When it comes to making choices and decisions, I think we overvalue “best,” we underappreciate “good” and “effective” and “better,” and we fail to purge “dumb.”
This idea rooted itself into my brain years ago after reading a financial report that included the following quote from the late investor Charlie Munger:
“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.”
In writings and interviews, Munger (rhymes with “hunger”) emphasized the power and advantage associated with avoiding ignorant decisions. Like compound interest that grows over time, dumb choices and their consequences accumulate, destroying value and ruining organizations along the way.
What is dumb? It’s the choice that harms or puts lives at risk (including yours). It’s the choice that fails to advance the project or help the team. It’s the choice that conflicts with your goals.
That third drink before driving home? Dumb.
Telling that joke about politics and the Pope at the convention? Dumb.
Spending money you don’t have on shoes or a shotgun? Dumb.
Ordering the fish at the diner in the desert? Dumb.
Sports and investing offer clear illustrations for testing decisions. For athletes, you win or lose based on performance within a framework of understood rules and boundaries. For investors and business executives, projects succeed and profit or fail in bankruptcy. Understanding reality and relative risk are more important than perfection. Good plans and ideas well implemented make money. Dumb projects unmoored from viability lose money.
To have success, we need a view on what might work. At Forisk, my team studies how ideas, assets, and markets perform today and historically. We backtest models to assess previous ideas and forecast. We apply scenarios to test assumptions and sensitivities. When demand for lumber goes up, what happens to the price of timber? What does this imply for timberland investors and forest products firms in the market across geographies? The systematic testing of priors and models helps us avoid irrational ideas and dumb decisions moving forward.
There are a lot of ways to do things. As a rule, don’t do the dumb one.
100% agree. Sometimes the best thing to do is the good and effective thing. The dumb thing often becomes chasing the best thing.