Live your life based on an inner scorecard
Life is too short to allow the opinions of others to dictate how we should live
“The big question about how people behave is whether they’ve got an inner scorecard or an outer scorecard. It helps to be judged by your own scorecard.”
- Warren Buffett
Do the opinions of others rule you?
Do you filter all your decisions through a sieve of how others might view your actions, or do you decide to proceed regardless of others’ opinions?
Humans are social creatures; it is what has allowed us to develop as we have and reach the top of the food chain.
It is only natural that we would have developed a need to fit in and be liked to some degree. Deep within our genes is the memory of a time when not doing so meant death.
It isn’t universal; there is a spectrum to which we all sit, and there are varying degrees of this basic need inside of people.
Some people care deeply about what others think of them, and it affects everything they do; others care much less and proceed as they see fit.
Warren Buffett is famous for referencing the inner and outer scorecard in relation to both business and life. It is the means by which he has made decisions throughout his life, both with his investing philosophy and how he has tried to live.
It is by no means a perfect system; Warren himself is a good example of someone who has made mistakes in various aspects of his life. Although it appears that he has decided not to let those mistakes define him, he has simply aimed to move forward.
Using an inner scorecard has been a major part of Warren’s investing strategy throughout his lifetime, and I believe there are lessons we can all learn from this concept.
No individual falls squarely into one camp and not the other; most of us have a foot or maybe even a toe in the other camp.
A person driven by an outer scorecard will make decisions based on how it will make them appear to others. Their actions will have the underlying intention of gaining recognition. It is a flawed model.
Yet, someone who is driven by an inner scorecard cares only about how they view themselves. It is more about an inner feeling of validation and contentment than any external feeling of value the world gives them. It is a much more sustainable and healthy model.
Below are two examples when a person of note was being driven by the outer and inner scorecards.
Outer Scorecard
Napoleon Bonaparte was the Emperor of the French Empire in the early 1800s. His military genius had been unmatched for years, and his power allowed him to hold influence over most of mainland Europe.
He dominated the political policy of his state and also of his neighbours, who feared his wrath if they dared break ranks. What he was enforcing was a European-wide ban on British goods (The Continental System) to subdue the neighbour that he had been unable to best, due to their powerful Navy and its ability to protect their island fortress.
Russia decided to break from this, and a furious Napoleon chose to teach the behemoth a lesson. The result was a disaster that wiped out most of his army and eventually led to the collapse of his regime. - A mistake that would be made again 129 years later by Adolf Hitler, who did not learn from the lessons of the past.
Bonaparte was very concerned about how others saw him. He wanted to be viewed as prestigious, capable and as equal to, if not better than, the other aristocrats of France and Europe. He let that drive him, and it overshadowed any good he did (unlike Adolf Hitler, Napoleon implemented legal and administrative reforms that are still the bedrock of the French legal system today) and led to his exile - twice.
Inner Scorecard
Michael Burry is best known for betting against the U.S housing market between 2005 and 2007. Michel trained as a medical doctor (neurologist) but never practised medicine and instead moved into the investment world, where he was self-taught.
He opened his investment fund, Scion Capital, in the year 2000 and performed well for his investors at a time when the S&P 500 was still recovering from the Dot-Com Crash.
It wasn’t until 2005 that Michael took an interest in the subprime residential mortgage market. It was during his research that he came upon a discovery: the mortgage-backed securities that the banks were not what the market believed them to be, and the housing market rested on a foundation of sand.
Burry decided to short (bet against) the housing market by purchasing Credit Default Swaps (these did not exist before this, and the banks had to create a new product specifically for him). He would have to pay out annual premiums on these swaps, and if the loans failed, the banks would be required to pay out to him.
The reaction of the market was dismissive; the general feeling was that he was eccentric and was making a bad play as the housing market was safe.
The real trouble came from the investors within his own fund. They started to put immense pressure on Burry to backtrack on his bet, attempting to take their money out of the fund (which Michael put a freeze on to protect it) and going as far as to threaten legal action.
He had to hold strong to his convictions at a time when all others were telling him he was wrong, but he was firm in what he believed.
In time, he was proven correct with the fund seeing a 489% gross return.
Conclusion
Living by an inner scorecard is in many ways a more difficult path to embark on. The decisions we make may not be popular or appear common.
Others may judge our decisions or even outright laugh at them. They may even hate us for what we believe.
Yet, someone who can live a life true to who they are and do what they believe to be right or at least right for them, will be able to sleep better at night knowing that fact and will have peace within themselves.
It is usually these people who have the largest effect on the lives of others and, in some cases, change the world.
“The greatest thing in the world is to know how to belong to oneself.” - Michel de Montaigne
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