Morgan Housel | The Motley Fool Investor: A checklist for courting failure


Most people focus too much on how to get ahead by making the right decisions. In a world where most businesses go under and most investors trail an index fund, an obsession with how to not fail can be a more effective mindset. Doing so requires knowing the behaviors that are likely to cause failure.

Here's a checklist of bad decisions I've witnessed over the years.

• Always remember: Success is due to your intelligence and effort. Failure is due to the political party you didn't vote for.

• View "changing your mind" as a character flaw and something to be avoided.

• Associate complexity with added value.

• Surround yourself with people who agree with you or are too afraid to tell you you're wrong.

• Treat information that goes against what you believe as an attack on your intelligence.

• Seek the council of people working on commission.

• Accept past correlations as a clear prediction of the future.

• Compete on cost rather than service.

• Prioritize in this order: Quarterly results, annual results, long-term results and — if there's anything left over — reputation.

• Develop strong opinions for things you have no personal experience in.

• Study the habits of successful people. Ignore habits that require serious, time-consuming and mentally exhausting effort. Double down on those that mimic your current hobbies.

• Use current popular sentiment to gauge future outcomes, especially when it's highly emotional.

• Dream big ... about your future paycheck. Don't let the intervening effort or social sacrifices required to get there become part of the story.

• Expect to achieve overnight what successful people took decades to accomplish.

• Leverage up to the point of needing your forecasts to be accurate in order to survive.

• Focus heavily on analytical ability, discounting common sense as too simple-minded.

• Treat employees as workers rather than people.

• Always ask, "How can I achieve the same investment returns they did, but faster?"

• Consider your last day of college the last day you need to study and learn.

• When you win, adjust your expectations upward by the same amount, ensuring that your ability to feel the joy of progress takes the form of a treadmill.

• Risk what you and your family rely on for a chance at something superficial and unnecessary.

• Since failure is not an option, discount contingency plans.

• Be genuinely surprised at the occurrence of recessions and bear markets.

• Consider a degree from a prestigious school as an entitlement to success.

• Look for patterns in complex adaptive systems, like the economy and stock market.

• Get tired of being patient.

Check those boxes and you'll be disappointing in no time.

Who needs facts?

We love a good story — sometimes more than we love facts.

Consider what's happened in just the last year.

Before he was known for raising drug prices, Martin Shkreli was called a hotshot investor and a financial genius. He even started his own hedge fund in his early 20s. His investing acumen was profiled in Forbes' "30 Under 30" series. He was called a "hedge-fund whiz" and a "savvy investor." Of course, that was all wrong. The FBI accuses him of quickly losing virtually all of his investor's money and effectively running a Ponzi scheme.

Almost a year to the day before Shkreli was arrested, New York magazine ran a story about a 17-year-old named Mohamed Islam who made $72 million day trading stocks on his lunch break. But of course, he didn't do that. Islam later admitted he made the whole thing up.

Bloomberg once called Mark Malik a "rising fund manager." Malik claimed he managed $5 billion and earned returns north of 200 percent — astounding, considering he was a traffic cop shortly before starting his fund. Of course, it was all baloney. Malik was arrested in March, accused of raising $800,000 from investors and spending it on himself.

On a much different level, Theranos CEO Elizabeth Holmes was lavished by the media for inventing breakthrough laboratory tests, praised as "the Steve Jobs of biotech." But an October Wall Street Journal article detailed how Theranos' products are less functional than many believed, with the vast majority of its tests being done on "traditional machines bought from companies like Siemens."

I only know these stories with the benefit of hindsight. But they share a common denominator we should be more aware of: our insatiable appetite for a good story. Everyone loves a hero, so much so that we often don't look past the cover.

I'm an optimist, driven by the belief that knowledge accumulates exponentially through generations. People can do amazing things. But, day to day, I advocate humility. Success is hard, and capitalism doesn't tolerate outliers very well. That's why we love stories of standout success, but it should also make us more skeptical of them.

Outliers attributed to luck, embellishment — even fraud — are certainly more common than we want to believe. We should acknowledge that our desire for amazement is often larger than our ability to produce amazement. This is especially true in finance.


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