Regular visitors to Opto will be used to reading about disruptive and innovative investment trends but, from time to time, we engage with industry thought-leaders to help provide insights on exactly how to put this into practice. In this article, Morgan Housel, partner at the Collaborative Fund, explores why it’s often important to be able to deal with problems as an investor.
Steven Pressfield wrote for 30 years before publishing The Legend of Bagger Vance.
His career leading up to then was bleak, at one point living in a halfway house because it had cheap rent. He once spoke about the people he met living there:
“The people in this halfway house, we used to hang out in the kitchen and talk all night long, were among the smartest people that I ever met and the funniest and the most interesting.
“And what I concluded from hanging out with them and from others in a similar situation was that they weren’t crazy at all. They were actually the smart people who had seen through the bullshit. And because of that, they couldn’t function in the world.
“They couldn’t hold a job because they just couldn’t take the bullshit, and that was how they wound up in institutions. The greater society thought, ‘Well these people are absolute rejects. They can’t fit in.’ But in fact they were actually the people that really saw through everything.”
This may not have been Pressfield’s point, but it reminds of something I’ve long believed.
If you recognise that BS is ubiquitous, then the question is not: “How can I avoid all of it?”, but: “What is the optimal amount to put up with so I can still function in a messy and imperfect world?”
"What is the optimal amount to put up with so I can still function in a messy and imperfect world?"
If your tolerance is zero — if you are allergic to differences in opinion, personal incentives, emotions, inefficiencies, miscommunication and such — your odds of succeeding in anything that requires other people rounds to zero. You can’t function in the world, as Pressfield says. The other end of the spectrum — fully accepting every incidence of nonsense and hassle — is just as bad. The world will eat you alive.
The thing people miss is that there are bad things that become bigger problems when you try to eliminate them. I think the most successful people recognise when a certain amount of acceptance beats purity.
Theft is a good example. A grocery store could eliminate theft by strip-searching every customer leaving the store. But then no one would shop there. So the optimal level of theft is never zero. You accept a certain level as an inevitable cost of progress.
BS, in all its forms, is similar.
A unique skill, an underrated skill, is identifying the optimal amount of hassle and nonsense you should put up with to get ahead while getting along.
Franklin Roosevelt, at one point one of the most powerful men in the world — whose paralysis meant the aides often had to carry him to the bathroom – once said: “If you can’t use your legs and they bring you milk when you wanted orange juice, you learn to say, ‘that’s all right,’ and drink it.”
Every industry and career is different, but there’s universal value in that mentality, accepting hassle when reality demands it.
Volatility. People having bad days. Office politics. Difficult personalities. Bureaucracy. All of them are bad. But all have to be endured to some degree if you want to get anything done.
Many investors have little tolerance for a bad year or a stretch of underperformance. They think it’s noble. “I demand excellence,” they’ll say. But it’s just unrealistic. The huge majority of them won’t survive. Compounding is fuelled by endurance, so sitting through market insanity is not a defect; it’s accepting an optimal level of hassle.
Same in business. My friend Brent Beshore says running a company is like eating glass while being punched in the face. “Often nothing works. Emotions run wild. Confusion reigns.”
He’s also equated it to a daily battle where you wake up every morning, grab your knife, fight off challenges, and pray you make it home alive. But dealing with that hassle is the entire reason why it can be lucrative. “Where there’s pain there’s profit,” he often reminds people. There’s an optimal level of hassle to accept, even embrace.
"Where there's pain there's profit" - Brent Beshore
Another upside is, once you accept a certain level of BS, you stop denying its existence and have a clearer view of how the world works.
I was once on a flight with a CEO — he let everyone know that’s what he was — who lost his mind after we had to change gates twice. I wondered: “How did he make it this far in life without the ability to deal with petty annoyances outside of his control?”. The most likely answer is that he lives in denial over what he thinks he’s in control of and demands unrealistic precision from subordinates who compensate by hiding bad news.
Good advice for a lot of things is just: “Identify the price and be willing to pay it.” The price, for so many things, is putting up with an optimal amount of hassle.
This article was originally written by Morgan Housel and published by the Collaborative Fund. It can be found here.