“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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There are two ways to measure how you are doing: internally or externally. Most of our growth comes from internal measurement, while most problems stem from external comparison.
One fundamental drive that evolution has instilled in us is our need for social status and hierarchy. This manifests as our ego, standing, reputation, and sense of where we fit in the pecking order. When we measure ourselves externally, we crave the praise and acceptance of our peers. We desire the admiration of those we respect and often feel envy when others seem to have more status or success than us.
The pursuit of (deserved) admiration can give us the energy to do more. It’s part of the explanation for why the human world has progressed so far — we’re willing to do extraordinary things that are very difficult, like starting a company from scratch, inventing a new and better product, solving a ridiculously complicated theorem, or exploring unknown territory. However, true innovation and personal growth often come when we measure ourselves internally, striving to surpass our own previous achievements.
Problems arise when we start compromising our own standards to earn the admiration of others. When we prioritize external measurement over internal standards, we lose sight of who we are and what matters. The greatest achievements and personal satisfaction come from staying true to our internal metrics while using external feedback judiciously to inform and refine our path.
Internal Measurement
Warren Buffett frequently offers a thought experiment to frame the problem of internal vs. external measurement. 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 had been “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 several financial bubbles and tremendous personal misery.
What Buffett and many 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, famous, or admired can’t be satisfying—it can! I’m positive Buffett deeply enjoys his wealth and status. He’s got more “admiration tokens” than almost anyone.
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, all he wanted was a do-over.
The stories of Madoff and Scrooge are not uncommon.
Many people attain the things others tell them to seek (fame, fortune, and power) only to feel empty and hollow. We think we’ll be happy if only we attain these things. So we compromise occasionally 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 numerator! If 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 who “should be happy” but 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 sounds like he means “loved by others and also beautiful.” But as you read, 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.
Earning praise is not enough; we must deserve it. We can’t just be loved; we must be loveable.
To feel fulfilled, you must deserve the success you achieve. And the only person that can tell you if you deserve success is you. You know.
Our dissatisfaction with ourselves will always trump our satisfaction with false rewards. We must, as Charlie Munger puts it, earn and deserve the success we desire.