Introduction
When Southwest Airlines entered the fiercely competitive airline industry, Herb Kelleher, the company's promoter, had a different approach. He didn't follow the crowd; instead, he wrote his own rulebook. He excluded major routes from their operations and positioned Southwest as a point-to-point carrier with compellingly low-ticket prices. In order to achieve this, in-flight entertainment and meals were eliminated, and tickets were sold directly without intermediaries receiving any commission. Sceptics thought Herb had lost his mind and predicted the downfall of this discount carrier from day one. Rivals in the industry gave them little chance of survival beyond one year. However, contrary to these naysayers, Southwest continued to soar with astonishing success year after year. So, what is the secret behind Southwest's incredible success in an industry known for its high failure rate? The answer lies in the choices Herb made—choices that were simple, easy to understand, and executable even by new hires. Southwest knew they had to go the extra mile to deliver smiles to customers in place of in-flight entertainment. They understood that saving every penny was essential to their job security. They witnessed Herb traveling on the airline without a seat for himself. From the very beginning, they saw the writing on the wall. Herb Kelleher achieved success by consciously and deliberately choosing a path that offered quality service at rock-bottom prices.
What is essentialism?
This anecdote illustrates the core principle of essentialism, as explained by Greg McKeown. Essentialism is about focusing on what truly matters and eliminating non-essential distractions. In our daily lives, we face an overwhelming number of choices for every action we take. Consider a typical Sunday morning: going to a mall, watching a movie, dining out, shopping, meeting friends, spending time with relatives, and ending the day with dinner at a cozy restaurant before reluctantly heading home. But what did you gain from this jam-packed schedule? You wanted to stretch yourself thin, be everywhere, and cram numerous activities into your routine, only to exhaust yourself by bedtime. Did it bring you enjoyment or relaxation? Did it uplift your spirits? Most likely not. We often try to squeeze more into everything we do, oblivious to the fact that many of these activities drain our energy and offer little value. Instead, we should eliminate the wasteful and energy-sapping endeavors and focus on the things that truly matter. As marketing textbooks suggest, if you try to be everywhere, you end up being nowhere. To excel in any field, you need to concentrate, prioritize, and use your limited physical and mental capacities carefully. If you fail to do so, others will dictate the direction of your life. By adopting an essentialist mindset, we can make deliberate choices, focus on the vital few, and eliminate distractions that hinder our progress. Just as Herb Kelleher did with Southwest Airlines, we can achieve remarkable success by consciously choosing simplicity, clarity, and purpose in all aspects of our lives.
Essentialism in Investing
Investing in the stock market can seem like a golden opportunity, promising easy money at every turn. However, the reality is far from it. Howard Marks, a legendary fund manager who achieved remarkable success, believes that investing is one of the most challenging disciplines, capable of turning even the most confident individuals into losers unless they follow a rigorous, implementable plan of action. The stock market bombards us with enticing choices every minute, every hour, and every day. Thousands of stocks clamour for our attention, enticing us to part with our hard-earned money. Morning newspapers splash headlines about which sectors are hot and which are not, which companies have won new orders, and which ones have launched cutting-edge software. Our friends regale us with stories of quick fortunes made by blindly flipping coins on winning stocks. Meanwhile, stock market experts offer a flood of solicited and unsolicited advice on how to amass wealth by following their recommendations. The market, in short, is engulfed in noise.
Chartists, technical experts, and algorithmic traders abound, delivering persuasive lectures about how they made millions overnight. But as you delve deeper into the market, you encounter manipulators, cheats, and rascals of the highest order. Books are cooked, and rosy balance sheets are prepared with the sole intention of looting your hard-earned money. On top of it all, regulatory changes can swiftly transform hot stocks into duds overnight. If you get caught up in these gyrations and minute-by-minute changes, you are likely to lose your shirt and pants in no time. The saying that 90 percent of people in the stock market lose their heads and part with their hard-earned money is a harsh reality that cannot be ignored. Only a select few manage to overcome the challenges and reach the summit. But what sets them apart? Essentialism is the key. Essentialist investors understand that amidst the chaos, they need to cut through the noise and focus on what truly matters. They develop a well-defined investment strategy based on thorough research, analysis, and a disciplined approach. They do not chase every shiny opportunity or succumb to short-term market fluctuations. Instead, they carefully evaluate investment options, looking for companies with strong fundamentals, sustainable competitive advantages, and a track record of success. Essentialist investors also recognize the importance of risk management. They diversify their portfolios to minimize exposure to individual stocks or sectors. They have a clear plan in place and adhere to it, avoiding impulsive decisions driven by fear or greed. By staying true to their investment philosophy and making deliberate choices, they maintain a long-term perspective that helps them navigate the market's ups and downs. In the chaotic world of investing, essentialism offers a beacon of clarity and focus. It enables investors to rise above the noise, make informed decisions, and stay committed to their investment strategies. While the challenges remain, essentialism equips investors with the tools and mindset needed to increase their chances of success and join the select few who emerge victorious in the complex and unpredictable realm of the stock market.
Simplifying Investing
Essentialist investors understand the value of limiting choices. They recognize the importance of identifying their core strengths and aligning their investments with their beliefs. This requires them to narrow their focus to a select few stocks in which they have a high level of conviction. In this approach, they are not swayed by wild swings in sugar, fertilizer, wind energy, or trendy software stocks. They resist the urge to mechanically follow the crowd or scour newspapers for daily hot tips. They also limit their conversations with friends who boast about their supposed investing expertise. Instead, they filter out the noise and stay true to their convictions. Essentialist investors adopt a simple mantra: They focus solely on themes they believe in, rather than allowing the market to dictate their investment choices. They tenaciously hold onto stocks they have strong convictions in and patiently wait for them to pay off, regardless of short-term fluctuations. With unwavering commitment, they remain dedicated to their high-conviction bets. Investing can become a beautiful game when approached in this manner.
Learn to say ‘No’ to every opportunity
Warren Buffett once posed a thought-provoking question: If you had to restart the game of investing from scratch, which five themes would you choose to remain invested in for a lifetime? By finding answers to this question, you tilt the game in your favour. Essentialist investing is about embracing simplicity, discipline, and focus. It involves cutting through the noise, ignoring the distractions, and honing in on what truly matters. By saying "no" to the overwhelming number of choices and sticking to a select few that align with your beliefs, you increase your chances of success. Essentialist investors understand that wealth creation is a long-term endeavour that requires patience, conviction, and a steadfast commitment to their chosen investment themes. So, learn to say "no" to everything that does not align with your core investment principles. Embrace the power of focus, and let your unwavering conviction guide your investment decisions. By doing so, you can transform the game of investing into a journey of success, paving the way for long-term financial growth and security.
(With grateful acknowledgements to Greg Mckeown, Essentialism: The disciplined pursuit of Less)
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