While not specifically an investing book, The Art of the Good Life: Clear Thinking for Business and a Better Life, by Rolf Dobelli provides some great lessons for investors. There’s one passage in particular titled – Reality Doesn’t Care About Your Feelings; or, Why Every False Step Improves Your Life – which basically says – we all make investing mistakes, what’s important however is what’s called “radical acceptance” of ones mistakes. Here’s how Charles Munger puts it:
“If you won’t attack a problem while it’s solvable and wait until it’s unfixable, you can argue that you’re so damn foolish that you deserve the problem.”
Here’s an excerpt from the book:
The British de Havilland Comet 1 was the world’s first commercially produced jetliner. In 1953 and 1954, it was involved in a number of mysterious accidents in which the machines broke up in midair. One plane crashed shortly after take-off from Calcutta airport; another split apart as it flew over the Italian island of Elba.
A few weeks later, a Comet 1 plummeted into the sea outside Naples. In all three cases, there were no survivors. The fleet was grounded, but investigators couldn’t determine what caused the crashes, so flights were resumed. Just two weeks later, another plane tumbled from the sky just outside Naples (again)—the final nail in the Comet 1’s coffin.
Eventually the flaw was identified: hairline cracks had formed at the corners of the plane’s square windows, spreading across the fuselage and eventually causing the whole machine to come apart. The Comet 1 is the reason why passengers these days only ever peer through oval windows. But there was another, more significant consequence: after the disaster, accident investigator David Warren suggested that a near-indestructible flight data recorder (later dubbed a black box) be installed in each and every jetliner—an idea that was later implemented. A black box records thousands of pieces of data per second, including the pilots’ conversations in the cockpit, making it easier to determine the exact cause of a crash.
No industry takes mistakes more seriously than airlines. After his spectacular emergency landing in the Hudson River, Captain Sullenberger wrote: “Everything we know in aviation, every rule in the rule book, every procedure we have, we know because someone somewhere died.” With each crash, future flights become safer. This principle—let’s call it black box thinking—is an exquisite mental tool that can be applied to any other area of life. The term black box thinking was coined by Matthew Syed, who dedicated a whole book to it.
Human beings are the exact opposite of the aviation industry. Say, for instance, you bought shares several years ago for 100 dollars each. Now they’re valued at a measly 10 dollars. What’s going through your head? You’re hoping—probably praying—that the stock price rebounds as soon as possible. Or you’re cursing the company management. Or you’re reaching for the bottle to take the edge off your frustration. Very few people simply accept reality and analyze their own flight recorders. This requires precisely two things: a) radical acceptance and b) black box thinking. First one, then the other.
Overdraft at the bank? It’s staying put, I’m afraid, regardless of your feelings. Angry e-mail to the boss? There’s no getting it back, no matter how many glasses of wine you drink trying to justify your tantrum. Nor does the cancer growing inside you care if you think about it or ignore it.
Psychologist Paul Dolan at the London School of Economics has observed how people who are gaining weight will gradually shift their focus to areas of their lives where the number on the scale is less relevant—to their jobs, for instance. Why? Because it’s easier to redirect your focus than to lose weight. Yet the fat couldn’t care less about your focus, your interests or your motivation. The world isn’t remotely interested in what you think of it or how you feel. Banish all such obscurantist tactics from your brain.
“Nothing is more fatiguing nor, in the long run, more exasperating than the daily effort to believe things which daily become more incredible. To be done with this effort is an indispensable condition of sure and lasting happiness,” wrote mathematician and Nobel Prize winner Bertrand Russell. This is an exaggeration, of course, because sure and lasting happiness does not exist. Yet Russell is correct in his observation that self-deception is incompatible with the good life. Accepting reality is easy when you like what you see, but you’ve got to accept it even when you don’t—especially when you don’t.
Russell follows up with an example: “The playwright whose plays never succeed should consider calmly the hypothesis that they are bad plays.” You may not write plays, but I’m sure you can come up with examples from your own life. Perhaps you have no talent for foreign languages? Not a natural manager or athlete? You should take these truths into account—and consider the consequences.
Radical acceptance of defeats, deficiencies, flops—how does that work? If we’re left to our own devices, it’s a bit of a chore. Often we see other people far more clearly than we see ourselves (which is why we’re so frequently disappointed by others but rarely by ourselves), so your best shot is to find a friend or a partner you can rely on to give you the warts-and-all truth. Even then, your brain will do its best to soft-pedal the facts it doesn’t like. With time, however, you’ll learn to take seriously the judgments of others.
Alongside radical acceptance, you’ll need a black box. Build your own. Whenever you make a big decision, write down what’s going through your mind—assumptions, trains of thought, conclusions. If the decision turns out to be a dud, take a look at your flight data recorder (no need to make it crashproof; a notebook will do just fine) and analyze precisely what it was that led to your mistake. It’s that simple. With each explicable fuck-up, your life will get better. If you can’t identify your mistake, you either don’t understand the world or you don’t understand yourself. To put it another way, if you can’t spot where you put a foot wrong, you’re going to fall flat on your face again. Persistence in your analysis will pay off.
Side note: black box thinking works not only on a personal level but also in the business world. It ought to be standard practice for every corporation.
By themselves, radical acceptance and black box thinking are not enough. You’ve got to rectify your mistakes. Get future-proofing. As Warren Buffett’s business partner Charlie Munger has observed, “If you won’t attack a problem while it’s solvable and wait until it’s unfixable, you can argue that you’re so damn foolish that you deserve the problem.” Don’t wait for the consequences to unfold. “If you don’t deal with reality, then reality will deal with you,” warns author Alex Haley.
So accept reality—accept it radically. Especially the bits you don’t like. It might be painful in the moment, but it’s got to be done. It’ll be worth it later on. Life isn’t easy. Even living a good life, you’ll have to deal with your fair share of failure, and it’s okay to put a foot wrong every now and then. The key is to discover why it happened and tackle the issue at its root. Because problems aren’t like great Bordeaux wines—they don’t improve with age.
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