Discover more from The Atomic Investor
The principle of Stupidity Aversion
An important principle to internalise.
We believe the key to keep winning must involve a complex set of solutions or steps. But most of the times, it is as simple as just…DON’T BE STUPID. It is one of the most powerful principles and comes in many shapes and forms. Let’s take a look at some of those.
The idea is grounded in the Inversion principle – The answer to “how do I win” simply becomes – “By NOT losing”. ‘Overnight successes’ and ‘Lucky breaks’ induce all kinds of bad behaviour. It leads us towards the paths we would not normally pursue. And we cannot help it at times. Especially when you see people posting something like this.
We start risking what we have in order to get what we do not need.
An athlete putting his career at risk by taking performance enhancing drugs in order to succeed is a good example. A guy putting all his life’s worth in a risky proposition, just because he saw his neighbour get rich quick could be another one. You might win once or twice but you cannot win if you cannot play the game anymore. Like that athlete or that guy, you’re taking risks that would lead you to ruin. This is straight out of the Nassim Taleb playbook -sometimes you win just by surviving.
In the world of investing or business, there’s moments aplenty to put this principle in practice. Charlie Munger, the co-chairman of Berkshire Hathaway, recently pointed it out in an interview,
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
A man who’s achieved remarkable success, Charlie Munger (along with Buffett) has created enormous amount of value by not only winning, but by staying in the game, getting the time on his (and his firm’s) side and not being stupid. Until last year, Berkshire had delivered an average return of 19% since 1965 as compared to the 9.7% on the S&P 500 index.
There’s a common theme to listening to the founders of the biggest companies in the world today on what was the most important element to their success – not dying. Resisting the FOMO (Fear of missing out) and keeping yourself out of the 'herd game'. Yes, there will be tons of setbacks and losses but you make sure you keep progressing by avoiding what not to do – the inversion principle again.
Again, we shouldn’t discount the importance of wins, they’re crucial. But by just avoiding the losses that put you out of the game, you create an asymmetrical relationship with risk taking and success. You cap your downside to a minimum, stacking up small wins along the way making the most when your opportunity strikes.
Whatever we do, we’re playing the game of professionals. We do not want to believe it but we’re almost amateurs. Instead of trying to win, failing and then totally giving up, we could just stay put and survive by avoiding losing. It’s a like tennis match, where you’re playing against a strong opponent and you’re just trying keep in the ball in play. You defend and defend until you see an opening.
I call it the Principle of Stupidity Aversion – a way of life where you invert your winning formula by not seeking out wins but making sure you do not lose.
You could translate this principle to whatever game you’re playing. Adjust it according to the situation you find yourself in and please DON’T BE STUPID
See you soon.
The Atomic Investor