Poke the Box: Wish Warren Buffett, and Embrace Your Failures

Mental Model of the Week: Cumulative Error

Do you remember playing the “telephone game” in your childhood where a secret message was whispered from child to child until it was announced out loud by the final recipient?

To the delight of all, the message was typically transformed into something new and bizarre, no matter the sincerity and care given to each retelling.

You see, when information travels through multiple channels – like in the telephone game – it’s easy for some elements of the message to get distorted — by biases, or simple human error.

The effect of the spread of misinformation is called “cumulative error”, like you see in this stock market cartoon…

Living in an age where information can travel across the world in nanoseconds, this concept has never been more real or dangerous.

So, when a company’s management says something, the lead analyst hears something else, his report to the fund manager says something else, the fund manager understands something else, his broker understands something else, the broker’s analyst assumes something else, he blurts out something else to the TV anchor, the anchor – thinking how smart she is – shouts out something else, and you – enamoured with the anchor – understand something else.

If I were to condense the history of stock investing mistakes in a few words, those will be what you just read!

Somehow, we expect information to be faithful to its origin, no matter what history might have corrupted it. And that’s why it is so important to cut yourself from the noise – that create cumulative errors – and concentrate on independent thinking.

This is especially true while investing your hard-earned money, where you don’t just need to minimize mistakes, but minimize cumulative mistakes – those that add up to wreak havoc on your savings.

A joke isn’t funny anymore if it’s repeated too much. The same goes with information. The more you hear the same things, the more they get dangerous.

So please be careful!

Poke of the Week – Failure Liberates Success

“Failure is not something to be avoided but something to be cultivated. … It is a sign of weakness and often a stigma that prohibits second chances. … Yet the rise in the West is in many respects due to the rise in tolerating failure. Indeed, many immigrants trained in a failure-intolerant culture may blossom out of stagnancy once moved into a failure-tolerant culture. Failure liberates success.” ~ Kevin Kelly, author of What Technology Wants.

I have learned a lot of life lessons just seeing my daughter grow up. Like when she was just a year old and was trying to take her first steps and repeatedly fell down, she tried again…and again…and again.

Sometimes she laughed. Sometimes she cried. Sometimes she laughed and cried at the same time.

But she kept trying and trying…laughing and crying. She did not labelled her experience as a “failure”. She just enjoyed it.

Unlike us adults, our babies don’t know the possibility of a failure, so they happily keep falling down until one day they take a few steps, and then a few more. Before long, they’re jumping and running. All their trying pays off.

They fall but never fail.

As grown-ups, what if we also simply choose not to fail?

What if we treat our mistakes and failures as not things to be avoided but things to be cultivated?

Like Warren Buffett said…

“You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on. Most business mistakes are irreversible setbacks, but you get another chance. There are two things in life that you don’t get another chance at – marrying the wrong person and what you do with your children. Business, you just go on. It’s a mistake to dwell on mistakes, it’s unproductive. It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.”

Life teaches us each day that stuff happens (and sometimes shit happens!), but we don’t need to give each of our experiences a label.

Good, bad, hard, easy, success, failure etc. do not exist but as labels in our minds.

All we need to do to hold our head high is to break through these labels.