How Lessons from a Navy SEAL Can Make You a Better Investor

How Lessons from a Navy SEAL Can Make You a Better Investor

By Justin J. Carbonneau

“War is a nightmare, war is awful, it is indifferent, devastating and evil. War is hell. But war is also an incredible teacher, a brutal teacher and it teaches you lessons you will not forget.”

In a 2017 TED talk,  former Navy SEAL, best-selling author, leadership consultant and top podcast host, Jocko Willink, shared his experiences and key leadership lessons that emerged from a battle in Ramadi, Iraq, a seemingly insurmountable mission in a city overrun with terrorists.

One might expect Jocko’s talk to center on the strength and valor of our nation’s Special Forces, the depth and precision of their training and conditioning, on how they overcame the enemy and accomplished the mission.

But the focus was completely different. While leading a team from SEAL Team Three’s Task Unit Bruiser, Jocko explained how the “fog of war” rolled in and resulted in one of the worst things that can happen in a battle – fratricide – friendly forces firing on friendly forces.

Jocko explains that out of that hellish experience in Ramadi emerged a leadership philosophy he calls extreme ownership –the idea that, as a leader, the ownership of the outcomes starts and ends with you. Teams have successes and failures, but rather than lay blame, point the finger and look for excuses when things go astray, the best leaders bypass ego and take responsibility, an approach that flows down to the team, bolsters cohesion and improves the chances of delivering on the objective.

Are You A Villain in Your Own Narrative?

I was recently reminded of Jocko’s talk while listening to host Ted Seides interview Peter Kraus in an episode of the Capital Allocator’s Podcast titled, “Widening The Aperture On Alpha”.

Peter runs Aperture Investors and has decades of experience of in the asset management business (including a run as partner at Goldman Sachs as head of its Investment Management unit and Chairman and CEO of AllianceBernstein).

During the interview, Ted and Peter (~58-minute mark) discuss how a portfolio manager may view their successes and failures, and what Peter looks for when selecting a manager. He points out that when an investor is successful, that success has the potential to undermine their self-awareness. Successes can blind them, he argues, leading to overconfidence. When things go poorly, on the other hand, he explains, there is opportunity to gain real insight and to learn from misjudgments.

Peter ponders whether the manager has the ability to “be the villain in their own narrative” or instead to blame something else for their missteps, a concept reminiscent of Jocko’s explanation of extreme ownership.

While the machinations of a Wall Street trading room pale in comparison with the atrocities of war, Peter and Jocko’s experiences both highlight the value of accountability and offer important takeaways for investors.

Four Lessons for Investors

Learn from failures. Investing decision can be fraught with mistakes, mishaps and misfortune. Chasing the hottest stocks, moving in and out of trades based on hunches in an effort to time the market, disregarding trading and other expenses, succumbing to analysis paralysis or recency bias — these are only a few of the shortfalls that can damage a portfolio. The first step is to acknowledge these mistakes, because only then can you develop strategies to avoid them in the future.  

Take ownership and responsibility. By exhibiting a willingness to take ownership for what went wrong in Ramadi, Jocko encouraged his SEAL team to do the same.  In investing, you may choose to only buy the S&P 500, allocate to a manager, pick individual stocks, sit on cash, fire a manager, sell a mutual fund or ETF or use tools and research to support to your decisions. But in every case, the decision begins and ends with you. Identifying ways to make the right choices (or at least tilt the odds toward more right than wrong) and stay committed to your plan could be the best strategy for avoiding pitfalls during downturns.

Embrace humility & avoid overconfidence. Maintaining humility is the best defense against overconfidence, something investors can easily fall victim to. For example, imagine you buy a stock and the stock doubles. That success fuels your thinking that the next stock you select also has a good chance of doubling. But the reality is that markets are influenced by thousands of variables and the odds of repeating that performance is unlikely. Maintaining humility helps investors guard against confusing success in one area with skill in all areas.

Be Self-aware. Understanding your limitations is the foundation of smart investing decision-making. Even the savviest investors lack the ability to predict the future, to know what the market will do next. Maintaining awareness around your strengths, weaknesses and biases can help you build strong, sustainable investing strategies. Take Warren Buffet and Charlie Munger – they often talk about staying within their circle of competence and Buffett even has a “too hard pile” on his desk. In Berkshire’s 1996 shareholder letter, Buffett wrote, “What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

Source: Understanding your Circle of Competence: How Warren Buffett Avoids Problems, Farnam Street Blog

Navy Seals are some of the most competitive and disciplined individuals on the planet. Of the 40,000 men and women who join the navy every year, only about 250 achieve the status to become active Navy SEALS – that’s just slightly over half of a percent.

Rising to the ranks of the Wall Street elite is also a competitive and grueling process, and the parallels drawn here attempt to highlight the importance of controlling emotions, acknowledging weaknesses, and understanding the many limitations we face.

For investors, staying humble and taking responsibility and ownership of decisions can build a foundation for long-term success.

Justin J. Carbonneau is VP at Validea & Partner at Validea Capital Management and Social | Podcast | Interviews | Articles about Justin all in one place