Saturday Serendipity
Quote, Mental Model, Interesting find.
Hello,
Reading time: About 5 minutes
Quote
“We tend to measure performance by what happens when things are going well. Yet how people, organizations, companies, leaders, and other things do on their best day isn’t all that instructive. To find the truth, we need to look at what happens on the worst day.” ~ Farnam Street
Mental Model
Process vs Outcome
There is a conundrum of process vs outcome. In every single thing that you do in life there is a process and there is an outcome. Sometimes you may get lucky with a bad process and a good outcome or you might get unlucky with a good process and a bad outcome. As shown in the image below there are four quadrants.
In Sports
In every single sport you play. To reach to the top the process consists of a lot of hard work. Every person in sports pays attention to the process. Everyone focuses on their practice and their technique and they hold a belief that the outcome will follow if the process is right. This is the right mentality to have. The focus should always be on the process. The important thing is to identify if the process is good or not . If I train 3-4 hours everyday as a cricketer but the practice sessions don’t have any quality in them I feel like I am working hard but in reality I am simply doing something which is not helping me and at the same time getting a false perception of the hard work/ effort I am putting in.
Most people say don’t worry about the outcome if the process is right. But I think if you don’t keep a focus on some short-term goals then you won’t know if you’re process is working for you or not. If you follow a strict routine for a few months and you don’t see improvements you are obviously doing something wrong.
Josh Waitzkin wrote about this conundrum in his book the Art of learning ,
“While a fixation on results is certainly unhealthy, short-term goals can be useful developmental tools if they are balanced within a nurturing long term philosophy. Too much sheltering from results can be stunting.”
In sports, I like to classify between individual sports and team sports.
It is evident that luck can has a bigger impact in team sports. A single error or stroke of bad luck can lead to a bad outcome for the entire team. Therefore, in team sports, the process, including teamwork, strategy, and preparation, plays a vital role, and results may take longer to show due to the fine margins involved.
On the other hand, individual sports like tennis or squash place the responsibility on the athlete. In these sports, the emphasis on individual performance is quicker, and the outcome directly reflects to the process. Success or failure is attributed to the individual's efforts. There is a level of luck involved but at the end of the day the blame has to be taken by the player playing.
In Investing
Investing in the markets is a very tricky thing. The amount of luck you have is unknown until and unless you are true to yourself. Nobody knows what the business is going to do in the future. Anything can happen.Some people believe they know what is going to happen for sure(which is BS btw). Any sort of successful investing has the same philosophy, buy a company which in your eyes has more value than the market is currently saying it has.
To follow this philosophy is very hard. It takes a lot of effort to firstly learn about the company and then figure out how it is currently performing and what their plans for the future are and how the management quality is in terms of allocating capital, etc. The sad thing is in the short-term the markets are very deceptive.
Many people will make money in the bull run that is going on. Everyone is going to attribute the current success saying it is their skill. The reality is their process is not very good. They have luck favouring their side. The outcome is good even though the process is bad. This is the worst thing to happen to an investor. Because with me from the limited experience I have, when I got a decent return on one of my investments I thought I am Warren Buffett. I am assuming everyone does. Although luckily, I wrote my reasonings for why I invested when I invested in the company and I realised that the price going up is only luck.
Sometimes the opposite happens. You have a great process but in the short term the outcome is bad. I believe this can be the case for most investors again. I have seen so many great investors be ridiculed for their holdings in certain stocks but in a few years time the returns and the quality of the company speaks for itself.
In investing the process and outcome eventually match. It may take you 1 year, 2 years, 3 years or more. But if you take a 10 year range the people with the bad process will have mediocre or bad returns whereas the people with a good process get the great returns.
Interesting find
Examples of how systems that should work FOR you end up EMPLOYING you
That’s it for this week!
Enjoy your weekend!