Article written by: Mo Lidsky, Partner and Senior Managing Director at Prime Quadrant
He has repeatedly claimed that his wealth is largely due to his ability to avoid mistakes rather than identify opportunities.
While I am somewhat sceptical about Warren Buffett’s humble assertion, it is true that avoiding danger and removing harm – i.e. being less stupid – is generally safer than intervention, which may have side effects and unintended consequences.
Buffett’s partner, Charlie Munger, made the same point in a letter to Wesco Shareholders, where Charlie was Chairman at the time. He wrote, “Wesco continues to… profit from always remembering the obvious [rather] than from grasping the esoteric… It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
The German mathematician, Carl Gustav Jacob Jacobi, is often quoted for saying, “invert, always invert”, suggesting that solving difficult problems or making important decisions may require an inversion of perspective. That which cannot be grasped forward may be deciphered when viewed backward.
Blogger Shane Parish recommends this simple tactic. “Think about what makes life good. Now, invert the process and think about what would make life bad. Knowing what would make life bad gives you a shortlist of what to sidestep.”
Thinking either forward or backward can result in action. However, thinking in both directions can reduce the likelihood of harm and folly.
People always try and mimic successful people. In reality, you can learn more from those who went bankrupt in the global financial crisis than from those who made fortunes in the preceding bubble.
It is said that ‘common sense’ is one of most oxymoronic expressions, since it is anything but common, and foolishness is far more pervasive. Thereby, merely learning to sidestep foolishness can actually put you ahead of the pack.
However, since the economic machine of most industries does not profit by avoiding and removing, only by adding or acquiring something, few are incentivized to advocate for the subtraction of stupidity. This is particularly pervasive in financial services.
Thanks to the uniqueness of our conflict-free business model, we have tried to instil best-practices of both addition (i.e. intelligent intervention) and subtraction (i.e. avoiding stupidity) in our culture. And the results speak for themselves.
Through the postings ahead, I will share some of the most commonly-made investment mistakes in the hope that it will help you make better investment decisions.