“I think we judge talent wrong. We judge talent by people's ability to strike a cricket ball. The sweetness, the timing. That's the only thing we see as talent. Things like determination, courage, discipline, temperament, these are also talent.” – Rahul Dravid
When Warren Buffett talks about knowing one’s circle of competence, most people have trouble with the circle part. It’s impossible to be self-aware enough to draw an appropriate circle. Well before getting to the circle, I have trouble with the supposedly easier competence part. For most of my adult life, I have made a mess of gauging competence. I’ve been fooled by impressive idiots. Or taken too long to realize that I was one myself. This essay captures my learnings on this front.
First, competence isn’t IQ (or IQ-linked credentials), despite our persistent efforts to confuse the two. Psychologists call this substitution bias, where we subconsciously replace the fuzzy thing that we really seek with an erroneous proxy that’s easily measurable. I did fine in board exams and entrance exams. However, I turned out to be a mediocre engineer in the real world. Competence at engineering requires a tinkering mindset which I lacked. Workable solutions around fuzzy constraints are different from single answers to narrow problems. Competence entails being good at a task. Reliably demonstrating competence needs years of performing that task better than most. Competence cannot be oversimplified to a number at the top-right of a resume. It took me years to see through a class of people that I call 3i (intelligent, impressive, incompetent), both in my profession and elsewhere. I’ve seen scarily smart people demonstrate terrible investment or business judgment. People with elite degrees have run many a company to the ground. At the other end, some of India’s finest businesses have been built by promoters or CEOs with seemingly unimpressive educational backgrounds. Over time, I’ve removed IQ or credentials entirely from what I look for or am impressed by. When I use the phrase idiot, I refer to incompetence at a given task. I’ve been an idiot in every career option I tried, except one where the jury is still out.
Second, calibration is a competence too. Knowing where your off stump is counts as a vital batting skill, just as glorious stroke-play does. Even if we prioritize competence over smarts, real damage doesn’t arise out of incompetence. It arises out of a misplaced sense of competence. When my son starts driving, I’d rather have him be bad but cautious, than great but rash.
Third, inverse competence is under appreciated. Charlie Munger says “Invert, always invert”. What’s the secret behind great test batsmen? Not how they strike the ball. It’s their discipline in leaving the ball, hour after hour, that turns odds in their favour. Figuring out esoteric stuff is seen as the measure of excellence, even though the real path to excellence is avoiding stupidity. A good part of HDFC Bank’s greatness arose from sticking to basics and avoiding distractions.
Fourth, even well-calibrated competence is entirely context-specific. It doesn’t travel well. Thankfully, none of us remembers Usain Bolt’s football career. Managers who have experienced success in one domain assume that they’re destined for the same elsewhere. I’ve seen spectacular failures in overseas acquisitions or unrelated diversification. Without the same drivers of success, new ventures by ‘proven’ managers have same odds as any start-up. Competence doesn’t even travel well across functions, with some great operating managers turning out to be poor capital allocators.
Lastly and most importantly, track record is the only reliable basis for judging competence. Most investors still get carried away by impressions or credentials. I hear rave reviews about A+ managers, only to discover that the business they run seems C- at best. When it comes to judging people, “DON’T”. I am no good at judging people in isolation, especially on the basis of a meeting. I look at how they’ve behaved to judge trust and how their companies have performed to judge competence. If a sufficiently long track record doesn’t exist, I simply wait for one before forming a judgment. Investors should be judged on the same basis, yours truly included.
(I’ll elaborate on the last para about reliably judging competence in a subsequent essay. This essay was originally published in February at https://www.linkedin.com/pulse/im-idiot-anand-sridharan/)