September 08, 2017
First, a stat from Vanguard. I ran across this recently.
"We took a look at what investors paid active managers over the last decade at the end of 2015—$437 billion. That’s a pretty high handicap to overcome. What did they get? Those active managers underperformed the indexes by $545 billion." - Tom Pampulla, Vanguard
Perhaps Vanguard should examine their own data and wind down their own active funds, which generate higher fees for their firm.
On this fine Friday we are going to talk about focus. Focusing in work, and in life, is a critical skill. When Luke Skywalker was in the throes of the Death Star, going in for the kill, did you see him tweeting on the side? Did he take that X-wing fighter of his out of the action because he had an advisory board meeting to pop into? No, Luke was dead set on one thing, and he delivered.
Robert Shiller, a Noble Prize economics laureate from Yale, once said: “The ability to focus attention on important things is one of the defining characteristics of intelligence. Failure to focus attention on proper things is also one of the most common characteristics of human judgment errors.”
People have asked me recently if we'll offer other services to clients. The answer is no, not now, and not in the future. We intend to do one thing exceptionally well, which is to run investments. I am sure there are lots of ways to improve insurance, and I'm sure insurance people on this list know a lot more about that than I do. I'm sure there are many ways we could repackage our ideas into paid newsletters or other products, none of which interest me. Family investment offices with all types of ancillary services? Meh, I'd rather just aim to outperform on the investment side, and have those services bought elsewhere.
The investments industry itself is enormous, and one could easily get lost in its sub-sectors that are not going to add value to a defined plan.
Years ago IBM surveyed financial executives at banks, and compiled a list of what they thought their customers wanted. At the top of the list were statements like "a one-stop shop where customers can buy any product they need." When IBM inverted the list, it was almost a perfect match to what consumers said they wanted. At the top of consumers' minds, items like "being able to reach someone who can help me," "no-fee checking," and "websites that actually work."
But focusing is harder than it seems. Instead of reveling in the buzz of new ideas, it means grinding away, using your own products and improving tiny details. It involves saying "no" to exciting proposals all the time, before they encroach on the core. We all have 1,440 minutes in a day - there is no magic minute machine for any of us.
Charlie Munger, Warren Buffett's grouchy partner, once made a comment that I noted. He said you don't have to have a lot of mental models, but the ones you do have need to be correct. Focusing increases those odds.