May The Odds Be Ever In Your Favor (Aiming For Above Average)

The only way to get a result different from the average is to do something different. That much is obvious. Now, how to do something that gets a better than average result and not a worse than average result? That’s hard. Beating the market, beating the dealer, beating the competition and standing out from our peer group – they all require risk. Goodbye comfort zone.  

Famed investor Michael Steinhardt talked about the idea of “variant perception” in his interview in Market Wizards (1989). Steinhardt explained how his success came from finding a different potential outcome than what the market was expecting. If the market price represents consensus, he was fixated on reverse engineering the logic to ask if they could be solving the problem incorrectly, or even focused on the wrong problem altogether. 

Steinhardt was looking for what led to the average result by trying to understand how the better and worse outcomes (and the viewpoints that got them there) blended together. If we want to separate ourselves from the pack, we start by perceiving the variations within the pack. Looking forward, we acknowledge that more things can happen than will happen – and we make a list. Where most people shrink back into the pack is the last step: we have to make a call (or probabilistically weight several) and see what happens. This step is so hard because we’ll have to accept being wrong. A lot.

When we practice thinking different, we practice making mistakes. There’s not a lot of room for ego here. If being willing to make a mistake is leaving our comfort zone, acknowledging the mistake, learning from it and reconfiguring our minds in response is a cross-country road trip. What Steinhardt stresses is the importance of taking that journey repeatedly, while staying extremely sensitive to the downside of each mistake. Seeing if the time is worth the effort clipping coupons is a lot more reasonable than seeing if the risk of doing time from robbing a bank is. Mind the magnitudes and respect the downside potential. Common sense still applies.

When we’re in the habit of practicing variant perception, we’ve given ourselves a chance to rise above average. Yes, we’ll make a lot of mistakes, but we’ll make them for the right reasons: to learn from them. Whether we are creating marketing plans or investing in markets, aim for above average.  May the odds be ever in your favor.