Warren Buffett, Ray Dalio And Ken Fisher Show There’s Utility In HumilitySubmitted by Silverlight Asset Management, LLC on September 30th, 2019
Bravado can be an asset in certain domains.
For example, President Trump is known for being bold. That probably aided his ascent as a real estate developer. And as President, Mr. Trump is all about projecting confidence, as the following video montage demonstrates.
Bravado is also common on Wall Street. A lot of super-achievers work there. Many of them sailed through school and got used to always having the right answers.
The funny thing about investing, though, is nobody has all the right answers, all of the time.
Even the best are frequently wrong. A 60% batting average would qualify for the Investing Hall of Fame.
Elite investors are actually very humble. They learn to be that way. It helps them survive the early phase of their careers, and ultimately succeed.
Here are a few examples.
Warren Buffett may be the greatest investor ever, but he’s never made a habit of boasting about his returns. Nor does he go around constantly telling people how smart he is. Quite the opposite, actually.
Warren Buffett is humble.
For instance, Mr. Buffett openly talks about his biggest investing mistakes, and what he learned from them. He included a special section in one annual shareholder letter titled, “Berkshire – Past, Present and Future.” Ironically, he described buying Berkshire as “a monumentally stupid decision,” which may have cost he and his partners as much as $100 billion.
Buffett is open about other investing blunders, too. Like when he bought Dexter Shoes in 1993. Buffett reportedly said the $433 million deal was a financial disaster worthy of a spot in the Guinness Book of World Records.
Warren Buffett is smart. That’s no secret. But he frequently emphasizes how IQ alone is not a permanent advantage when it comes to investing.
In the preface to the The Intelligent Investor, Buffett wrote, “To invest successfully does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework.”
An important part of Buffett’s personal framework is staying within his “circle of competence,” which means he only invests in industries he understands. Anything else that crosses his desk, Buffett humbly tosses into the “too hard pile.”
You know you’ve made it if 60 Minutes runs a profile piece on you. That honor was bestowed upon hedge fund maestro, Ray Dalio, earlier this year.
The segment was mainly about Dalio’s principles, which he recently wrote a book about. These are guidelines Dalio used to build Bridgewater Associates into the biggest hedge fund in the world, with about $160 billion in assets.
One of Dalio’s major principles is an “idea democracy,” where the best ideas always win out. He told 60 Minutes he wants Bridgewater employees at all levels to be comfortable expressing their views, because no single person is always right.
Dalio searches for the truth. And he’s willing to go to great lengths to find it. For example, meetings at Bridgewater are recorded. And during meetings, participants assign grades to one another in real-time, scoring how well peers express their views. New hires can even criticize Dalio, and he welcomes such feedback.
Ray Dalio is humble.
Dalio launched Bridgewater out of his New York City apartment in 1975. By the early 1980s, he was starting to make a name for himself.
In 1982, things turned south. Dalio boldly predicted the global economy was about to enter a depression. He was wrong. In reality, the stock market was about to commence a historic bull run, which took a big toll on Dalio’s portfolio and reputation.
“My experience over this period was like a series of blows to the head with a baseball bat,” he said. “Being so wrong – and especially so publicly wrong – was incredibly humbling and cost me just about everything I had built at Bridgewater.”
Dalio found an important silver lining from the experience, though. Here’s a passage from his book.
In retrospect, my crash [failure] was one of the best things that ever happened to me because it gave me the humility I needed to balance my aggressiveness. I learned a great fear of being wrong that shifted my mind-set from thinking ‘I’m right’ to asking myself ‘How do I know I’m right?’ And I saw clearly that the best way to answer this question is by finding other independent thinkers who are on the same mission as me and who see things differently from me. By engaging them in thoughtful disagreement, I’d be able to understand their reasoning and have them stress-test mine.
- Ray Dalio, Principles: Life and Work
Early in my career, I was fortunate to serve as an Equity Analyst for Ken Fisher. That’s when I first started to learn the utility of humility.
Ken Fisher is humble.
He calls the market: “The Great Humiliator,” because it seems like its main purpose is to humiliate as many people as possible.
Ken taught me to question everything. Including myself.
He preaches a scientific approach to investing. Test everything. That’s because a lot of investing folklore is false when you backtest it.
- P/E ratios are not predictive of future returns
- Government budget surpluses are actually more dangerous than deficits
- Stop losses don’t work - unless the goal is to stop earning profits
Many think of Ken as a contrarian. I’d say he’s more of a realist. Like Dalio and Buffett, he works hard to understand reality, and he’s very pragmatic in how he makes decisions.
One of Ken’s portfolio management principles is to always have a core and counter-strategy.
- The core strategy reflects your overweight allocations compared to your benchmark, i.e. where you expect to outperform.
- The counter strategy is a hedge. It means owning things that should do well if you’re completely wrong about your core strategy.
It’s hard to invest in something that runs counter to our expectations. But billionaires do a lot of things most people wouldn’t naturally do.
Warren Buffett, Ray Dalio and Ken Fisher are humble in how they invest. However, that doesn’t mean they lack confidence. Quite the opposite, actually.
Many top investors display what I’d call “quiet confidence.” Meaning they are comfortable in their own skin, comfortable living in uncertainty, and comfortable with the fact they don’t know everything.
Originally published by Forbes. Reprinted with permission.
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