Let’s go back to 2011. And imagine yourself watching one of the MTV Roadies episodes. On the sets, its host Raghu Ram insists to test contestants’ creativity with a simple task. Whether they choose to avoid stupidity or chase brilliance to win, it is fun to read.
All they need to do is: pick the wooden slab one-by-one, insert it on the right side of the wooden board, and match it with the facts shown on the left. Simple, isn’t it?
The sole objective is to finish the task in as minimum time as possible.
Reward? For every exact match, 5 seconds will be reduced from the total time taken to finish the task. And for an inaccurate one, extra 10 seconds will be added.
Image: Contestant Completing the Roadies 8 Task | Source: Voot
Team A takes 6.20 minutes in total to finish the entire task. 3 minutes to discuss among themselves, 2 minutes to insert all the slabs, and the other 1.20 minutes to cross-check. With all 10 correct answers, the total time taken gets further reduced by 50 seconds (5 seconds for each correct match). Thus, 5.30 minutes in total.
On the other hand, Team B finishes it in 4.42 minutes. With 8 right (40 seconds deducted) and 2 wrong (20 seconds added) matches, the total time is further reduced to 4.22 Minutes.
While Team B celebrates its victory by chasing brilliance, Raghu Ram shows all of them the real deal. Within just 16 seconds, he nails the entire task. Just 16 seconds!
But how? Well, this is where the interesting part comes.
As fast as he can, he inserts all the slabs into the wooden board. He doesn’t seem to bother if it’s a correct match or not. All he cares about is to minimize the total time taken.
Even with all 10 incorrect answers, the total time taken turns out to be 116 seconds (100+16). Or 1.56 minutes to be precise. Far less than what’s taken by the contestants. By avoiding the stupidity of not wasting time, he outperforms the contestants who opt to win by chasing brilliance.
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Now, let me talk about its relevance in the business and financial world.
Bill Ackman’s $4 Billion Bet on a Single Stock Gone Wrong
Twitteratis post his quotes on their profiles. Professors talk about him in business schools. Investors acknowledge him as someone who has outperformed Berkshire Hathaway consistently since 2006.
These are the credentials that Bill has earned by chasing brilliance.
Image: Bill Outperforms Warren Buffett | Source: Medium
But rarely a fund manager bets 1/3rd of his clients’ money on a single stock.
A massive bet on a new pharma story in the town made him lose billions in assets. $4 Billion to be precise. A story that made him believe that Valeant was the next Berkshire Hathaway. And Pearson, its new CEO, the next Warren Buffett. But what made him believe so? Well, it’s another interesting story.
I have been tracking the Pharmaceutical sector for the past few years. One thing I have understood that it’s all about investing heavily in R&D, discover new drugs and then munch millions thereafter.
Valeant too was trying to survive using the same approach until its new CEO took over in 2008. Citing R&D as an uncertain and least productive domain, he scrapped this strategy altogether.
Instead, he chose to focus only on one thing: appreciation in Valeant’s stock price by acquiring businesses that were into drug discovery and R&D. He fantasized to earn billions by having taken no risk at all. The scalability in the core operations took a back seat.
Bill’s bet that Valeant would continue to grow exponentially by acquiring businesses backfired. Not only the company failed to grow but also implemented opaque accounting methods to cook its financials.
End result? Bill Ackman couldn’t judge how well the acquired companies were doing. The profits missed the estimates in reality. The borrowings started touching the roof. The salaries were slashed. Employees were laid off.
When the information on cooking the story reached the public domain, the stock price crashed massively by 90%. And Bill lost billions.
By avoiding the stupidity of betting more than 33% of the fund’s assets on a single stock, Bill could have saved himself from losing barrels of money.
Image: Valeant Stock Crashes | Source: Medium
Galleon Hedge Fund Scandal, Rajat Gupta and Warren Buffett
Rajat Gupta had achieved exponential heights in his corporate career. While chasing brilliance, he had secured the most prestigious positions at a variety of organizations. Co-Founder at ISB Hyderabad. Strategic Advisor to The Gates Foundation. MD at McKinsey. Board position at Goldman Sachs. And whatnot.
What made him acclaim a stellar breakthrough was his stint at McKinsey. It’s what made him rub shoulders with the prominent businessmen in the World.
Under his supervision, the firm opened numerous offices in more than 20 countries and established a global presence. This all was legitimate until he retired in 2007.
But the financial crisis of 2008 was yet to step in. An event that would eventually put his reputation and integrity at stake. A stupid decision to leak insider information on a publically listed company cost him dearly.
When the Lehman Brothers collapsed, Warren Buffett proposed to pump in $5 Billion in Goldman Sachs at the peak of the financial crisis. Sitting inside the boardroom, Rajat conceived of raking in millions. And illegally disclosed the valuable details to his Sri Lankan friend Raj Rajaratnam who happened to be a fund manager at Galleon.
Seizing an illegal opportunity, Galleon bought over lakhs of Goldman’s shares and earned more than $13 Million in profits. Not only this. Leveraging Rajat’s stature, Raj Rajaratnam grossed more than $60 Million in profits based on the insider valuable inputs.
And the cost of not avoiding stupidity? Well, Rajat was awarded a sentence of 2 years in prison. $5 Million in fines. And on top of that, loss of credibility and trust.
Throughout his active career, what he had achieved by chasing brilliance, blew it all away by not avoiding the stupidity of leaking insider information illegally.
The same goes for investing fraternity too.
The pillars of Berkshire Hathaway, Warren & Charlie, have often been criticized for missing out on extraordinary returns from Google and Amazon. But we overlook the fact that they saved themselves from the dot-com bubble too when people were selling even their homes to buy dot-com companies. By avoiding the stupidity of investing out of their fields of expertise, they have outperformed their peers as well as critics remarkably well.
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Since childhood, we have been taught to focus more on becoming brilliant and less on being stupid. Day-by-day, we all are put on a constant reminder that the only way to succeed in life is by chasing brilliance. What we neglect is that avoiding big mistakes and dumb choices are far more important. Moreover, avoiding something is much easier to consider as an option.
Professionals vs. Laymen
American businessman, Simon Ramo, has observed that a game of tennis can be played in 2 different ways. Professionals like Maria Sharapova play a sophisticated game. While laymen like me play in an unsophisticated manner.
The rules remain the same. The court stays as it is. The types of equipment continue to be identical. The only radical change turns out to be the way how the game is played.
90% of the time, professionals play to win the points. They endure long rallies, keep the shots well-aimed, strike the ball with maximum strength, and ensure that the ball goes beyond the opponent’s reach. Rarely their shots hit the net. Seldomly a fault happens. Hardly they miss their serves.
On the other hand, the laymen play a losing game. Illegal release of a ball, foot faults, and missing a serve are few faults that they commit unknowingly. Without any expertise in aiming the shots, their serves either hit the net or move out of the court.
Instead of beating their opponents, they beat themselves. As a result, they let the opponents win by losing their own points.
The point I want to highlight is that professionals don’t play like laymen. While laymen believe that they can play like professionals.
Win By Losing Less
The only way to win such games is by avoiding stupidity. Be cautious. Lose fewer points. Just keep the ball rolling from one court to another. And offer your opponent as many chances as possible to strike the ball.
Being a layman, his efforts to score points will only make him commit more mistakes. While chasing brilliance, he’ll try playing like a professional and lose the points. And, by avoiding stupidity, you end up winning the game by losing less.
And not only tennis. It’s also relevant in other disciplines too. Writing. Health. Driving. Relationships. Self-improvement. And many others.
Improve your writing remarkably by avoiding the stupidity of not writing every day.
Build your wealth significantly by avoiding the stupidity of selling your winners.
Live peacefully by avoiding the stupidity of being envious.
For me as a layman, my focus stays more on avoiding stupidity and less on chasing brilliance.
Before I end this post, I would like to bring your attention to one of my favorite quotes from Charlie Munger. It says a lot about the subject of this post.
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.
~ Charlie Munger
That’s all, my dear friends. Thank you for reading 🙂
Cover Image: Pixabay
Dhruv Girdhar | RichifyMeClub
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