In it, the Chairman of Oaktree Capital makes the case for the importance of being different--and the importance of daring to look wrong. The memo makes a strong case for creative thought being crucial in the generation of superior financial returns.
The recent post on signature strengths suggested that sustained trading success is an expression of our distinctive abilities and our application of those to markets. By definition, this means that there is an idiosyncratic component to success: it is a function of what makes us unique and distinctive.
To a person, when I think of highly successful traders, I can identify something quirky and original in how they approach markets. They are the antitheses of those who purchase trading software, stick with the preset values, and expect to make money. How they view and trade markets is closely aligned with who they are.
Howard Marks makes the excellent point: Everyone is willing to dare to be great. Few people, however, have the fortitude to stand out and dare to do the things necessary to be great. "You can't take the same actions as everyone else and expect to outperform," Marks observes.
Creativity--the generation of unique and distinctive ideas--springs from what is unique and distinctive in us. It pushes us to innovate: try new things, find new ways of doing old things. Creativity ensures that we will make mistakes and fall flat on our faces. Creativity sounds noble and beautiful, but in reality it is a messy process, filled with dead ends and new things that don't work. What we don't typically see is the many prototypes of the inventor that don't work; the drafts of a book manuscript that have to be deleted by the author; the canvasses of the painter that never see the light of day.
Can't lose goes hand-in-hand with can't win, Marks points out. Nothing expands without a push of boundaries--and a willingness to look wrong and be wrong. A great way to assess your trading process is to ask yourself, "How often am I conducting failed experiments? How often am I innovating and finding truly fresh ways to be wrong?"
It's much easier to trade fearlessly when you embrace failure as your teacher.
Further Reading: Creativity and Trading Success