One of my all-time favourite quotes comes from Theodore Roosevelt.
"The Man in the Arena" is about daring greatly:
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."
But 'daring greatly' also necessitates 'daring to be wrong'.
"Dare to be wrong", Howard Marks, the American billionaire and founder of Oaktree Capital Management wrote in one of his memos in 2014. Like Charles Munger told him; It [investing] is not supposed to be easy. Anyone who finds it easy is stupid."
The prescription for successful investing is certainly simple:
1. Spend less money than you make
2. Save the difference
3. Buy a diverse low-cost portfolio
4. Be patient
Of course, these simple ideas, are not easy to practice.
For most, it's a pathway littered with mistakes and failures.
Most investing mistakes come from attempting to answer the question "what will happen next?"
Most investing fortunes come from actually answering the question "how long can I stay invested?"
"You have to give yourself a chance to fail. Failure isn't anyone's goal, of course, but rather an inescapable potential consequence of trying to do well."
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.
How you react to failure is perhaps the greatest determinant of investing (and life) success.
I have seen so many people over the years who have sat on the stock market sidelines - either due to fear of losing money, or while waiting for a perfect opportunity to buy in - that have paid huge, life-changing opportunity costs of not being invested.
The same applies to those who have sold investments at either the top, or the bottom.
No one wants to look wrong when everyone else is looking like Mr. or Mrs. Right, but market volatility (losing money) is the price of admission into winning long-term returns.
The nobel-prize winning maths behind this is undeniable but good investing is a behavioural exercise around mindset.
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 [ego], and I'll show you a guy you can beat every time."
The interesting part about investing is that wherever you look, you will find such investors aplenty - people who are afraid to look bad, and thus people who do the things that everyone else is doing.
Good investing isn't about making great decisions; it's about patience.
The goal of investing isn't to minimise boredom; it's to maximise returns.
Here's how Marks ended his memo:
"Unconventional behaviour is the only road to superior investment results, but it isn't for everyone. 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 the 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 dare greatly for only those inside the arena enjoy the spoils."
Every investor will face a conundrum at some point; what to do when their beliefs don't work.
Our friends at Mancell Financial Group in Australia have written an interesting blog on 'The Value Dilemma'.
This tempered well with a re-read of a review of 'The Psychology of Money'.
As always, and true to my own military roots, the final word is taken by former senior British Army officer, inspirational leader and Ironman champion David Labouchere titled 'Audacious Goals'.
Aim so high that we are almost certain to miss and we will maintain the creativity that, with persistence, could put us on the path of mastery. If success is arrival, mastery is the unbounded journey.
I love his own audacious goal he shares at the end which shows him 'daring greatly' as the gladiator of the arena.
A question for you
Ask yourself - What are your audacious goals; next year, and in the next few years, for life?
This week's meditations
"Love all, trust a few, do wrong to none."
- William Shakespeare
"On the surface it seems that the present moment is only one of many, many moments. Each day of your life appears to consist of thousands of moments where different things happen. Yet if you look more deeply, is there not only one moment, ever? Is life not 'this moment'? This one moment - Now - is the only thing you can never escape from, the one constant factor in your life. No matter what happens, no matter how much your life changes, one thing is certain; it's always Now. Since there is no escape from the Now, why not welcome it, become friendly with it?"
- Eckhart Tolle
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Have a great weekend and enjoy the ‘light’ reading!
Howard Marks' memos
Mancell Financial Group's blog on 'The Value Dilemma'
The Rational Walk's synopsis of 'The Psychology of Money'
David Labouchere's article 'Audacious Goals'