Ever wondered how certain people we admire end up at the top of their fields? Despite the test of time and all kinds of setbacks, some folks manage to weather the storm. Warren Buffet, the oracle of Omaha explains this in one simple sentence, “Games are won by players who focus on the field, not the ones looking at the scoreboard”.
This especially applies to the world of investing, a world where the scoreboard fluctuates at the blink of an eyelid. The problem with the scoreboard is that it only has the ability to tell you what is happening at the moment rather than what will happen in the future. By default we tend to be forward looking, goal pursuing, results focused. Why? Because we’re wired for discontentment with our present selves and are constantly striving for a better future, a better a score. Because it is easy to evaluate the result rather than the process. Because we know that others judge us on the basis of results.
When we wholly focus on a result we are less willing to try long shots, less inclined to experiment, less open to serendipity and less likely to stumble upon a better outcome than the one we are aiming for. This is what separates genius from the ordinary.
During the tech bubble, Warren buffet underperformed the market for more than 5 years at a stretch. The dot com bubble of the late 90’s was a wild time for the stock market investor. Tech IPOs were a daily experience and people quit their jobs to make millions a day, trading. On December 29, 1999, Barron’s published a piece titled “What’s wrong, Warren?” which suggested “ Warren buffet may be losing his magic touch.” The following graph plots the time period 6/30/1998 to 2/29/2000 for the Nasdaq (tech index in the US) versus Berkshire Hathaway (Warren buffets Co which mainly consists of Value stocks).
The above image is from during the dot com bubble. It was a rough period for Buffet. Nasdaq was up 145%, while Berkshire was down 44%.—a 189% streak of underperformance for the Oracle of Omaha. The graph shows how Nasdaq’s growth took off, going higher and higher while Buffet underperformed terribly.
Now take a look at the same graph but at the aftermath of the bubble. The graph below is from the period 1/1/99 through 12/31/2000.
Post the bubble the Nasdaq collapsed and Buffets portfolio seemed to accelerate faster than ever. In the next two years, Nasdaq was down more than 78% and Berkshire was up more than 40%. During all this did Warren Buffett lose his cool and change his investment style? Did he panic and sell out? Did he do what every other investor was doing? No, he stayed true to his investment plan and kept his eyes off the scoreboard. He focused on the game, had faith in his process and he emerged victorious.
Tiger Woods does not play golf for the money. Warren Buffet does not need the money, yet he invests. Mercenaries are those who invest for the money. Mercenaries fail invariably. They focus on the outcome, not the process. Money is a sideshow in the arena of investing. It is a yardstick, not the race. Process is one thing that will make you a better investor. Think about the process and the money will take care of itself.
If we want to get better at what we do, let us try and focus on the game and the playing field, and the outcome will be a byproduct. Comparing our performance to others can be very misleading. Had Warren Buffet compared himself to the market he would have failed. Investing does not have to be about beating others or beating the market, investing must be about not beating yourself.
Most importantly focusing on the process puts you in control. You only have partial control over the outcome, but you have complete control over the process. The amount of time, sweat, and blood you put in to do something is completely in your hands. It lets you enjoy and benefit from whatever outcome does occur. In the long run, things rarely turn out the way we expect them to. If your happiness depends on your success, and your success depends on your outcome, you will most likely remain unhappy.
Apply this rule to investing and life and see the change it can bring about.