a footballer (despite my playing days being long gone) would be better served concentrated on not doing what these champions of the game don’t do. Like going out on a bender the night before the game, deviating from the team ethos or stuffing my face with Nutella. (I still blame Nutella for not fulfilling my dream of playing for Carlton FC)
Warren Buffett, the most admired and followed investor in the world, is a great assessor of value. Patient, disciplined and cashed up, waiting for the right investment opportunity to come along, which can sometimes take years. Not many of us can do nothing with our money for an extended period of time. We end up scratching he itch. His other edge, when it comes to achieving returns, is the opportunities presented to him, Buffett waits for the phone the ring. He doesn’t approach businesses, they approach him. Family owned businesses that want to cash out but still run the company for legacy reasons call his number. When was the last time a company called you up to sell you their family business?
We are not wired in the same way as Buffett is for multiple reasons. It could be because of our background, the country and era we were born in or the compounded knowledge we’ve accumulated. We can look at the same company annual report that he does and not see things half the things he sees.
Improving is easier if we revert the way we emulate our idols. Stop trying to do what your idols and mentors do best, concentrate on not doing what they don’t do. Improvement in performance will come, but you also receive the added benefit of discovering, in time, what your own strengths and weaknesses are, which is more valuable than you think.
Buffett DONT's: Don’t invest outside of your circle of competence; don’t sleep walk through life; don’t participate in open-outcry auctions (sometimes the winner of auctions are actually the losers); don’t take on too much debt; don’t work for a company or person you don’t admire. Focus on these things and you can’t help but be a better investor and live a happier life.