Dr. Watson walks into a room, and Sherlock Holmes instantly accuses him of hanging out in the club all day.
“How did you know?” Watson asks.
“A gentleman goes forth on a showery and miry day. He returns immaculate in the evening with the gloss still on his hat and his boots. Is it not obvious?” Holmes says.
“Well, it is rather obvious,” Watson admits.
“The world is full of obvious things which nobody ever observes,” says Holmes.
Of course it is.
Obvious things escape attention because attention is drawn to what it wants to see, or what it thinks makes the biggest difference, which often isn’t the obvious things because obvious things are viewed as too simple to make a difference.
The kind of stuff Holmes saw on Watson’s shoes we can see in business and investing. For example, it’s easy to miss the obviousness of …
Uninfluential people whose aggregate actions are enormously influential. If you manage a $50 billion hedge fund you will be called a market maven and your investment actions will be viewed with rapt attention when analyzed on CNBC. If you are unassuming Steve from Boeing’s accounts receivable department who invests in a $401(k) plan, no one will pay any attention to you, because poor Steve has no investing influence. But Boeing’s 401(k) plan manages $51 billion, made up almost entirely of people like Steve from accounts receivable. They self-direct their investments, both the allocation and the timing of that allocation. That gives them more trading influence than the $50 billion hedge fund manager, whose supposed influence stems from the ease of focusing on one well-dressed person rather than 85,000 Steves. It is obvious that an army of Steves has more direct investing influence than any single fund manager. But they escape your attention because Steve by himself makes no difference. The same is true in elections, consumer spending, and cultural trends: It is easy to underestimate the collective influence of tons of otherwise uninfluential people. This is partly why the market has performed so well while so many macro investors predicted doom. Armies of Steves kept investing and their actions were more influential than any chief market strategist.
The tendency of people to become agreeable only because it is the path of least resistance to overcoming difficult problems. In a perfect world everyone around you would point out why you’re wrong and suggest a better solution to your problem. Like Twitter. But most of the world doesn’t work like Twitter. Most people don’t like face-to-face confrontation, aren’t 100% confident in their views, and if given a chance to say something polite that will end this hour-long meeting so everyone can go home vs. admitting an uncomfortable fault, they’ll choose the former nine times out of ten. How is this not obvious? Look around; people make bad long-term choices when there are easier short-term choices all the time! Thirty-four percent of Americans are overweight because the dietary path of least resistance is more influential than the hard one. Of course the same force applies to business and investing decisions. It is easier to convince yourself and others that you made the right decision than to admit a fault that requires repair. This is especially true when bosses cross the thin line between motivational and dictatorial; Employees will tell you what you want to hear so they can keep their job, and then – to avoid further confrontation – they’ll leave the company without telling you the true reason they’re departing. This, I think, is why bad corporate culture tends to be sticky: An employee who is too scared to tell the emperor he has no clothes means the emperor will walk around naked forever, even for the next wave of employees. Charlie Munger nailed the solution to this when said, “The highest form a civilization can reach is a seamless web of deserved trust.”
Important stuff that isn’t exciting to think about. Ideally the smartest brains and the biggest incentives in finance should be trying to get people to save more money, because that makes the biggest difference in outcomes. The smartest minds and the biggest incentives in medicine should be focused getting people to eat better, exercise more, and quit smoking, because that makes the biggest difference in outcomes. But it rarely works that way. There is a bias toward excitement over sheer importance for both individuals and the professionals who help them. This is understandable: Helpers want an interesting career, and clients want advice on stuff that isn’t obvious to justify the cost. The result is that the obvious but important stuff is discounted and ignored to favor more exciting projects. Some examples of stuff that’s important but boring: Good accounting, especially at startups. Corporate culture, especially when a company is led by a technical founder. Remaining open to other views, especially as you gain success from one view. And the biggest: being on time for appointments. Calendar management is boring but reputation is everything, and linking the two is harder than it should be.
Vital information relayed by inarticulate or seemingly unqualified people. Good storytellers with OK ideas are more persuasive than average people with the right answers. This is obvious because everyone knows how much money and effort goes into marketing. But then it also should be obvious that there are many people with useful information and great ideas who aren’t natural marketers. We ignore these people, which is a shame. There is no chance that the best marketers, the best speakers, and the best writers always have the best ideas. But that’s easy to overlook because good communication is seductive. I often wonder how many tens billions of dollars have been paid to management consultants to solve problems that low-wage line workers with direct experience had solutions for if senior management took their advice seriously.
Small things that compound. The world is filled of people who can describe the power of compounding while eating fast food and paying for subscriptions they never use. The whole point of compounding is that what seems inconsequential in the short run can grow huge in the long run in a process that is unnoticeably slow and easy to overlook. A few examples: Bad customer experiences that slowly erode a brand, burning bridges with people who don’t seem useful to you at the moment but can change your life in the future, and neglecting important relationships.
These are obvious but will always be hard to pay attention to. “There is nothing more deceptive than an obvious fact” Holmes said.
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