By Saurabh Mukherjea
Most of us spend our lives seeking approval of others. A few people, however, have the courage to do things which they know will invite criticism. This rare characteristic – which is often the hallmark of successful investors – seems to be dependent on how we structure our relationships.
“Freedom is being disliked by other people. It is proof that you are exercising your freedom and living in freedom, and a sign that you are living in accordance with your own principles. Conducting yourself in such a way as not be disliked by anyone is an extremely unfree way of living.”
– Ichiro Kishimi and Fumitake Koga in ‘The Courage to be Disliked” (2013).
The courage to invite criticism
In a young country like India, which remains for the most part a caste-bound semi-feudal society, most people attach great value to fitting in. So, you are not supposed to say or do things that make you stand out from the crowd. And you are certainly not supposed to do things which invite criticism or ridicule. Thus, it is hard to imagine an Indian fund manager doing what Warren Buffett did on February 25. Four days after Kraft Heinz took a $15 billion writedown and slashed its dividend, Buffett said on CNBC, “I was wrong in a couple of ways on Kraft Heinz… We overpaid for Kraft.”
This admission of failure triggered a wave of criticism directed at Buffett
(including this fine piece from John Gapper of the FT.)
What we find more interesting than Kraft Heinz’s plight is Buffett’s courage to own up to an error of judgement. He could have easily said, “Look, I manage such a massive cash pile and do so many deals that an error here or there is not a big deal.” However, he did not do that. He did not hide behind his cash pile. In his perceptive February 28, 2019 piece, Morgan Housel delved deeper into this facet of Buffett’s personality:
“Peter Kaufman once told a story of a conversation he had with Warren Buffett. Kaufman told Buffett he had a theory about why he was the greatest investor in the world. It was 1999. During the bubble, everybody said you’re an idiot, behind the times. You’ve lost it, you don’t understand technology,” Kaufman said.
“You know why I think you’re the richest man in the world?” he told Buffett. “I think you’re getting paid back for being willing to appear foolish on a scale that probably that no one in history has ever been willing to appear before. Billions of people are watching you, year after year goes by, yet you don’t mind appearing foolish…”
Why the courage to be disliked is an invaluable trait?
As Housel puts it, each year the pool of people chasing returns in the market is becoming larger, brighter and better informed. So IQ and effort per se is not going to differentiate any one investor from the millions of other aspirants. The differentiation, and hence the outperformance comes from something else.
In Housel’s words: “One of the most unique and valuable skills in this industry is… not minding what happens… You have to care about eventual outcomes, the people you work with, etc. But if you can remain dispassionate about what people think of you while you’re trying to get that outcome, or about the noise around you during the process, you have an advantage that I doubt one in a hundred thousand has in this industry.”
There are two drivers of enduring investment performance:
- Doing something others don’t.
- Doing something others do but during a time they don’t want to.
Every investor who has done well over a long period of time can put his success into one or both of those buckets. And both require some degree of not caring about what happens.
A few things that help you get there.
- Not caring about looking dumb when you’re confident others are being dumber…
- Not caring about having an imperfect portfolio…
- Not caring about the reputational hit that comes from changing your mind…
- Not caring about not having no explanation for the majority of events…”
Why do so few people have the courage to be disliked?
If being disliked can help us make money, why do so few fund managers have the courage to be disliked? Why is consensus/benchmark hugging the norm? To understand this we turn to a remarkable book by two Japanese authors – Ichiro Kishimi and Fumitake Koga. Their book The Courage to be Disliked (2013) is a philosophical discourse based on the work of Austrian psychologist, Alfred Adler. Everybody who makes decisions under pressure and with imperfect information should read this remarkable book, which has sold over three million copies.
The challenge starts early on in life as we start living life to fulfil other people’s expectations. Initially, we seek to fulfil our parents’ expectations, then our friends’. Soon we are seeking the approval of our social set and our colleagues. By the time we are grown-up professionals, our happiness hinges around seeking the approval of others. Obviously, that makes it very hard to do something along the lines of Buffett’s Kraft-Heinz mea culpa.
The book calls one-way relationships, where our happiness depends on the approval of others (eg. our parents at home, our teachers in school or our bosses at work) ‘vertical relationships’.
These are distinct from two-way relationships which are relationships between equals. The book calls these ‘horizontal relationships’. People whose lives are characterised by more horizontal relationships than vertical relationships are more likely to have the courage to be disliked. Why?
Because in a vertical relationship your happiness hinges on the happiness of the person you are subservient to. As a result, you live for praise/approval from her. That, in turn, makes it very difficult for you to do anything that could invite disapproval or criticism from her. Those who see the world as largely consisting of relationships between equals are less likely to make the happiness of others a key driver of their decisions.
As the authors put it: “It is because you are living in vertical relationships that you want to be praised… If you are building even one vertical relationship with someone, before you even notice what is happening, you will be treating all your interpersonal relationships as vertical… The feeling of inferiority arises within vertical relationships. If you can build horizontal relationships that are ‘equal but not the same’ for all people, there will no longer be any room for inferiority complexes to emerge.”
The book also delves into another driver of happiness/self-worth (and hence the courage to be disliked): our sense of how much we are contributing to the world around us, “If you really have a feeling of contribution, you will no longer have any need for recognition from others… People who have so much money that they could never use it all work so that they are able to contribute to others… No matter what moments you are living, or if there are people who dislike you, as long as you do not lose sight of the guiding star of “I contribute to others, you will not lose your way, and you can do whatever you like.”
(Saurabh Mukherjea is the author of The Unusual Billionaires and Coffee Can Investing: the Low Risk Route to Stupendous Wealth. He’s the Founder of Marcellus Investment Managers, a Sebi-regulated provider of Portfolio Management Services.)
Source: Economic Times