Gustavo Ballvé on November 14th, 2011
Corporate Strategy, Food for thought, Home, Mental models, Portfolio Management, Risk management

In a very interesting and thought-provoking op-ed in the NYT, Ross Douthat tells a very summarized history of Jon Corzine (the MF Global debacle was discussed here). Then he notes that America has been fertile ground for a kind of “reckless meritocracy” where brilliant, ambitious people who work very hard actually get to very high places – which is great – and then proceed to do themselves, their companies and society in general great harm by failing spectacularly. Mr. Douthat says this happens or has been happening “mostly by (this elite) being too smart for its own good“. We were ready to disagree with him until we got to the last two paragraphs – the text is actually great.

The problem isn’t meritocracy at all, it’s about pride and overconfidence: Buffett was able to do what he did, besides his own point about the “ovarian lottery”, because of his own merits – and he’s been able to continue to succeed because he never let such incredible accumulation of accomplishments (and wealth) go to his head. And as Ross Douthat writes, “It will do America no good to replace the arrogant with the ignorant, the overconfident with the incompetent. (…) We need intelligent leaders with a sense of their own limits, experienced people whose lives have taught them caution. We still need the best and brightest, but we need them to have somehow learned humility along the way.” – Nicely put! Now we could fully agree with him and recommend his article.

There’s a deeper point about investing and bubbles in particular. When things have been looking good for a few years, it’s “only human” to allow oneself to get a little too confident, to trust one’s skills and talent a little too much, to rationalize increasingly risky investments or decisions and so on. Things continue to improve for a while and the whole cycle becomes reinforcing. It takes extreme intellectual honesty and humility, as well as a certain psychological and even historical “armor” to not get carried away. A war veteran should have more perspective on war than the armchair general – the metaphorical “scars” here help a lot. Make sure that, if you don’t have them, you realize your own limits. And if you do have them, also make sure you can still “feel the pain when it rains”.

It was never meant to be easy, this craft of ours. Make sure you’ve earned your stripes – and then keep earning them anew, everyday.

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