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“Dare to be wrong,” Howard Marks wrote in one of his memos in 2014, very much like Charlie Munger told him, “It (investing) is not supposed to be easy. Anyone who finds it easy is stupid.”
Marks wrote –
You have to give yourself a chance to fail.” That’s what Kenny “The Jet” Smith said on TV the other night during the NCAA college basketball tournament, talking about a star player who started out cold and as a result attempted too few shots in a game his team lost. It’s a great way to make the point.
Failure isn’t anyone’s goal, of course, but rather an inescapable potential consequence of trying to do really well.
He then added –
Any attempt to compile superior investment results has to entail acceptance of the possibility of being wrong.
…since conventional behavior is sure to produce average performance, people who want to be above average can’t expect to get there by engaging in conventional behavior.
Their behavior has to be different. And in the course of trying to be different and better, they have to bear the risk of being different and worse. That truth is simply unarguable. There is no way to strive for the former that doesn’t require bearing the risk of the latter.
Of course, as Marks wrote, it’s important to play judiciously, to have more successes than failures, and to make more on your successes than you lose on your failures. But it’s crippling to have to avoid all failures, and insisting on doing so can’t be a winning strategy.
Such a strategy may guarantee you against losses, but it’s likely to guarantee you against gains as well.
I have seen so many people over the years who have sat on the stock market’s sidelines – either due to fear of losing money, or while waiting for a perfect opportunity to buy stocks – that they have paid huge opportunity costs of not being invested.
No one wants to look wrong now when everyone else is looking Mr. or Mrs. Right.
In his memo, Marks quoted Lou Brock, one of baseball’s best players of the late 1960s, as saying –
Show me a guy who’s afraid to look bad, and I’ll show you a guy you can beat every time.
The interesting part about the stock market is that wherever you look, you would find such guys aplenty – people who are afraid to look bad, and thus people who do things that everyone else is doing.
Anyways, here is how Marks ended his memo –
Unconventional behavior is the only road to superior investment results, but it isn’t for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes.
Thus each person has to assess whether he’s temperamentally equipped to do these things and whether his circumstances will allow it…when the chips are down and the early going makes him look wrong, as it invariably will.
Not everyone can answer these questions in the affirmative. It’s those who believe they can that should take a chance on being great.
Mark these words, and note them in your investment journal – Successful investing requires the ability to look wrong for a while and survive some mistakes.
But then, are you willing to bear the embarrassment of looking wrong when all others around you are looking right?
“Love all, trust a few, do wrong to none,” said William Shakespeare.
Vishal Khandelwal writes, “In the stock market, trust few (businesses), love even fewer, but don’t fear doing wrong.” 😉
That’s about it from me for today.
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