I recently managed to lose $12 million dollars in just over two years. Since the biggest mistake is the one you don’t learn from, I conducted an AAR (After Action Review) with my CEO and my Chief of Staff:
ME: “Why/How did I make such a bad mistake?”
CEO: “Well, you remember I told you I was against it.”
ME: Turning to my Chief of Staff with a questioning look for verification.
Chief of Staff: “Yes, she did, and I did too.”
I realized that I’d stumbled upon several gems of wisdom. The most obvious was that I need a more formal decision process: I remembered ‘words of caution’, but I sincerely did not remember a strong ‘No’. By having formal voting, by writing it down, by being forced to confront two clear, recorded, memorized, unequivocable thumbs down from people whose acumen I deeply respected, even such a radiant optimist as myself would have second thoughts.
The second gem was the inherent difficulties that exist in speaking truth to power, especially in the context of being a vested member of a hierarchical organization. Beyond the universal social norm of politeness that makes all of us tend to tone down disagreement, there is a common tendency to soften our presentation when speaking upward. Combine this with the normal human tendency to hear what we want to hear, a norm that is even stronger the more positional power one accumulates, you have a Double Whammy of potential miscommunication. Just when ‘loud’ communication is most vital, cultural conventions lead us astray.
Other relevant points: Several cognitive biases were in play including Halo Effect, Recency and Confirmation Bias as well as FOMO. The investment was the 5th deal with a certain fund, last deal had doubled in just two and half years. Also, FOMO: I didn’t like the idea of them doing a deal in my backyard that I was not part of.
Another major issue: False Sense of Certainty. The deal had other issues but the coup de grace was the rapid rise in variable interest rates. At time of purchase, SOFR (Secured Overnight Fund Rate) was a mere .25% and the consensus forecast over the next 5 years was for it to rise to 2.25%, 9x! Surely that was conservative? Yes, well, the Fed went on to institute what was literally the fastest rate rise in history and SOFR hit a high of 5% (loans occur at a spread over the base rate, typically 2.25 to 3.25, Fed also increased capital reserve requirements for banks, driving the market to the high end of the range.)
Closing Quotes:
“More people would learn from their mistakes if they weren’t so busy denying them.” – J. Harold Smith, 1910-2001
“There’s a bit of hidden magic in every mistake. The magic is called learning.” – Robert Kiyosaki, b. 1947, Rich Dad Poor Dad
“A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.” – John C. Maxwell, b. 1947
“To make no mistakes is not in the power of man; but from their errors and mistakes the wise and good learn wisdom for the future.” – Plutarch, 26-119 AD
As always, I share what I most want and need to learn. – Nathan S. Collier
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