“The big question about how people behave is whether they've got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.”
— Warren Buffett
Human beings are, in large part, driven by the admiration of their peers.
We seek to satisfy a deep biological need by acting in such a way that we feel praise and adulation; for our wealth, our success, our skills, our looks. It could be anything. The trait we are admired for matters less than the admiration itself. The admiration is the token we dance for. We feel envy when others are getting more tokens than us, and we pity ourselves when we're not getting any.
There's nothing inherently wrong with this. The pursuit of (deserved) admiration causes us to drive and accomplish. It's a part of the explanation for why the human world has moved along so far from where it started — we're willing to do extraordinary things that are extraordinarily difficult, like starting a company from scratch, inventing a new and better product, solving some ridiculously complicated theorem, or conquering unknown territory.
This is all well and good.
The problems come when we start compromising our own standards, those we have set for ourselves, in order to earn admiration. False, undeserved admiration.
Warren Buffett frequently relates an interesting way to frame this problem. From Alice Schroeder's Buffett biography The Snowball:
Lookit. Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover? Now, that’s an interesting question. “Here’s another one. If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?
Buffett's getting at a rather fundamental model he's used most of his life: The Inner Scorecard. It's a major reason Buffett has stayed so successful for so long, with so little failure or scandal intervening: While most are are “checking the official time,” Buffett is setting his watch by an internal clock!
The investor Guy Spier once won a charity lunch with Buffett, and related his experience in a book called The Education of a Value Investor. He immediately recognized Buffett's lack of falseness:
One of Buffett’s defining characteristics is that he so clearly lives by his own inner scorecard. It isn’t just that he does what’s right, but that he does what’s right for him. As I saw during our lunch, there’s nothing fake or forced about him. He sees no reason to compromise his standards or violate his beliefs. Indeed, he has told Berkshire’s shareholders that there are things he could do that would make the company bigger and more profitable, but he’s not prepared to do them. For example, he resists laying people off or selling holdings that he could easily replace with more profitable businesses. Likewise, some investors have complained that Berkshire would be much more profitable if he’d moved its tax domicile to Bermuda as many other insurers have done. But Buffett doesn’t want to base his company in Bermuda even though it would be legal and would have saved tens of billions in taxes.
We don't, by the way, claim Buffett has an unblemished record. That would not be accurate. But it does seem that his record is far more spotless than others who have climbed as far as he has.
If Buffett was “setting his clock externally” — living by the standards of others — he would not have been able to maintain the independence of mind that led him to avoid a number of financial bubbles and tremendous personal misery.
What Buffett and a lot of other people who have been successful in life — true success, not money — have in common is that they're able to remember what we all set out to do: live a fulfilling life! Not get rich. Not get famous. Not even get admiration, necessarily. But to live a satisfying existence and help others around them do the same.
It's not that getting rich or famous or admired can't be deeply satisfying. It can be! I'm positive Buffett deeply enjoys his wealth and status. He's got more “admiration tokens” than almost anyone in the world.
But all of that can be ruined very, very easily along the way by making too many compromises, by living according to an external scorecard rather than an internal one. How many stories have you heard of famous and/or wealthy folks becoming entrapped in constant lawsuits, bickering, loneliness, and pure unhappiness? A countless number, right?
Bernie Madoff achieved great admiration and wealth, but was he happy? He made it clear, after he'd been caught, that he wasn't. Here was a guy who had all the admiration tokens in the world, an External Scorecard showing an A+, and what happened when he lost it all? He felt relieved.
So, did fame or wealth actually work in giving him a satisfying and fulfilling life? No!
The little mental trick is to remember that success, money, fame, and beauty, all the things we pursue, are merely the numerator! If the denominator — shame, regret, unhappiness, loneliness — is too large, our “Life Satisfaction Score” ends up being tiny, worthless. Even if we have all that good stuff!
Nassim Taleb once related a very similar idea:
The optimal solution to being independent and upright while remaining a social animal is: to seek first your own self-respect and, secondarily and conditionally, that of others, provided your external image does not conflict with your own self-respect. Most people get it backwards and seek the admiration of the collective and something called “a good reputation” at the expense of self-worth for, alas, the two are in frequent conflict under modernity.
It's so simple. This is why you see people that “should be happy” who are not. Big denominators destroy self-worth.
Adam Smith addressed this issue similarly about 225 years ago in his lesser known, though equally useful book The Theory of Moral Sentiments. Here's how he put it:
Man naturally desires, not only to be loved, but to be lovely; or to be that thing which is the natural and proper object of love. He naturally dreads, not only to be hated, but to be hateful; or to be that thing which is the natural and proper object of hatred. He desires, not only praise, but praiseworthiness; or to be that thing which, though it should be praised by nobody, is, however, the natural and proper object of praise. He dreads, not only blame, but blame-worthiness; or to be that thing which, though it should be blamed by nobody, is, however, the natural and proper object of blame.
To Smith, happiness was a combination of being loved and lovely: In modern terms, his wording makes it sound like he means “loved by others and also beautiful.”
But as you read on, you see that's not what he meant. He adds “Hated, but hateful.” “Praise, but praiseworthiness.” “Blame, but blame-worthiness.”
He's saying we're only happy if we're successful by an Inner Scorecard! We can't just earn praise, we must be praiseworthy. We can't just be loved, we must be loveable. It makes all the difference in the world. Our dissatisfaction with ourselves will always trump the satisfaction we feel with false rewards. We must, as Charlie Munger puts it, earn and deserve the success we desire.
There's a simple word for this: Authenticity. We seek it, and we're only happy when we feel we've achieved it. It can't be faked. And the way to get there is to remember the Inner Scorecard and start grading yourself accordingly.