Self Delusion Doesn’t Pay
People are not born great investors, business leaders, or even musicians. It’s a process of continuous learning, and honing of natural talent.
A critical aspect of learning is honest self-assessment. It’s hard to repeat successes if you can’t identify what went right. Or avoid the same mistake twice, if you’re not honest about what went wrong.
Honest self-assessment is not easy. All human beings are vulnerable to cognitive biases of the attribution error, or self-serving bias, that are baked into our minds. For example, we like to see ourselves in a positive light, so we give ourselves credit for wins and we blame external factors for losses.
Investors need to take note. In life, nobody is keeping score, but investors have a very clear performance scorecard.
At Alliance, we do frequent retrospectives to look back at deals and review our approach. How strong was our decision-making process? Did we gather all the information we needed? What was our original reasoning, and how did things actually play out?
Any investor who does not carefully examine their past decisions is basically relying on luck. Things went well before, so surely they’ll go well again. This kind of self-delusion won’t work for very long.
As a business leader, dedication to learning is something I look for when I’m hiring. It’s also something I try to cultivate in all my team. Nobody is born with all the answers, and there is no shame in making an honest mistake, as long as we learn from it.
