We all make mistakes. What separates us is how we deal with them: whether we study them, share them, whether we learn and grow. Or whether we avoid addressing them because they spring from the depths of our identity, from the voids we refuse to acknowledge. As we will see, even being a self-made billionaire doesn’t protect you from repeating patterns if you don’t do the difficult work of analysis and introspection.
I tweeted about how Charlie Munger sent a letter and a Berkshire A-share to Robert Cialdini, author of the book Influence. “Warren and I have read your books,” Munger wrote, “we’ve made hundreds of millions of dollars. This is our way of saying thanks.” Cialdini recounted on Barry Ritholtz’s podcast that he started reading Buffett’s shareholder letters and found that Buffett used his mistakes quite effectively:
“Every year, Warren establishes his credibility... he mentioned something that went wrong that year. And then he says: ‘Of course we learned from that, we will never do that again.’ And he moves on to the strengths of the year, all the things that went right. He establishes his truthfulness which makes me believe in what went right.”
Buffett has been writing about his mistakes for a long time. Influence was first published in 1984. In 1985, Buffett wrote: "Our Vice Chairman has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. You’ll immediately see why we make a good team: Charlie likes to study errors and I have generated ample material for him."
While Buffett and Munger study and share their mistakes primarily to learn, we can use Cialdini’s advice and use mistakes to establish credibility: "Mention a weakness relatively early because that establishes your credibility for what you say next. That’s the moment for your strongest argument, immediately after you’ve mentioned the weakness." If you are looking for an example, check out one of Buffett’s favorite shareholder letters: Jamie Dimon’s inaugural letter at Bank One in which Dimon led with the bad news immediately followed by his pitch.
Infinite Loops
It’s easier to observe mistakes than to avoid repeating them. As Ho Nam pointed out:
“Something that a lot of people (including Buffett) say is that they do not want to repeat mistakes. I think that is wishful thinking. Humans tend to repeat certain mistakes over and over. Understand your tendencies and try to do what you can to minimize negative effects.”
Some mistakes are situational. We make them because we are stressed, tired, fall into the trap of a cognitive bias, or because we are being persuaded by someone else. To avoid repeating them, we should stay away from similar circumstances: “Even the wisest people won’t make good choices when they’re not rested and their glucose is low. The best decision makers are the ones who know when not to trust themselves.” NYT, Do you suffer from decision fatigue
But to Nam’s point, serious mistakes often stem from our “tendencies,” our personality, belief system, and patterns of behavior. Our most important choices, and therefore mistakes, are driven by our identities.
Which brings me to Kirk Kerkorian. I love his story: A self-made billionaire without a high school degree, he founded and took over airlines, built and traded hotels, casinos, and the MGM studio.
One day in 1990, he called his advisors to make a big bet on Chrysler. Chrysler was a cyclical automaker, indebted, and the economy was weak. His inner circle didn’t like the idea. Michael Tennenbaum, his banker at Bear Stearns, was skeptical. This led to an epic exchange as recounted by Forbes:
Tennenbaum: “This is going to create some kind of battle.”
Kerkorian: “No, I know Iacocca. He's going to welcome me.”
Tennenbaum: “I've never met a CEO without a 10 per cent shareholder who wanted a 10 per cent shareholder. Never.”
Kerkorian: “I'm going to protect him from other people. The company is vulnerable to takeover."
Tennenbaum asked whether they should contact Iacocca first.
Kerkorian: “Nope, I want you to buy the stock.”
Tennenbaum: “I’ll be happy to spend some time studying Chrysler and let you know what I think.”
Kerkorian: “I’d rather you wouldn’t.”
Tennenbaum insisted: “Kirk, we will put the entire Bear Stearns organization at your disposal. We will do a very in-depth analysis.”
Kerkorian: “Michael, if you and Bear develop an opinion on Chrysler, please keep it. I’m placing an order. Do you want it or not?”
And of course, they did. “Kirk may be going crazy,” Tennenbaum told Bear’s Ace Greenberg, who would handle the buying.
To which Greenberg replied: “Don’t ever tell Babe Ruth how to hold his bat.”
Kerkorian bought nearly 10 per cent of Chrysler. For several years he pushed for a higher dividend and buybacks. When management resisted, Kerkorian partnered with then-retired Iacocca to threaten a takeover. That did the trick.
When Daimler bought Chrysler in 1998, Kerkorian, according to his biography, walked away with some $2.7 billion in gains and dividends. Tennenbaum admitted: “All the smart guys, including me, said ‘Don’t get involved in a cyclical company.’ But Kirk picked the right horse, and he stuck with it.”
But what happened next?
In 2005, Kerkorian acquired a 10 per cent stake in GM. He recommended they sell their Hummer and Saab divisions and partner with a foreign automaker. Management was not interested. Kerkorian sold in late 2006 with an estimated $250 million profit. GM filed for bankruptcy in 2009.
When Daimler sold Chrysler in 2007, Kerkorian made a bid. Lucky for him, he lost to Cerberus. Chrysler also went bankrupt in 2009.
In the summer of 2008, he acquired more than 6 per cent of Ford for nearly a billion dollars, at $6–7 a share. At this point, the financial crisis was well underway. He dumped his stake at the end of 2008, somewhere around $2 a share.
A triumphant win was followed by a string of increasingly worse decisions. As Kerkorian bet on automakers and, through MGM, engaged in one of Las Vegas’s biggest construction projects, City Center, I can’t help but think he was trying to relive his glory days.
If being the ‘Babe Ruth’ of dealmakers and developers was an important part of his identity, how could he possibly retire from the game? Stepping off the court would have opened up a void that he would have had to fill with something else.
Self-verification theory suggests that we seek interactions with people who confirm our self-perception and tend to disengage with people who don’t. We risk losing the dissenting voices in our lives. But we need them when conditions change and when our winning formulas need adjusting. Be careful not to over-identify with a specific strategy, pattern, or victory of yours. You might overstay your welcome.
Facing the void
When I wrote about getting over heartbreak, I quoted a TED talk: “To fix your broken heart, you have to identify these voids in your life and fill them.” Unless you address the empty spaces in your life, it is hard to move on from the person who filled them for you. Or, as you move forward, you risk falling for the “wrong” person again. The same thing can happen professionally.
I once wrote that I ended up in finance because I wanted to follow in my father’s footsteps. After college, I briefly dabbled with a startup idea before realizing that I had neither the ideas nor drive to be an entrepreneur like him. But I still saw success in business as a way of getting his attention and validation. I was looking to fill a void and a prestigious, well-paid job was supposed to be the answer.
This became a problematic tendency when I picked jobs and bosses. After two years in banking, I joined the family office of a wealthy, self-made older gentleman. During my interviews I quickly saw him as more than a prospective employer. He seemed like someone who had it all figured out. I was inspired and hoped he would become my mentor. Most importantly, he showed an interest in me. It was the kind of attention and validation that seemed to fit my void.
Because of this I looked past all the red flags. First, he was retiring and I was going to work primarily for his portfolio manager. Second, it was a tiny firm with no brand. Finally, the role would blend investment research with other duties at the thinly staffed family office. These factors would make an exit to another investment role a real challenge. But with a mix of inexperience and professional infatuation I picked this career dead-end.
I left that job after three long and frustrating years. But the void was still there.
And so in 2020, the pattern repeated itself when I took a job at a startup hedge fund. I looked past obvious issues: I was not a good fit for a business development role. Building a new hedge fund is an incredibly demanding task and I, frankly, wanted to spend more time writing. Unless we succeeded, the role would not even have been better compensated. I took on downside risk with a rather foggy view of the potential upside. I did so because the founder fit the mold: he was someone who inspired me and who displayed many of the qualities I admired in my father. His approval could fill the void. Or so it felt.
But I was an employee first and foremost. When the pandemic hit and it became clear that we would not be marketing in the near term, I was let go. It was just business. But not for me it wasn’t. I had followed a personal tendency, rather than made a rational professional decision. As a result, it felt very personal. And confusing: how had I again put myself in such an unhappy situation?
It took me months of walking through the forests around my hometown to see my voids with clear eyes.
Making mistakes is inevitable and we should do our best to learn from them. In some cases we can even use them. However, the real challenge is to develop awareness of our tendencies. Their gravitational pull, if left unattended, can curve our paths toward major unforced errors. We might not always be able to avoid their influence. But with some courage and effort we can face our voids and start tending to them today.
Excellent piece, thank you for sharing your thoughts and experiences.