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Emotions are our enemy. Emotions make us do the wrong things at the wrong time. And we must resist this. M-hm. I want to emphasize that the influences that operate on crowds are universal. M-hm. I feel them too. And you feel them too. We all read the same newspapers here. The news is the same for all of us .
To outperform the crowd, by definition, you must stand out from the crowd. You have to take a different position. And you must be determined to do it. And this, you know, this just can't be easy. A hero on the battlefield is not one who is not afraid . This is someone who is scared, but he does it anyway.
I mean , if you're in dangerous circumstances and you don't feel fear, you're probably crazy. M-hm. But most importantly— can you feel fear and still do your job? What I wanted to say Yes. Dave Swensen, who ran the Yale University endowment for 35 years and did a great job, wrote a book called Pioneering Portfolio Management.
I think it was in '98 or '99. He said that successful investing requires adopting uncomfortably idiosyncratic positions. Everyone is affected by the same influences. Everyone thinks roughly the same way. Everyone nominates the same winners and criticizes the same losers. It is obvious that tomorrow's winners are usually found among today's losers, not among today's winners.
But to look among today's losers for what others consider junk, you have to be idiosyncratic. You have to take idiosyncratic positions. And rarely can anyone do this without feeling discomfort. So I think those two words—"uncomfortably idiosyncratic"—tell a lot of the story. M-hm. But you have to do it.
And you have to, you know, when Lehman goes bankrupt, you have to buy. You can't sell. The bottom line is that to be a great investor, you have to dare to be great. But then, somewhere in 2015, I said to myself: " You know, everyone dares to be big." Everyone aspires to be great. But for me it took on a different focus.
That's why I wrote "Dare to be big, too," which I would recommend you read instead of the first part. And to be a great investor, you have to dare to be different. As I just explained, you have to be willing to do things that are unpopular and by definition will seem crazy to others. You must dare to be wrong.
Because there's nothing you can do, I think the goal of professional investing is to be better than average. Investing is a funny thing. Being average is very easy. You simply buy an index fund. Being better than average is very difficult. But if you want to be above average, everything you do to achieve that puts you at risk of being below average.
You prefer certain stocks. This is a potential error. You avoid certain stocks. This is a potential error. You are diversifying your investments abroad, not in the US. This is a potential error. Do you buy stocks with high or low beta, hold cash, etc. There is nothing you can do to achieve an above-average result that doesn't put you at risk of achieving a below- average result.
So, if you dare to be different, you must be willing to be wrong. So I came to two important conclusions. It's not what you buy that matters, it's how much you pay. Mm. And success in investing comes not from buying good things, but from buying things well. Mm. And if you don't see the difference, you're in the wrong field.
Literally. So, whatever you buy should be a combination of high quality M-m. and/or attractive price. You don't want to buy a great company at a terrible price. You don't want to buy...you probably don't want to buy something with terrible fundamentals at a price that seems very low. This is the balance you are looking for.
Did you know that Howard Marks set up an $11 billion fund specifically for a crisis like 2008? Marx and Oaktree had been increasingly cautious since 2005-2006. By 2007, they were preparing for the credit bubble to finally burst. Instead of chasing the market, they built up a huge reserve fund to have capital when others had to sell .
And then the crisis came. When Lehman Brothers went bankrupt in September 2008, panic gripped financial markets. Investors rushed to the exits. Asset prices were falling, and fear was everywhere. Oaktree did the opposite. They began to aggressively invest capital in distressed assets, investing approximately $500-600 million per week for 15 weeks.
While everyone else was thinking about how much worse things could get, Oaktree was thinking about what they could buy at these prices. And ultimately, these investments generated billions of dollars in profits for Oaktree and Howard Marks. But here's an important lesson. Oaktree didn't make these bets because they knew exactly where the "bottom" of the market was.
They were preparing for the moment when the opportunity arose. And this is what “uncomfortable idiosyncrasy” looks like in practice. After all, great investing is not just about having the right information. It is the psychological resilience to act on this information when your emotions are screaming at you to do the opposite.
You may believe that the business you own will be worth significantly more in 10–15 years. But when the market drops 30% tomorrow, that's when your psychology is put to the test. And that's why having some cash in reserve is a psychological advantage. Cash is not just about making a profit. It gives you the confidence to calmly survive volatility and, more importantly, the ability to seize the opportunity when everyone else is forced to sell.
But becoming an outstanding investor requires something more. You must dare to be different. Dare to be wrong. Dare to be patient. And dare to be criticized for your decisions. Because it's impossible to stand out from the crowd by doing the same thing as everyone else. After all, success comes from the conviction to think independently, act differently, and remain patient when everyone around you loses their temper.
And if you have the ability and courage to do so, that's when you get a real chance to stand out from the crowd.
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