The Aesthetics of Success – A Golden Success Formula?

For whatever reason, some methods work in at least 90 out of 100 cases. But, they work not only in the vast majority of cases. Moreover, they feel effortless, almost like going with the flow, as if there is a golden success formula.

Then, on the other hand, everyone had already experienced approaches that were as difficult and annoying as having to swim upstream.

It almost seems as if success, both in the business world and in personal life, has a very specific aesthetic. And if there were a golden formula for success, it would most likely have very simple variables everyone can follow.

Just like small steps in dancing, they add up to something aesthetically complete.

How did I come to write this article?

Like so many things in life, the idea for this article came to me by pure coincidence. It was a Saturday afternoon, and it was cold – far too cold for April – with a storm and rain outside.

The Essays of Warren Buffett by Lawrence A. Cunningham
The Essays of Warren Buffett by Lawrence A. Cunningham

For me, who is often caught up in the hustle and bustle of work, family, and friends and therefore hardly has any time to read, these are the few moments when I can get away from it all.

I chose “The Essays of Warren Buffett” (no affiliate). And I immediately got stuck on the introduction by Lawrence A. Cunningham 😀

Cunningham described the simplicity of Berkshire Hathaway’s management structures. This passage in the book immediately reminded me of earlier posts on the TEV blog about reduction, antifragility, etc. Indeed, many elements of things I described before can be found in Berkshire Hathaway’s management.

Successful methods are fractals in the actions of successful people

It’s almost funny; one can find bits and pieces of certain elements of success in so many things, processes, opinions, decisions, and life choices, but always more in the background, rarely spoken and addressed. Like an underlying success formula that directs the dance of successful people.

How Antifragility, Serendipity, and Critical Rationalism Changed My Mind And Life
How antifragility, serendipity, and critical rationalism changed my mind and life

Similar to fractals, which are repeated in nature in countless uniform forms, these elements remain in the background and are rarely expressed or addressed directly.

Just like Karl Popper was so close to the concept of antifragility and yet somehow never really grasped it.

As I said before. It’s like a subliminal pattern that permeates the success of these people.

These methods work 90 percent of the time, and some people seem to have a talent for unconsciously aligning their behavior or thinking with them.

Reduction is key

We all enjoy the clean lines and structures of a tidy room. The appearance and smell of nature without pollution is a dream.

The tidy room, the untouched nature … all these things are reduced to their cores.

Imagine a clean room furnished according to functionality, for example, for concentrated work in the office or coziness in the lounge. No clutter disturbs the function.

Nature without dirt and human waste provides relaxation and a quiet and peaceful place.

Reduction means removing substance from something and thus creating lightness. What is light is mobile and independent.

And as with a tidy room and nature, reduction is also aesthetic. In short, reduction is good at its core.

This idea of reduction is found not only in the physical world but also in other areas of life. In philosophy, reducing complex ideas to their fundamental principles can create clarity.

In our modern world, which is often characterized by abundance and sensory overload, reduction helps us focus on what is important and eliminate unnecessary baggage. It allows us to create an aesthetically pleasing and functional space in our homes, nature, or thoughts.

Successful strategies are often reduced in their complexity. They get by without a lot of frills. Without tricks and gimmicks.

Berkshire Hathaway’s webpage is an affront

Take a look at the Berkshire Hathaway website, for example, and the simplicity with which it presents the individual quarterly reports.

Berkshire Hathaway's webpage is an affront
Berkshire Hathaway’s webpage is an affront

The Berkshire Hathaway website is so reduced that it almost seems under-complex. At first glance, it resembles an affront to one’s viewing habits.

In short, the site feels like a museum. If I didn’t know who owned this site, I wouldn’t have guessed in three long winters that it was one of the most successful investment companies in history.

Despite its out-of-this-world appeal, it serves its purpose. The site is extremely functional. I can find what I’m looking for immediately. For example, I don’t have to click through menus to read the quarterly report for the second quarter of 1995. I only have to scroll twice, and I’m there.

Reduction is lindy

Reduction is also lindy.

The term “lindy” comes from the world of complexity theory and means that something that has already lasted a certain amount of time is likely to continue to exist – like the construction site right outside your bedroom window or on the highway you use to get to work every day.

Success formula
Humor is lindy 🙂

Once established and stable, reduced elements endure. In nature, we can find many examples of reduction’s longevity and resilience.

An ecosystem that is balanced and reduced to its essential elements can often cope better with short-term disturbances. A forest landscape in its natural state can cope well with insect infestations or temporary weather extremes. But not so monocultures.

Another example of the long-lasting nature of reduction can be found in architecture. Historical buildings have often shown astonishing longevity in their aesthetics. Classic architectural elements are considered monumental testaments to ancient architecture and proof of the effectiveness of reduction in creating durable structures.

In technology, we also find numerous examples of the long-lasting nature of reduced systems. Simple, well-designed products and platforms like touchscreen smartphones often have a longer lifespan and greater adaptability to changing conditions than complex and cluttered alternatives.

Why I prefer reduction over disruption 

With the start of the new millennium, Amazon has triggered a revolution in retail. The Seattle-based company has massively driven online retail forward, and the effects on traditional retailers were dramatic. Traditional retailers were forced to adapt to the changed market conditions, and those who failed to do so had to close their stores.

Success formula
Reduction is key

Amazon has also shaped other industry sectors, such as cloud computing, logistics, and entertainment, through its wide range and efficient services.

A company like Amazon is often described as a disruptor. Many start-up founders in the early 2000s also dreamed of finding an idea that would completely disrupt a market.

Amazon has disrupted numerous industries through innovative business models and technologies. But disruption was less the decisive criterion.

The real driving force behind Amazon’s success was not so much the disruption itself but rather a decisive element:

Reduction!

Jeff Bezos reduced, the disruption came on its own

Amazon could only become this force of nature because Jeff Bezos massively reduced complexity.

By automating, increasing efficiency, and providing a seamless user experience, Amazon has helped simplify processes and more effectively meet customer needs.

This has resulted in customers spending less time and effort shopping and enjoying greater choice and convenience. This has been completed by the “customer first” principle or, as the longer version goes, “thinking customer experience backward.”

In other words, reducing the right elements and structures automatically leads to a disruption of existing systems.

Thinking in first principles

Reducing complexity is an element that can be found in many successful companies or people.

We see it at Amazon and Berkshire Hathaway.

Another example is Tesla founder Elon Musk. You can think what you like about Elon Musk, but as an entrepreneur and visionary, he has been a pioneer in many ways.

He is known for his “first principles” approach. First-principles thinking is an approach to problem-solving based on the fundamental principle of breaking a problem down into its basic components to understand it from the ground up rather than relying on analogies or already established solutions.

The idea of reduction and the concept of first principles are effectively one and the same approach.

We can overcome existing assumptions and limitations by breaking a problem down to its most basic components. Instead of being guided by preconceptions or the status quo, reduction allows us to ask the question “Why?” and rethink from there.

Respecting the quadrants of knowledge

Officially, Berkshire Hathaway does not make any forecasts for its share prices or the company’s financial performance in the future. This is unusual in the financial world, especially considering that with banks, brokers, and analysts, we also deal with a multi-billion dollar industry that looks at numbers and analysis.

Warren Buffett and his late partner Charlie Munger are and were known for avoiding short-term forecasts and speculation, focusing instead on the company’s long-term performance.

And what happened, happens, and will most likely continue to happen?

Despite the lack of official forecasts, many analysts and financial institutions publish their own forecasts for Berkshire Hathaway. These forecasts are based on various factors, such as analyzing the company’s past performance, current economic conditions, and the outlook for the industries in which Berkshire Hathaway’s portfolio companies operate.

Educated guesses behind walls of disclaimers and liability limitations

Just think about it…

While those with the best overview do not dare to make forecasts, every third analyst considers himself/herself enlightened enough to publish forecasts on operating performance.

Of course, such analysts are paid to make supposedly educated guesses, which they hide behind thick disclaimers and disclaimers of liability.

However, anyone who hides a statement behind a disclaimer would not bet all the money they have saved and their grandmother’s pension on this statement. The value of such statements is therefore often low and investors should therefore keep analyses and purchase recommendations out of their investment decisions as far as possible (keyword reduction).

 Skin in the game

The difference between Warren Buffett, Charlie Munger and Wall Street analysts is that the latter group has no skin in the game.

Most of Warren Buffett and Charlie Munger’s wealth is in Berkshire Hathaway, which means that they feel the consequences of their decisions firsthand.

It simply makes no economic sense for them to lure investors into their shares with flowery promises in the short term and ruin their reputation as serious businessmen and partners to their shareholders.

Analysts can say what they like without taking responsibility for their statements. They are not the investors’ partners but employees of their agencies or banks.

This symptom of the very common principal-agent disease is a big problem for inexperienced investors, as they have a lot at stake with their private assets.

Quadrants of knowledge

Managers like Charlie Munger or Warren Buffett know that they are in the dangerous world of the third and fourth quadrants of knowledge when it comes to forecasts.

1. Known-knowns2. Known-unknowns
Things we are aware of and understandThings we are aware of but don’t understand
3. Unknown-knowns4. Unknown-unknowns
Things we understand but are not aware ofThings we are neither aware of nor understand

In the first quadrant, for example, forecasts are pretty reliable. When a child is born, we can confidently say that it will probably never reach a height of more than 2.20 meters. In a desert, we can confidently say there will be no underwater world to marvel at for the next 5 to 10 years.

Quadrants Of Knowledge
It is a simple heuristic. People in quadrants two to four should not make bold predictions.

However, things we do not understand or are not aware of are subject to a high degree of uncertainty. Politicians or managers should not make predictions about when a virus will be defeated.

Similarly, we should not make overly bold predictions about a company’s operating performance when we are unaware that the company is embroiled in an accounting scandal.

So as soon as we go beyond the first quadrant and enter the realm of the other quadrants, forecasts or predictions are more complex.

Better to convince in the long term than make short-term flowery promises – how Allianz disappointed me

Making consistently correct statements and predictions in quadrants two to four is almost impossible.

Success formula
A flowery promise behind a disclaimer… Why not simply convince investors through action?

That’s why I find it somewhat dubious when companies like Allianz 2021 dazzle investors by promising to increase the dividend by at least xy percent over the next five years.

Of course, this is not a promise to which I, as a shareholder, am entitled.

The caveat in the form of a disclaimer follows the promise on its heels.

So far, Allianz has kept its word and significantly increased its dividends every year, and as a shareholder, I am naturally pleased about this.

But that means nothing for the future. There is no certainty that the dividend will rise by the five percent mentioned yearly – regardless of the announcement, and Allianz knows that.

I would have preferred it if Allianz had never published this letter. In the end, it shows that, when in doubt and without any necessity, management would rather break a forecast than ensure a clean track record. Berkshire Hathaway is different.

What success elements do Berkshire Hathaway, NATO and the US armed forces have in common?

Investors in Berkshire Hathaway value the company’s long-term and conservative management.

Berkshire Hathaway has become a beacon in the investment world thanks to its consistency and reliability. For decades, investors have made the pilgrimage to the annual meetings in droves to listen to the wisdom of Charlie Munger and Warren Buffett.

Avoiding wrong decisions

Such a status is not earned based on the number of correct decisions. Rather, it is about minimizing the number of wrong decisions. I can be right a hundred times, but one blatant mistake can destroy everything.

Many of Berkshire Hathaway’s management methods are antifragile and thus reduce the risk of such blatant mistakes. And a particular element of this management can also be found in NATO and the US armed forces.

“Mission Command”

In addition to diversification, financial resources, and a long-term management mindset, Waren Buffett and Charlie Munger have introduced a decentralized management model.

It follows the Mission Command principle.

Under Mission Command, subordinate units are given clear mission objectives, but the decisions on how best to achieve these objectives are left to the local units. This promotes a faster and more agile response to changing situations and empowers commanders on the ground to respond to unforeseen events without needing authorization from higher authorities.

Similarly, Berkshire Hathaway’s decentralized management allows executives in the subsidiaries to make quick decisions and respond to opportunities or threats in their respective markets.

The managers in the subsidiaries have considerable autonomy. This contributes to Berkshire Hathaway’s agility and adaptability and strengthens the company’s anti-fragile characteristics.

What does all this tell us?

This article aims not to pass judgment on personalities such as Mr. Buffett and Mr. Munger from above. As if I were entitled to such a role…

I am simply interested in appreciating these people and the aesthetics of their success.

Repeating elements as variables in the success formula

It is always the same mechanisms and methods that contribute to the outstanding success of such personalities.

Even though correlation and causality are two different concepts, and I am aware of the problem around survivor bias, it is remarkable that Berkshire Hathaway’s success has elements that seem to be part of an abstract success formula.

We have touched on some of these elements. For example, the concept of Mission Command does not represent a purely hierarchical top-to-bottom approach. A key element of this is accepting one’s own susceptibility to error. This brings us to the quadrants of knowledge. By sharing responsibility, the personal risk of errors is reduced, so we see the element of reduction.

When Warren Buffett or Charlie Munger philosophize in their interviews or annual meetings at Berkshire Hathaway, their statements sound incredibly logical, charismatic, and almost banal.

Yet both investors are or were absolute outliers from the crowd, just like other major investors or visionary entrepreneurs such as Jeff Bezos, Henry Ford, Elon Musk, Steve Jobs, and Bill Gates.

Success cannot be forced

Many liberals believe success results from hard work, smart decisions, and perhaps a certain amount of luck.

Success formula
Randomness is an essential principle of serendipity

However, success is largely determined by serendipity.

It is important to realize that success cannot be forced. You can work hard, make smart decisions, and capitalize on opportunities, but ultimately, there is no way to guarantee success.

Luck is the bottleneck of success.

The ability to recognize and exploit random events as opportunities is an art. Being open to new possibilities, flexible in thought, and able to seize opportunities when they arise is like dancing with chance.

In the world of successful people, these methods are not just tools but an integral part of their nature and success. Successful people have mastered this art.

Put the other way round: Successful people have a sense of the aesthetics of success.

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