Is success in your life determined by you being more right or less wrong? That is a confusing question in some ways because it seems like different sides of the same coin. Your brain is probably asking, “If I am more right, am I not less wrong at the same time?” and that is perfectly normal if everything was a zero-sum scenario. Life, however, is not zero-sum. Neither is investing.
Fairly by random, I found a writer named Brian Portnoy last week (ok not random, he was at the Morningstar conference) who had just published a book, The Geometry of Wealth. My intrigue was piqued after reading a synopsis of Portnoy’s book so I found a recent podcast where he discussed his book. One comment he made has stuck with me since then. “Is long term investment success about being more right or less wrong”
The More Right person is that person that tells you about their returns/big winners. To a More Right person, the key to success is picking winners, being a winner and not having to shop at Winners. Obviously you want to be a successful person so you have to be right more than the other people.
The Less Wrong person is that person that tells you to “be sure” and “be safe”. To the Less Wrong person, success is in surviving to live another day, invest another day and save for another day. The Less Right person is the person no one wants to be, right?
What would your reaction be if I told you most successful people are actually the Less Wrong types? The people that work and strive to make it to another day. The people that work and toil and are patient for the right opportunities. Having read a lot of Jeff Bezos’ shareholder letters, I think he is a Less Wronger. Oh he takes A LOT of chances but he is keenly aware of when that chance is not working and he cuts it off immediately. Remember the Amazon Fire Phone? Neither do I. Less Wrong people will not throw good money after a bad idea like the Amazon Fire phone. Less Wrong is NOT avoiding big winners, rather it is sticking around long enough for your big winners to actually happen.
The most successful investors of the past 100 years are Warren Buffet and Charlie Munger of Berkshire Hathaway. Berkshire Hathaway has annual compound returns better than the S&P 500, and not by a bit but by several percentage points. Over their extensive 60+ year career they estimate they have made 400-500 different investments. Seems like a lot of the time they were More Right which explains why Berkshire was so successful. Au contraire, here is what Charlie Munger said about their investment success; “If you remove just a few of Berkshire’s top investments, its long-track record is pretty average”. Munger admits that their success had nothing to do with being More Right.
If they were More Right, then Berkshire’s success would have been filled with lots of “picks” that lead to successful outcomes. Perhaps the success can be attributed to being Less Wrong and surviving for another day to allow their right picks to win the day? One of Buffet’s most famous quotes says it all, “…you only find out who has been swimming naked when the tide goes out”. That is a quote by a person that does not want to be exposed when the proverbial tide goes out. That is a Less Wrong mentality.
How does this apply to you? Well stop worrying about picking “winners” and start concentrating on picking “not losers” or cutting out your losers (that’s also solid dating advice!). Investment success is less about finding the next Amazon or Domino’s Pizza then it is about avoiding too many Crescent Points [Editor: let’s not talk about that one, it still hurts]. You are going to have losers, it is a feature of investing. The key is to be Less Wrong and to give yourself a chance to be right in the long term. Being Less Wrong eventually will make you More Right.