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A lot has been written about Warren Buffett’s investing philosophy, but the story of how he got his first client is fascinating. After working for his mentor and idol Benjamin Graham for many years, Buffett quit his fancy job in New York. He moved back to his hometown of Omaha at the age of 26, married and a father of two kids. He started Buffett Partnership Ltd, confident that he could manage money for himself and others. Word of his investing prowess was just starting to grow and soon Buffett got an invitation from Edwin Davis, a prominent doctor in Omaha. Buffett would get both capital and a reputation that would invite further investments if Edwin decided to invest with him. He went to his house and talked to him.
Throughout the talk, Buffett made one thing clear: He was a long-term investor and they would have to trust him. He was investing his own money in the fund and he had skin in the game. The Davises would get all profits up to 4% and Buffett would take a 25% fee only on any returns beyond that. But if they invested with him, they would only be able to add or withdraw their money once a year. He would not tell them where he invested the money and would only give a yearly summary of the results. He said something to the effect of, “Those are my terms, take it or leave it.” This was Buffett’s first big break as an individual money manager, yet he was firm about doing things his own way. Edwin Davis was impressed with Buffett’s straight talk and put up $100,000 to kick-start Buffett’s partnership.
At every stage in his life, there were opportunities for Buffett to cave to the pressures of what everyone around him was doing. But he marched to his own beat:
While everyone recommended buying a house, Buffett decided to invest in his own business and rent for a long time.
Buffett shut down his fund in 1969 though it was doing exceptionally well because he thought the market was overvalued. He was right.
While other money managers would always write optimistically about their future prospects, Buffett would do the opposite – if his returns were good in a particular year, he would caution his investors that this performance might not continue. But maybe because of that caution, his investments only grew.
Tech was the thing on Wall Street in the late 90s. But Buffett steered clear at the time because he didn’t understand the business.
There are two kinds of risks: Reaching for a better opportunity, and passing up an attractive one. Buffett did both of these multiple times based on what he believed in. He didn’t care about “keeping up with the times.” His record speaks for itself.
This is a perfect example of how contrarian thinking and consistency can create an exceptional life over time. Buffett is not only among the top investors who ever lived but he also optimized for a life of freedom and happiness that was consistent with his principles. There are a lot of guides out there that tell you how to get ahead of 99% of people. While I can’t tell you what you should do to get there, I can talk about how you can approach your life and career to maximize the odds of success.
This is what I’ve learned from my personal experience, and interviews with entrepreneurs, creators, and friends.
Contrarian and correct
Humans are social creatures, and when we’re not conscious of what the right thing to do is, we instinctively look to those around us for guidance. Research from a Keynesian perspective has highlighted why this worked earlier – If you were more docile and agreed with the crowd, chances of conflict were reduced, and the tribe would be strongly connected. But in a modern world with complex problems, this isn’t the best approach.
Being contrarian is difficult because most people instinctively feel a need to fit in or explain themselves. People are comfortable failing if they take an “acceptable” decision but they don’t want to do something risky, fail, and look like a fool. They’re also uncomfortable standing out from the crowd. This is called “The Tall Poppy syndrome.” To be truly exceptional, you have to be comfortable with looking different.
But becoming a contrarian doesn’t necessarily make you right (All you need to do to verify that is go on Twitter and scroll through your feed to see the number of outrageous assertions out there). Rather, you have to work on making a better model of reality that most other people disagree with. One way to do this is to think from first principles. Writer Tim Urban talks about how there are two types of thinking:
Cook mode where you look for a recipe to solve your problem.
Chef mode where you understand the ingredients of your problem and come up with your own recipe.
When presented with a new problem, most people instinctively reach for Cook mode. With Google, ChatGPT, and the internet, this is way easier now than it ever was – and it’s not necessarily wrong. The problem begins when you start Googling what the best job or best approach in life is for you, without thinking from first principles. You need to first understand what your values are in life, what is important to you, and what you are willing to give up. That will give you the clarity to pursue a contrarian path.
My contrarian decision
One of the most important decisions in my life was what I would do after high school. Most of my friends were admitted into good colleges, and my family, friends, and peers all pushed the idea that going to college was a prerequisite for doing anything great in life. I knew what my priority was: I wanted to be financially free and build a career that would last a lifetime. I also knew that with my grades and lack of aptitude for sitting in a classroom, college might not give me the same payoff it gave others.
So I decided to get my real estate license right out of high school at a time when the market was in a slump and I started working at the age of 17. Getting a break was tough in a field that was dominated by veterans, and there was pressure on me to go to college. But I also knew what my strengths were – I was able to figure stuff out, I liked talking to people, and I got a headstart of four years when I made money without taking on an education loan.
My second contrarian decision was to start investing in real estate in 2011 when the market was at its worst. There was a lot of doomsaying about how shadow inventory would be coming in and wrecking the market and how prices would drop further. But based on my time in real estate and my judgment, I knew that this was a good price point even if prices could drop in the short term. I sunk all my life savings into buying and refurbishing three foreclosures in this period, which gave me a 500% return in the next ten years!
All this is not to say that you should blindly go against conventional wisdom. It’s a reminder to reassess your own values, strengths, and weaknesses, and pick a path that’s better suited to you. But when there are so many options out there, which one do you zero in on?
The paradox of choice
Social influence might be a big factor to overcome, but even more overwhelming is the sheer amount of choice available in the world today. Psychologist Barry Schwartz explored this in his book “The Paradox of Choice.” By putting enormous pressure on yourself to take the perfect decision, you could paralyze yourself from taking any action and also not have confidence in any decision you make.
The solution here is to remember that there isn’t just one road to heaven. There are multiple ways to shape a successful and fulfilling life. Keeping a couple of rules in mind can help you avoid the common pitfalls:
Don’t use outlier events to decide life goals. For example, winning the lottery or becoming rich through Multi-Level Marketing schemes might be possible, but the probability is extremely low. Be reasonable.
What works on “the average” can be helpful to see if your goal is viable – but that doesn’t automatically decide if you’re going to be successful. Programmers might make more on average than advertising professionals, but there are both programmers who are paid very less and advertisers who make a lot of money. You could pick something that matches your interests and aptitude that has a reasonable chance of success.
Learn from your heroes but don’t try to imitate them. What worked for them might not work for you. Instead, identify your own niche and strive to become exceptional at it.
In my own case, I had a passion for YouTube and content creation. Most of the videos I watched were entertaining and great at storytelling. While I learned from all of them, I realized that my interests were in the financial space and I spotted an opportunity to educate people about money and investing. Find something that’s uniquely suited to you – it’s okay if it takes a while or if it changes with time.
Find your trade-offs
After winding up the enormously successful NBC hit show named after him, Jerry Seinfeld hit the road again to start doing standup. The documentary Comedian tracks his progress toward making his next special. Parallelly, it tracks the rise of a budding comedian named Orny Adams, who complains that he’s anxious about missing the bus while all his friends are making big bucks on Wall Street. Seinfeld shakes his head and tells Adams his favorite story about show business:
Glenn Miller's orchestra is doing a gig somewhere. They can't land the plane because it's winter, a snowy night... They have to land in this field and walk to the gig. So they're carrying their instruments and walking through the snow, it's wet and slushy, and in the distance, they see this little house with lights on inside. They go up to the house and look in the window.
Inside they see this family. There's a guy and his wife, she's beautiful, there's two kids, and they're all sitting around the table, they're smiling, they're laughing, there's a fire in the fireplace. These guys are standing there in their suits. They're wet and shivering, holding their instruments, and they're watching this incredible Norman Rockwell scene.
And one guy turns to another guy and goes, 'How can people live like that?
"That's what this is about."
Seinfeld wanted to be a professional stand-up comedian, and in his mind, he had already “made it” when he started earning money doing what he wanted. The success that followed was incidental, according to him. If you don’t believe that, think about why he would still be doing stand-up at the age of 69 after all the wealth and fame if he didn’t really love it.
Any life you live will have advantages as well as trade-offs you’ll have to make. If you make it as a Wall Street executive, you’ll be rewarded with exorbitant amounts of money while working long hours under high stress. If you’re a content creator, you get to do something you love but the income is unpredictable, your social life might suffer, and you will have to manage your own schedule. If you’re in show business, you might shoot to fame but sacrifice your privacy in exchange.
It’s not enough to figure out what you want to do. Think about what you’re willing to give up. Passion and persistence are important, but if you design a lifestyle that’s sustainable according to you, you have a better chance of persisting.
Ten steps to fast track
There are a lot of things that I have learned over the last ten years about how to rise to the top 1%, but if I had to condense all of them into 10 actionable steps that fast track your success, this is what they would be: