Source: Qilehui
Doing the same things as others while wanting to stand out is impossible.
Everyone hopes to achieve outstanding performance. The real question is, in order to achieve greatness and pursue exceptional investment performance, are you willing to do everything necessary to reach this goal? Are you willing to be different and are you willing to make mistakes? To have a chance at achieving outstanding performance, you must accept both.
Doing the same things as others while wanting to stand out is impossible.
For years, I have asked others this question: If I hired you as a Fund Manager and we agreed that if your investment returns are in the bottom 90% next year, you would receive no compensation, but if you are in the top 10%, you would earn a $10 million bonus. What is the first thing you need to do (an absolute prerequisite) to have a chance at earning this generous compensation? The result is that no one can provide the correct answer.
The answer may not be obvious, but what you must do is: you have to construct a portfolio that is different from the vast majority of investors. There are many approaches you can try. For example: actively invest in unusual niches; Buy assets that others have not discovered, are not bullish on, or consider too risky; avoid the market darlings that the public believes are inevitable; seize counter-cyclical opportunities; and focus on doing well in a few things you believe may achieve excellent performance.
Being different is never easy.
Starting is often uncomfortable. Investments that make most people feel good—those with widely accepted basic assumptions, recent bullish performance, and bright prospects—cannot be obtained at low prices. Conversely, low-priced investments often have performed poorly recently and are filled with controversy and pessimistic rhetoric.
It is not easy to persist in doing things that make one feel uncomfortable. The success of Oak Tree's investments often comes from buying distressed debt, and this is no coincidence; distressed companies are always avoided by people.
In 1988, when Bruce Karsh and I formed the first Fund to invest in the debts of companies on the brink of bankruptcy, their alternative viewpoint made fundraising very difficult, and investing required conviction—both clients and ourselves needed to maintain faith—that their analysis and strategy could reduce risk. However, it is precisely because of this discomfort that the pricing of distressed debt is often lower than it should be, enabling consistently high returns.
Dare to make mistakes.
You must give yourself the opportunity to make mistakes.
No one wants to fail, but in the pursuit of outstanding performance, we inevitably encounter failures. We must accept the possibility of making mistakes while striving for excellent investment results. It is impossible to achieve extraordinary accomplishments without taking on the associated risks.
The only certainty in the investment world is the "Alpha coefficient," which represents outstanding insight or skill. Regardless of market fluctuations, skill can help investors achieve returns. Outstanding skills can increase the accuracy of investment decisions, enhance expected returns through concentrated investments, and leverage.
The goal of investing is to achieve "asymmetry": to generate investment returns while not having to bear corresponding risks, benefiting significantly from market rises while minimizing losses due to market declines. To achieve success in any pursuit of returns, we must be capable of bearing the risks of potential losses.
In 1968, when I first started working at Citibank, their motto was, "Caution leads to great achievements." It is important to adopt a wise and prudent investment approach, aiming for more wins than losses, and to ensure the gains during successes outweigh the losses during failures. However, avoiding all losses can have severe consequences, potentially leading to the inability to achieve returns.
Dare to be ashamed.
The most basic factor is not whether you dare to be different or make mistakes, but whether you dare to feel shame.
In 1936, economist John Maynard Keynes wrote in "The General Theory of Employment, Interest and Money": "Secular wisdom teaches us that it is better to fail while following traditional practices than to succeed by violating traditional practices." For those who measure success in terms of money, taking risks can benefit you when making correct investments and gaining profits, while it can frustrate you when making failed investments and incurring losses.
However, if reputation is valued or the position is at stake, then the losses you incur mean everything to you, because your benefits cannot exceed the losses. In this case, success entirely depends on whether one can avoid unsuccessful non-traditional investment behaviors.
Lou Brock of the St. Louis Cardinals was one of the best base stealers in baseball from 1966 to 1974. He had a famous saying: "If you can tell me who is afraid of looking foolish, then I can tell you who will be beaten every time." Those pitchers who fear these situations are easy opponents for Lou Brock. People who fear embarrassment are destined to fail.
Looking right may be harder than making the right decision.
Fear of embarrassment particularly dampens the abilities of investors, clients, or managers, as it is difficult to consistently make correct investment decisions.
This reminds me of one of my favorite proverbs: "Being too ahead is no different from making a mistake." Greenspan issued a warning of "irrational exuberance" in December 1996, but the stock market continued to rise for over three years. An outstanding manager, who started to bet against the market around the same time as Greenspan, only proved to be correct in 2000... during this time, most of his investors withdrew their capital. He was not wrong, just too early. But that did not alleviate the pain he experienced.
Similarly, John Paulson also made the most profitable trade in history in 2006 by shorting mortgage securities. Many others engaged in the same trade but entered too early. When the bets failed to pay off initially, the appearance of being on the wrong track made it difficult for investors to stick to their decisions, forcing them to sell off positions that could have been very profitable.
To become an exceptional investor, it is necessary to have the strength to go against the crowd, to stick to your beliefs, and to maintain your holdings until the results prove correct. I believe every important thing in investing is counterintuitive, and every seemingly obvious thing is wrong. Maintaining a contrarian stance is very difficult for anyone, especially when it appears to be wrong at first glance.
Investors who aspire to achieve exceptional performance must accept this reality. Not conforming to conventional wisdom is the only way to achieve outstanding investment performance, but it is not suitable for everyone. In addition to exceptional skills, successful investing requires the ability to stick to decisions that may seem wrong at the moment and to withstand the test of making mistakes. Only those who believe they can achieve great fortune should give it a try.
Editor/Rocky
