The Temperamental Edge

If you can meet with Triumph and Disaster; And treat those two impostors just the same

Is one’s destiny written, or can the threads of fate be grasped with both hands? When Cassius chided Brutus saying “The fault, dear Brutus, is not in our stars but in ourselves that we are the underlings“, he was emphatically stating that man has more control over his destiny that he thinks he does in how he acts and reacts to what happens to him. The key differentiating factor, in my view, is temperament.

When Charlie Munger was 31 years old, he was divorced, broke and had just buried his 9 year old son who had died from leukemia. Many decades later, he still remains the vice chairman of Berkshire Hathaway, a billionaire and one of the smartest men on the planet. A lesser man would have been broken by seeing so much hardship so early in life, but Munger did not wallow in self pity or complain about the unfairness of his fate, and instead focused on how he could become rich so that he would have the independence to read, learn and live life on his own terms. It was his temperament that made him who he is today, even more so than his brilliant mind. 

Warren Buffet  has often said that  “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

It is this ability to avoid emotional contagion from the views of the majority that is the hallmark of all great investors. I think in part this is what makes investing so difficult, because although there are many intelligent people out there, not all of them have this quality, the “balance of arrogance and humility” as Seth Klarman puts it. The arrogance to say that the person on the other side of the trade is wrong, and you are right, while still having the humility to admit that you could be wrong, and always have more to learn. Possessing the zen-like calm to focus on the facts that create value, while tuning out the irrelevant cacophony of the media and the siren song of the self professed experts.

All this leads me to wonder, are great investors born or made? Can the edge be cultivated?  It boils down to what the Stanford psychologist Carol Dweck calls having a Growth mindset rather than a Fixed mindset. In a 2012 interview, she summarized the difference between the two

“In a fixed mindset students believe their basic abilities, their intelligence, their talents, are just fixed traits. They have a certain amount and that’s that, and then their goal becomes to look smart all the time and never look dumb.

In a growth mindset students understand that their talents and abilities can be developed through effort, good teaching and persistence. They don’t necessarily think everyone’s the same or anyone can be Einstein, but they believe everyone can get smarter if they work at it.”

I have often seen people with a fixed mindset put artificial barriers on what they can and can’t do. Whether it is the marketing guy who by virtue of his background claims that he cannot learn finance, or the humanities student who is averse to mathematics, it is their mindset more than some inherent lack of ability that is holding them back from achieving their potential and becoming more multidisciplinary, all-round individuals.

It is the growth mindset that Atul Gawande refers to in his book “Better”, where he highlights how surgeons in a district hospital in India had developed an astonishing range of expertise.

“There was much the surgeons had no control over: the overwhelming flow of patients, the poverty, the lack of supplies. But where they had control – their skills, for example – these doctors sought betterment. They understood themselves to be a part of a larger world of medical knowledge and accomplishment. Moreover, they believed they could measure up to it”

I think it really is that straightforward – you and you alone have control over your skills, so put in the hard work and believe you can measure up.

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