“If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.”
— Warren Buffett
Warren Buffett did not achieve his success in the business world by worrying about what others thought of his investment decisions. He has never sought the external validation that addicts so many investors. He does not care about winning the approval of media pundits or analysts chattering about stocks every day. For someone like Warren Buffett, success is measured in years and decades, not hours or days.
There is a mismatch between the frequency of feedback an investor gets from market quotes and the time required to determine whether a specific investment strategy is working. There will always be critics who are not shy about second guessing your decisions. The concept of discarding the transient opinions of others and breaking the addiction to external validation is known as living by an inner scorecard.
What is the lesson we should take from the concept of living by an inner scorecard, by marching to the beat of own’s own drummer rather than being subject to the judgment of others?
When it comes to investing, there are massive benefits that accrue to those of us who only manage our own capital. The individual investor’s enduring edge is that one can ignore short term market movements. Professional managers must provide quarterly and annual updates to investors no matter how much they may wish to create their own scorecard. While they can attempt to attract investors who share their broad philosophy regarding long-term investing, it is well known that many self-professed long-term investors shift to a short term focus when markets are going down.
The question of the inner scorecard gets more interesting when the concept is extended beyond the narrow realm of judging investment performance. When it comes to living a good life, at some point the opinions of your family, friends, business associates, and peers have to matter.
When Warren Buffett says that your life is a disaster if no one thinks well of you when you reach old age, he is implicitly acknowledging the importance of an outer scorecard in life.
In the business world, how do you ultimately gain the approval of others? Is it by the empty virtue signaling that comes from adopting a policy statement regarding environmental, social, and governance matters, known today as “ESG”? Or are you more likely to win the approval of others by acting in an ethical manner and, most importantly, adding value to all of your relationships?
Zero-sum thinking says that for one side of a relationship to win, the other must lose. Positive-sum thinking involves creating win-win relationships across the spectrum. From a business perspective, lasting positive relationships are built when there is economic surplus enjoyed by all parties to the relationship. The value customers receive from buying your products and services should greatly exceed what they must pay. Employees should stick around for decades without the need for employment contracts. When one evaluates a business, these are the factors that count, not some vapid ESG statement written up by consultants for a disengaged board of directors.
But Warren Buffett was not thinking only of business relationships. Here is the full context of the quote that appears at the beginning of this article:
“I know people who have a lot of money, and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is — your life is a disaster. That’s the ultimate test of how you have lived your life.”
Living by an inner scorecard is a good policy in many ways. But that begs the question of what factors should appear on the scorecard!
A sociopath has an inner scorecard … one that is unconstrained by the judgment of his family, business associates, and society at large. The hallmarks of narcissistic sociopaths include an elevated sense of self-importance and a lack of empathy for the experience of other individuals. Someone with a good moral compass will have an inner scorecard congruent with getting to old age and having people think highly of their accomplishments and who they are as human beings. The sociopath will have an inner scorecard that leads to isolation and scorn. And, of course, there are many gradients in between.
The lesson to take away from the inner scorecard concept is to be fiercely independent when it comes to exercising your professional judgement in areas where you are well within your circle of competence. At a personal level, the inner scorecard is of critical importance when it comes to what type of career to pursue and the types of people to associate with. But, ultimately, no life can be well-lived without eventually subjecting yourself to an outer scorecard. The good news is that an inner scorecard that is consistent with win-win outcomes is highly likely to lead to a favorable outer scorecard in the long run.