Have you ever wondered what separates the best chess players of the world from the others? You can list down the usual suspects like “hard work, dedication to the sport, sacrifices made, etc”, yet there is something more.
The best players are able to anticipate the moves of the opponent, time and time again, and with a very high level of accuracy. Knowing what their opponents will do, helps them plan their moves, sometimes as high as 7-10 moves down the line.
Howard Marks calls this “second level thinking”. He argues that if something is blatantly obvious, everyone else is thinking of the same thing, which doesn’t help. To succeed as an investor, one must do something which the others haven’t thought of and break free from herd mentality.
“First-level thinkers think the same way other first level thinkers do about the same things, and they generally reach the same conclusions. By definition, this can’t be the route to superior results. All investors can’t beat the market since, collectively, they are the market”– Howard Marks
So, what can investors do to develop second level thinking?
– Think Long Term– Understanding how your current action may have consequences in the future and take investment decisions accordingly. See how the decision plays out at multiple time horizons
– Take second opinions – What may seem inherently obvious to you, may not actually be true, due to a number of biases. Ask around and take multiple opinions before taking investment decisions
– *Question everything *– Continue to remain curious by asking questions at each stage
– *Keep practicing *– Treat this like muscle memory. The more you work it, the stronger it gets. Only when you repeatedly challenge yourself to think away from the herd, will you eventually leave the herd
Let’s be fair, long-term investing isn’t easy, and neither is second level thinking. But beating the market isn’t meant for everyone. Question is, which side would you want to be on?
