The Inner Scorecard: How Warren Buffett Mastered Life

“The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.”
— Warren Buffett

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While human behavior is complex and resistant to a “one size fits all” approach, there are core predictable instincts that help us understand ourselves and others better.

One instinct that evolution has driven into us is our need for hierarchy. This is our ego, status, standing, reputation and where we are in the pecking order. We want the praise and acceptance of our peers. We crave admiration of those we see as our peers and feel envy when others seem to have more than us.

The pursuit of (deserved) admiration gives us energy to do more. It’s a part of the explanation for why the human world has moved along so far from where it started — we’re willing to do extraordinary things that are very difficult, like starting a company from scratch, inventing a new and better product, solving some ridiculously complicated theorem, or conquering unknown territory. All in an effort to gain acceptance and admiration.

Problems arise when we start compromising our own standards, those we have set for ourselves, in order to earn the admiration of others. Problems come when we choose to focus on what others think and see versus reality.

Warren Buffett frequently relates an interesting way to frame this problem. From Alice Schroeder’s Buffett biography The Snowball:

Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover? 

Now, that’s an interesting question. “Here’s another one. If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?

Buffett’s getting at a rather fundamental model he’s used most of his life: The Inner Scorecard. When you have an internal scorecard, no one can define success for you but you.

The investor Guy Spier won a charity lunch with Buffett, and related his experience in a book called The Education of a Value Investor. He immediately recognized Buffett’s lack of falseness:

One of Buffett’s defining characteristics is that he so clearly lives by his own inner scorecard. It isn’t just that he does what’s right, but that he does what’s right for him. As I saw during our lunch, there’s nothing fake or forced about him. He sees no reason to compromise his standards or violate his beliefs. Indeed, he has told Berkshire’s shareholders that there are things he could do that would make the company bigger and more profitable, but he’s not prepared to do them. For example, he resists laying people off or selling holdings that he could easily replace with more profitable businesses. Likewise, some investors have complained that Berkshire would be much more profitable if he’d moved its tax domicile to Bermuda as many other insurers have done. But Buffett doesn’t want to base his company in Bermuda even though it would be legal and would have saved tens of billions in taxes.

If Buffett was “setting his clock externally” — living by the standards of others — he would not have been able to maintain the independence of mind that led him to avoid a number of financial bubbles and tremendous personal misery.

What Buffett and a lot of other people who have been successful in life — true success, not measured by money — have in common is that they’re able to remember what we all set out to do: live a fulfilling life! Not get rich. Not get famous. Not even get admiration, necessarily. But to live a satisfying existence and help others around them do the same.

It’s not that getting rich or famous or admired can’t be deeply satisfying. It can be! I’m positive Buffett deeply enjoys his wealth and status. He’s got more “admiration tokens” than almost anyone in the world.

But all of that can be ruined very, very easily along the way by making too many compromises, by living according to an external scorecard rather than an internal one.

How many stories have you heard of famous and/or wealthy folks becoming entrapped in constant lawsuits, bickering, loneliness, and pure unhappiness? A countless number, right?

Bernie Madoff achieved great admiration and wealth, but was he happy? He made it clear, after he’d been caught, that he wasn’t. Here was a guy who had all the admiration tokens in the world, an External Scorecard showing an A+, and what happened when he lost it all? He felt relieved.

So, did fame or wealth actually work in giving him a satisfying and fulfilling life? No!

We want to avoid the story of Ebenezer Scrooge in A Christmas Carol. Scrooge attained what most of us think we want: power, fame, and fortune. But as his life drew to a close, he wanted a do-over.

The stories of Madoff and Scrooge as not uncommon. Many people attain the things others tell them to seek (fame, fortune, and power) only to feel empty and hollow. We think that if only we attain these things, we’ll be happy. So we compromise a bit here and there to get what we seek, only to attain them and find them meaningless. We’ve all experienced this: “If i could just get this promotion,” says our colleague, “I’d be happy for the rest of my career.” But it doesn’t work. For people who think like that, it’s always the next thing.

The little mental trick is to remember that success, money, fame, and beauty, all the things we pursue, are merely the numeratorIf the denominator — shame, regret, unhappiness, loneliness — is too large, our “Life Satisfaction Score” ends up being tiny, worthless. Even if we have all that good stuff!

Nassim Taleb once said:

The optimal solution to being independent and upright while remaining a social animal is: to seek first your own self-respect and, secondarily and conditionally, that of others, provided your external image does not conflict with your own self-respect. Most people get it backwards and seek the admiration of the collective and something called “a good reputation” at the expense of self-worth for, alas, the two are in frequent conflict under modernity.

It’s so simple. This is why you see people that “should be happy” who are not. Big denominators destroy self-worth.

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Adam Smith addressed this issue similarly about 225 years ago in his lesser known, though equally useful book The Theory of Moral Sentiments. Here’s how he put it:

Man naturally desires, not only to be loved, but to be lovely; or to be that thing which is the natural and proper object of love. He naturally dreads, not only to be hated, but to be hateful; or to be that thing which is the natural and proper object of hatred. He desires, not only praise, but praiseworthiness; or to be that thing which, though it should be praised by nobody, is, however, the natural and proper object of praise. He dreads, not only blame, but blame-worthiness; or to be that thing which, though it should be blamed by nobody, is, however, the natural and proper object of blame.

To Smith, happiness was a combination of being loved and lovely: In modern terms, his wording makes it sound like he means “loved by others and also beautiful.” But as you read on, you see that’s not what he meant. He adds “Hated, but hateful.” “Praise, but praiseworthiness.” “Blame, but blame-worthiness.”

He’s saying we’re only happy if we’re successful by an Inner Scorecard! When we live a life true to ourselves. 

It’s not enough to earn praise, we must deserve it. We can’t just be loved; we must be loveable.

In order to feel fulfilled, you must deserve the success you achieve. And the only person that can tell you if you deserved success is you. You know.

Our dissatisfaction with ourselves will always trump the satisfaction we feel with false rewards. We must, as Charlie Munger puts itearn and deserve the success we desire.