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In the face of adversity, are you a Guernsey or a Brahman?

If the mother of a Guernsey and a Brahma calf dies, one of the calves will survive and one will not. One thing makes the difference. And is it the very factor that keeps us from reaching what we want most.

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Persistence in the face of defeat often makes the difference in outcome.

Ask any farmer, and they will tell you that orphaned Guernsey calves die. It’s not the fact that they die, so much as how it happens, that stays in the mind. An orphaned calf soon gets so hungry she picks a new mother from the herd. The cow promptly kicks the strange calf away. After all, she didn’t give birth to the calf—why should she feed it? The Guernsey calf gives up, lies down, and slowly starves to death.

The orphaned Brahman calf gets a different result. The same scenario plays out, with the calf being kicked out by the reluctant mother. However, in this case, the naturally persistent calf keeps coming, until the potential new mother acquiesces out of exhaustion. As a result of this persistence, the calf survives.

Persistence is hard. It’s hard to get kicked in the face and to keep going. It hits at your self-esteem. You begin to wonder if you have value. You begin to think you might be crazy.

So often we’re told that having a positive attitude is the important thing. You can get through the setbacks if you find the silver linings and believe in what you are doing. But it’s important to remember that persistence and a positive attitude aren’t the same thing. They differ in some pretty fundamental ways.

Positivity is fragile. If you’re positively certain that you’ll be successful, you’ll start to worry the minute things deviate from your plan. Once this worry seeps into your mind, it’s impossible to get out. You’re done. When the going gets tough, positive attitudes often vanish.

Persistence, on the other hand, anticipates roadblocks and challenges. It gears up for the fact that things never go as planned and expects goals to be hard to attain.

If you run into failure, persistence continues, and positivity disappears. Persistence is antifragile and benefits from setbacks, while positivity, like that Guernsey calf, crumbles when it runs into hard times.

When met with setbacks, are you a Guernsey or a Brahman?

Yes, It’s All Your Fault: Active vs. Passive Mindsets

The hard truth is that most things in your life – good and bad – are your fault. The sooner you realize that, the better things will be. Here’s how to cultivate an active mindset and take control of your life.

What happens when someone repeatedly says it—whatever “it” may be—is not their fault?

“It’s not my fault I was late for the meeting. Traffic was bad.”

“It’s not my fault I lost money. I got the stock tip from a friend.”

“It’s not my fault I don’t have the skills for the job and was laid off. They should have trained me.”

I don’t want to get into edge cases. But most of the time these kinds of things are your fault. And if you don’t see that, you’re going to continue to find yourself in these situations over and over again.

You should have planned for traffic. You made a terrible investment and you have no idea what you’re doing. Stop waiting for people to teach you the skills you need to earn a living and go learn them.

When the passive mindset takes over, you say another phrase that drives me batty: “I can’t.” Actually, yes you can, you’re just not willing to pay the price. You’re not willing to do the work or spend the time. You’re not willing to do something hard. You’re not willing to sacrifice what’s needed.

The passive mindset is defined by an attitude, an assumption that life happens to you and you’re not responsible. People with this mindset also say things like, “Why does this always happen to me?”

When the language you use about things going on in your life is passive, you slowly convince yourself that nothing is your responsibility. This makes you feel good because it absolves you from responsibility. It means you don’t have to look inside yourself and change anything.  It means you’re not in control.

Well I have news for you: you are in control. You’re in control of how you respond to the ups and downs of life. You’re in control of how you talk to yourself.

An active attitude means ownership. You own your failures. An active mindset means you are responsible for things you control.

“Sorry, I should have planned for traffic, I’ll consider that next time.”

“Wow, that investment blew up! I really don’t know what I’m doing. Maybe I should learn.”

“I got laid off because I didn’t make myself indispensable. I won’t let that happen again.”

The next time you catch yourself saying “I can’t,” say “I choose not to because….“

“I choose not to go to the gym because….”

“I choose not to learn something new because…” 

“I choose not to eat healthy because….”

It’s not that you can’t do something it’s that unless you have literally done everything, you’re choosing not to because the price is too high. Stop lying to yourself.

Own your choices. Own the process. Take control.

The Stormtrooper Problem: Why Thought Diversity Makes Us Better

Diversity of thought makes us stronger, not weaker. Without diversity we die off as a species. We can no longer adapt to changes in the environment. We need each other to survive.

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Diversity is how we survive as a species. This is a quantifiable fact easily observed in the biological world. From niches to natural selection, diversity is the common theme of success for both the individual and the group.

Take the central idea of natural selection: The genes, individuals, groups, and species with the most advantageous traits in a given environment survive and reproduce in greater numbers. Eventually, those advantageous traits spread. The overall population becomes more suited to that environment. This occurs at multiple levels from single genes to entire ecosystems.

That said, natural selection cannot operate without a diverse set of traits to select from! Without variation, selection cannot improve the lot of the higher-level group.

Thought Diversity

This is why I find it frustrating that we often seem to struggle with diversity of thought. This type of diversity shouldn’t threaten us. It should energize us. It means we have a wider variety of resources to deal with the inevitable challenges we face as a species.

Imagine that a meteor is on its way to earth. A crash would be the end of everyone. No matter how self-involved we are, no one wants to see humanity wiped out. So what do we do? Wouldn’t you hope that we could call on more than three people to help find a solution?

Ideally there would be thousands of people with different skills and backgrounds tackling this meteor problem, many minds and lots of options for changing the rock’s course and saving life as we know it. The diversity of backgrounds—variations in skills, knowledge, ways of looking at and understanding the problem—might be what saves the day. But why wait for the threat? A smart species would recognize that if diversity of knowledge and skills would be useful for dealing with a meteor, then diversity would be probably useful in a whole set of other situations.

For example, very few businesses can get by with one knowledge set that will take their product from concept to the homes of customers. You would never imagine that a business could be staffed with clones and be successful. It would be the ultimate in social proof. Everyone would literally be saying the same thing.

The Stormtrooper Problem

Intelligence agencies face a unique set of problems that require creative, un-googleable solutions to one-off problems.

You’d naturally think they would value and seek out diversity in order to solve those problems. And you’d be wrong. Increasingly it’s harder and harder to get a security clearance.

Do you have a lot of debt? That might make you susceptible to blackmail. Divorced? You might be an emotional wreck, which could mean you’ll make emotional decisions and not rational ones. Do something as a youth that you don’t want anyone to know? That makes it harder to trust you. Gay but haven’t told anyone? Blackmail risk. Independently wealthy? That means you don’t need our paycheck, which means you might be harder to work with. Do you have a nuanced opinion of politics? What about Edward Snowden? Yikes. The list goes on.

As the process gets harder and harder (trying to reduce risk), there is less and less diversity in the door. The people that make it through the door are Stormtroopers.

And if you’re one of the lucky Stormtrooopers to make it in, you’re given a checklist career development path. If you want a promotion, you know the exact experience and training you need to receive one. It’s simple. It doesn’t require much thought on your part.

The combination of these two things means that employees increasingly look at—and attempt to solve—problems the same way. The workforce is less effective than it used to be. This means you have to hire more people to do the same thing or outsource more work to people that hire misfits. This is the Stormtrooper problem.

Creativity and Innovation

Diversity is necessary in the workplace to generate creativity and innovation. It’s also necessary to get the job done. Teams with members from different backgrounds can attack problems from all angles and identify more possible solutions than teams whose members think alike. Companies also need diverse skills and knowledge to keep a company functioning. Finance superstars may not be the same people who will rock marketing. And the faster things change, the more valuable diversity becomes for allowing us to adapt and seize opportunity.

We all know that any one person doesn’t have it all figured out and cannot possibly do it all. We can all recognize that we rely on thousands of other people every day just to live. We interact with the world through the products we use, the entertainment we consume, the services we provide. So why do differences often unsettle us?

Any difference can raise this reaction: gender, race, ethnic background, sexual orientation. Often, we hang out with others like us because, let’s face it, communicating is easier with people who are having a similar life experience. And most of us like to feel that we belong. But a sense of belonging should not come at the cost of diversity.

Where Birds Got Feathers

Consider this: Birds did not get their feathers for flying. They originally developed them for warmth, or for being more attractive to potential mates. It was only after feathers started appearing that birds eventually began to fly. Feathers are considered an exaptation, something that evolved for one purpose but then became beneficial for other reasons. When the environment changes, which it inevitably does, a species has a significantly increased chance of survival if it has a diversity of traits that it can re-purpose. What can we re-purpose if everyone looks, acts, and thinks the same?

Further, a genetically homogeneous population is easy to wipe out. It baffles me that anyone thinks they are a good idea. Consider the Irish Potato Famine. In the mid-19th century a potato disease made its way around much of the world. Although it devastated potato crops everywhere, only in Ireland did it result in widespread devastation and death. About one quarter of Ireland’s population died or emigrated to avoid starvation over just a few years. Why did this potato disease have such significant consequences there and not anywhere else?

The short answer is a lack of diversity. The potato was the staple crop for Ireland’s poor. Tenant farms were so small that only potatoes could be grown in sufficient quantity to—barely—feed a family. Too many people depended on this one crop to meet their nutritional needs. In addition, the Irish primarily grew one type of potato, so most of the crops were vulnerable to the same disease. Once the blight hit, it easily infected potato fields all over Ireland, because they were all the same.

You can’t adapt if you have nothing to adapt. If we are all the same, if we’ve wiped out every difference because we find it less challenging, then we increase our vulnerability to complete extinction. Are we too much alike to survive unforeseen challenges?

Even the reproductive process is, at its core, about diversity. You get half your genes from your mother and half from your father. These can be combined in so many different ways that 21 siblings are all going to be genetically unique.

Why is this important? Without this diversity we never would have made it this far. It’s this newness, each time life is started, that has given us options in the form of mutations. They’re like unexpected scientific breakthroughs. Some of these drove our species to awesome new capabilities. The ones that resulted in less fitness? These weren’t likely to survive. Success in life, survival on the large scale, has a lot to do with the potential benefits created by the diversity inherent in the reproductive process.

Diversity is what makes us stronger, not weaker. Biologically, without diversity we die off as a species. We can no longer adapt to changes in the environment. This is true of social diversity as well. Without diversity, we have no resources to face the inevitable challenges, no potential for beneficial mutations or breakthroughs that may save us. Yet we continue to have such a hard time with that. We’re still trying to figure out how to live with each other. We’re nowhere near ready for that meteor.

An Investment Approach That Works

There are as many investment strategies as there are investment opportunities. Some are good; many are terrible. Here’s the one that I lean on the most when I’m looking for low risk and above average returns.

“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple.”

— Charlie Munger

Goal: An investment algorithm to lean on hard when it is available. Low-risk, long-duration, above-average returns.

There are many paths to investment heaven (and we’ve written on the topic before). The diversity of working approaches demonstrates that. However, fundamentally, any useful approach must do three things:

  1. It must work in all conceivable financial environments.
  2. It must be within the “circle of competence” and “circle of interestingness” of its user.
  3. It must meet the moral criteria of its user.

I believe the system below satisfies the first criterion, and allows for all three.

A 7–Element Algorithm for Equity Investing

Everyone Wins
Successful businesses have indefinitely sustainable business systems: owners, employees, customers, suppliers, all content.

Ballast for the Storm
Look for a sustainable balance sheet, given the capricious nature of the world. Past bad events do not predict future bad events. Sometimes inefficient balance sheets allow companies to survive by positioning them for all environments, not just optimizing for one.

Different and Hard to Match
Candidates must occupy a structurally profitable, indefinitely sustainable business niche, allowing for the truism that all moats are subject to being crossed eventually. There must be an element of mystery.

Operational Soundness
Reliable execution of the “blocking and tackling” of operations is a must. Getting this wrong always costs big, and can ruin a good niche.

A Few Simple Variables
Allowing for the difficulty of predicting the future, candidates should have just a few reasonably predictable economic variables that will dominate their outcomes. In the words of Warren Buffett, “There are all kinds of businesses where we have no idea what they’ll earn this year, let alone any future year.” Look for boring investments, sexy is usually complicated and full of competition. Look for what’s staying the same.

Long Runway
You should be able to foresee an indefinite period of growth ahead, through some combination of market creation, market penetration, and pricing power.

Priced Attractively
Stock should be priced so that stock returns >= business returns, always including a margin for error in forward-looking estimates.

Seemingly missing is the concept of “good management,” but I consider this redundant in light of the first four elements. Any business meeting those criteria is being managed properly, and any investment going 7/7 has a very low probability of failure.

Notice that the word indefinite is used several times. This does not mean the same thing as infinite. There are no infinities in the business world. Indefinite means “as far out as can presently be seen.”

Caution: what psychologists call the “representativeness heuristic” puts us at risk of over-fitting to this or any algorithm. Always be on guard. In the words of Richard Feynman, “Never fool yourself, and remember that you are the easiest person to fool.”

Still curious? Read the parable of how one nation came to ruin.

The Distrust of Intellectual Authority

It’s getting harder to have the expertise necessary to navigate every arena in our lives independently. Sometimes, we need to defer to the expertise of others, but how do we know who to trust?

We are a culture of explainers. You’ve met them and so have I—the people who think they’re more informed than the experts, always happy to share their thoughts with anyone who will listen. Such people sometimes were considered quirky, even endearing, because they meant well and were usually few and far between. However, “the public space is increasingly dominated by a loose assortment of poorly informed people,” writes Tom Nichols in his excellent book The Death of Expertise.

There is an intellectual Gresham’s Law emerging, as misinformation overtakes knowledge.  But this isn’t really a new thing. The conflict between people who know and people who believe they know isn’t always so obvious, but as the gap between experts and the general citizenry grows, so too does the mistrust.

In some cases, ignorance has become hip. Consider the flat Earth movement, vaccines, or the raw milk craze of a few years ago. Rejecting the advice of experts has become a cultural symbol. Why listen to doctors about vaccines, or the Center for Disease Control about the hazards of raw milk? And don’t even get me started on the shape of the Earth.

Spanish philosopher Jose Ortega y Gasset in 1930 decried the “revolt of the masses,” writing:

Thus, in the intellectual life, which of its essence requires and presupposes qualification, one can note the progressive triumph of the pseudo-intellectual, unqualified, unqualifiable, and, by their very mental texture, disqualified.

I may be mistaken, but the present-day writer, when he takes his pen in his hand to treat a subject which he has studied deeply, has to bear in mind that the average reader, who has never concerned himself with this subject, if he reads, does so with the view, not of learning something from the writer, but rather, of pronouncing judgment on him when he is not in agreement with the commonplaces that the said reader caries in his head.

Ortega y Gasset attributed the increasing numbers of the ignorant public to prosperity, among other things. It’s hard to argue with success. Technology, secondary education, and the emergence of the United States as a global power undermine the idea that average individuals are ill-equipped to decide for themselves. And yet those powerful forces also have demanded that individuals develop specialized expertise that conflicts with broader competence. Sometimes, we must even be content to know what we don’t know, and trust other experts.

In the 1960s, political scientist Richard Hofstadter wrote that “the complexity of modern life has steadily whittled away the functions the ordinary citizen can intelligently and competently perform for himself.” In his book Anti-Intellectualism in American Life, Hofstadter points out with concern that

In the original American populistic dream, the omnicompetence of the common man was fundamental and indispensable. It was believed that he could, without much special preparation, pursue the professions and run the government.

Today, he knows that he cannot even make his breakfast without using devices, more or less mysterious to him, which expertise has put at his disposal; and when he sits down to breakfast and looks at his morning newspaper, he reads about a whole range of issues and acknowledges, if he is candid with himself, that he has not acquired the competence to judge most of them.

This overwhelming complexity of modern life “produced feelings of helplessness and anger among a citizenry that knew itself increasingly to be at the mercy of smarter elites,” writes Nichols. And Hofstadter warns, “What used to be a jocular and usually benign ridicule of intellect and formal training has turned into a malign resentment of the intellectual in his capacity as expert. Once the intellectual was gently ridiculed because he was not needed; now he is fiercely resented because he is needed too much.”

Don’t get me wrong. Reasoned skepticism and disagreement are essential to progress and democracy. The problem is that most of what’s happening isn’t reasoned skepticism. It’s the adult equivalent of a two-year-old throwing a tantrum.

Sometimes experts are wrong and the common citizen is right, but those occasions are few and far between. What’s growing is our inability to distinguish between experts being wrong occasionally and experts being wrong consistently. Participants in public debate search for loopholes and exceptions—anything that provides an excuse to disregard opinions they don’t like.

This sets up binaries and polarities, demanding that things be either true or false. This eliminates nuance. The reality is that most expert opinions are true at least in part, and the real value in disagreement is not dismissing the thing entirely, but taking the time to argue the weak points to make the overall better.

Laypeople would do well to remember that reasoned disagreement is what moves us forward. Not every idea has to be complete and completely defensible right from the beginning. It is because we question and push ideas that we make the progress that we do. Experts would do well to remember that they may be masters of their fields, but they are servants to society. Mastery means nothing without trust and engagement.

It’s intellectual hubris to think that with a few minutes of googling our opinions are on par with people who have spent their lives in a domain. And yet we’ve been taught that we are entitled to our own opinion and that it deserves equal weighting. Sure you hold your own opinion, but it doesn’t deserve equal weighting.