So much advantage in life comes from being willing to look foolish in the short term.
From Shane Parrish’s latest “Tiny Thought“, in full:
A huge obstacle to success is a fear of appearing foolish.
When we learn to walk, we fall over and over again until we can do it. We look foolish until the minute we don’t. That is how we learn. As adults we often tell ourselves that failing in front of other people is bad, so we don’t try things that might make us look foolish.
During boom times, people who aggressively went all in appear to be prospering and make a more financially stable approach seem foolish. Only those who were properly positioned, however, can take advantage when the boom ends.
So much advantage in life comes from being willing to look foolish in the short term.
Last September I took the opportunity to lock in a two-year fixed rate tariff on my Electric and Gas bill. The increase was about 50% on the current rate and I did this as I had looked at the market for gas prices (and this was before the Ukraine war) and saw huge escalations coming along. I suggested to numerous people to also lock in their rate even at a 50% increase and some thought I was foolish to voluntarily pay more. In the UK we all know what has since happened, yet I am cushioned from the massive rate increases as my rate is locked in for one more year from now.
In mid-2020, I also chose to buy a house in an unfashionable area at the edge of London. I did so from an investment standpoint (there were also personal elements involved!) as I saw that this area a) had amazing transport links, b) an abundance of new housing being built or recently built, and c) a high street with very little traffic and much potential for change of use of retail properties. In short, I invested in my belief that hybrid working would be here to stay and that people from London would, more and more, choose to move out (but not too far out). In the two years since I agreed the price of the property, it has increased in value way beyond the London average, but when I bought it some said “why are you moving THERE?”. I was, again, willing to look foolish.
Warren Buffett famously has ignored various market booms, particularly around tech stocks. He prefers to always invest in areas he and his (very small) team understand and that he feels have a “moat”, a position defensible for the long term. His investment vehicle, Berkshire Hathaway, has well outperformed the S&P500 over the last twenty years (see graph above), despite often appealing “foolish” to various cutting and bleeding edge people.
There is a lot to be said for having a well-thought-out philosophy you follow rigorously.
Where might you be willing to look foolish in the short term in order to gain in the long term?
PS there is a deep, deep recession coming, for your business are you preparing for it? Simple tip, “cash up”. Closely review your Balance Sheet and do what you can to ensure you have plenty of liquid reserves available to you. Also look at your revenue and cost base and consider what your Income Statement and Statement of Cash Flows would look like with a 20% drop in revenue, then plan accordingly. Some of your peers may still be pushing ahead with growth plans, but if your analysis shows a vulnerability to a recession (not relevant for all businesses) then you may look foolish now for being very prudent, but you will look smart when the recession bites. As Buffett says “be fearful when others are greedy, and greedy when others are fearful”.