Today’s education system is largely a system that rewards students for following the “right answer” and punishes them for following the “wrong answer.” People spend their most formative years living in such a system and this system shapes these people into who they are. The best-performing students (at least, academically) are the ones who are best at remembering and following the “right answer” and best at not touching the “wrong answer.” This way of doing things becomes instinct. That’s how they succeed. That’s how they build up their own social identity. Whether they know it or not, it is part of them.

Recently, I attended an in-person event that featured some of the world’s most eminent endowment investment managers — many of these names you probably have read about in books or in newspapers. One of the topics that was brought up by this panel was this: Because the “Yale Model” of institutional investing has been written into a book, the book becomes the thing that most institutions are trying to copy and follow. The model has been so widely imitated that at this point, everyone knows how to do what to do, everyone is doing pretty much the same thing, so as a result, institutional investing has become more competitive than ever.

Listening to these prominent investors speak, I was thinking to myself: Isn’t that also the case for other types of investing activities, such as public equity investing? What we do, how we do it, those have already been widely documented and widely practiced. Plenty of books have been written by successful investors. The “right answer” is out in the open for everyone who wants to see it and practice it — and most people apparently do, as this panel pointed out. The net result is that the game is more competitive than ever!

Logically, the question goes to this: In investing, if the “right answer” is available to everyone, where can an investor find an “edge”?

This is how I understand it. First of all, I do not think an investor can obtain an edge merely by possessing the “right answer.” Investing is an interactive game, not a static game. If you are baking a cake at home, having the “right answer” (i.e., the right ingredients, the right tools) will help you produce a tasty result. But in investing, the game is about smart and hardworking people competing with smart and hardworking people, while all have had great education and superior training, all possessing the “right answer.” Individuals’ advantages, on a broader scope, get neutralized because similar advantages were shared by other equally well-trained individuals. Net net, having the “right answer” won’t produce a meaningful nor sustainable edge for any investor.

Then, in investing, where does the “edge” lie? I increasingly think it is about discipline and passion. In order to achieve and sustain the highest level of performance, the person must be disciplined in his or her true nature and have a genuine passion for what he or she does. An interviewee at a job interview can try to pretend to be passionate about the job; he or she can pretend to be disciplined and passionate in the first few months or even a year on the job. But to fake that for years and decades, that is unlikely — or risks having a less fulfilling life experience. And whether you are deeply disciplined and truly passionate for something, unfortunately, is not related to whether or not you have the “right answer.”

Let me come back to the topic of the “right answer” and some of the dynamics it creates in the investing space. As I discussed above, the “right answer” is now made widely available, and most people are instinctively attracted to this “right answer” — because that is how they succeed in life and how they operate. They had the best test scores in school. They nailed most job interviews. They succeed by following the “right answer” that they think other people think is right and by avoiding the “wrong answer” that they think other people think is wrong. The unfortunate result of people following the “right answer,” as one can imagine, is that investors are increasingly not given the chance — by themselves, by their committees, by their clients — to pursue something different, to be more entrepreneurial. They are probably thinking something like this: “Anything that is not conventionally right is probably wrong. Anything that is probably wrong should not be touched, or I will risk a failure that others will see — and that is embarrassing. I succeed by not making mistakes. That’s my winning formula. So, I should not try these probably wrong answers.” They and the people around them are trained to follow the “right answer.” The most innovative things they will do is to work longer hours (just like they did in school to score higher than their classmates) and to try the same thing but harder (now we have a word for it, called “involution”). All in all, by following the “right answer,” the outcome is almost guaranteed to be mediocrity and unhappiness.

The discussion here comes to an obvious point: Excelling academically and excelling practically are two different things. Doing well in school and having something shiny on a resume bears no immediate relationship to how that person will do in a practical environment. Ironically, it seems to do the opposite by confining that person in a state of mediocrity. The training one had to go through in order to get the most conventionally shiny things on his or her resume trains these people to follow the “right answer” and to avoid the “wrong answer.” By having the most prestigious schools and the most desirable company logos on their resumes, what these people achieved is probably the following: They smooth out the volatility in their lives, cutting off the left tail, but also repressing their inner drive to pursue the right trail — to pursue extraordinary greatness, which typically involves doing things that may look stupid, wrong, or too risky in the first place. They probably think to themselves, “I am already in such a comfortable place. Why risk it?” I bet most investors think in a similar way too.

Lastly, let me share some thoughts I had about “right answer” and “first principles.” These days, it seems to be in fashion for people to quote some lines of “first principles” to show they are doing something right so as to seek other people’s approval. Just like how the phrase “I am humbled to announce…” has been abused without the person saying it being truly humble, the phrase “first principles” are evoked in situations without the person truly doing what “first principles” demand that person to do.

First principles, I believe, are not about seeking the right answers that you think that other people consider to be right. Instead, you should reflect on your own circumstances, strengths, and weaknesses, so as to produce a set of strategies that best reflects your own circumstances. There is no readily available “right answer” for you to copy and imitate. That is the essence. The idea of the “right answer” has no place here. First principles are about thinking about what your first principles are. Period.

Think about the greatest figures in history and in our own times. True first-principle thinkers were doing things that looked silly to others in the short term but not that silly in the long term. And if you are a real first-principle thinker and doer, why would you care about whether other people think you have the “right answer”? Why do you care about the “right answer” at all?

That is why I reject the conventional notion of the “right answer.”

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