Making decisions can be challenging, especially when the outcomes are uncertain. Warren Buffett, the legendary investor, has often expressed his preference for making “fuzzy but correct” decisions over precise but incorrect ones. In this blog post, we will explore what this means and how it can benefit you in your personal and professional life.
What are “fuzzy but correct” decisions?
Warren Buffett, one of the most successful investors in history, has famously expressed a preference for making “fuzzy but correct” decisions over precise but incorrect ones. But what exactly does this mean?
According to Buffett, “fuzzy but correct” decisions are those that are based on sound judgment and careful analysis of available information, even if that information is incomplete or uncertain. In contrast, “precise but incorrect” decisions are those that rely on exact numbers or data that may be misleading or incorrect.
In other words, “fuzzy but correct” decisions prioritize accuracy over precision, recognizing that some degree of uncertainty is inevitable in any decision-making process.
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By contrast, “precise but incorrect” decisions can lead to disastrous outcomes, as they are based on flawed or incomplete data. As the saying goes, “garbage in, garbage out.”
To make “fuzzy but correct” decisions, one must be comfortable with ambiguity and able to weigh the potential risks and rewards of different options.
As Buffett has written, “The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”
The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.
Warren Buffett
Why does Buffett prefer “fuzzy but correct” decisions?
Warren Buffett has long been a proponent of the “fuzzy but correct” decision-making philosophy. He believes that making decisions with incomplete or imperfect information can lead to better outcomes than waiting for all the facts to be known. Buffett argues that in today’s fast-moving world, taking calculated risks and embracing uncertainty is necessary for success.
One example of Buffett’s “fuzzy but correct” decision-making is his investment in Apple. In 2016, Buffett invested heavily in the tech giant despite not being a technology investor. He made the decision based on his understanding of the company’s business model and the fact that Apple had a strong brand and a loyal customer base. Today, Buffett’s investment in Apple has exceeded $100 billion [3], making it one of his most successful investments.
Buffett’s philosophy of making “fuzzy but correct” decisions is not just limited to investing. He has applied this approach to various other aspects of his life, including his philanthropic efforts and his business decisions. By embracing uncertainty and taking calculated risks, Buffett has been able to create a highly successful and profitable business empire.
According to Buffett, the benefits of making “fuzzy but correct” decisions are numerous. For one, it allows individuals to move quickly and take advantage of opportunities that may not be available in the future. It also allows individuals to learn from their mistakes and make adjustments as necessary, rather than waiting for all the information to be known before making a decision. As Buffett once said, “In the business world, the rearview mirror is always clearer than the windshield” [4]. By embracing uncertainty and making “fuzzy but correct” decisions, individuals can focus on the road ahead and take the necessary steps to achieve their goals.
In the business world, the rearview mirror is always clearer than the windshield
Warren Buffett
How to make “fuzzy but correct” decisions in your life
Making “fuzzy but correct” decisions can be challenging, especially when you have limited information. However, there are some practical tips you can follow to increase your chances of making the right decision.
- Gather all available information: Although you may not have all the information you need, it is essential to gather as much as possible before making a decision. Consider multiple sources and perspectives to get a better understanding of the situation.
- Focus on the most critical information: When faced with limited information, focus on what is most important. Identify the key factors that will affect your decision, and prioritize them accordingly.
- Trust your intuition: Sometimes, your gut feeling can guide you in the right direction. If you have experience in a particular area, your intuition may be based on past successes and failures, making it a valuable tool when making decisions.
- Embrace uncertainty: Uncertainty is a natural part of decision-making, and it is essential to embrace it. Don’t be afraid to take calculated risks based on your analysis of the available information.
In her book “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts,” Annie Duke explains that embracing uncertainty is a crucial aspect of decision-making. She writes, “When we start to see the world as a series of bets, we can embrace uncertainty and not need black and white answers to feel secure.”
By following these tips, you can make “fuzzy but correct” decisions in your life, and embrace the uncertainty that comes with them. Remember that making mistakes is a natural part of the process, and it is essential to learn from them and move forward.
When we start to see the world as a series of bets, we can embrace uncertainty and not need black and white answers to feel secure
“Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts” by Annie Duke
The downside of “fuzzy but correct” decisions
While “fuzzy but correct” decisions can offer significant advantages, there are also risks involved. Making decisions based on limited information can lead to wrong choices, especially when the information is inaccurate or outdated. For instance, a business owner may decide to launch a new product based on incomplete market research, which may result in a lack of interest or sales. Similarly, a manager may hire an employee based on a strong gut feeling, without fully checking their qualifications, which may lead to poor performance or negative consequences.
Buffett himself has made several mistakes by relying on this philosophy. For example, in the late 1990s, he invested in the tech industry, even though he admitted not understanding it well. This decision led to losses for his company, Berkshire Hathaway, as the tech bubble burst. However, Buffett learned from this experience and adjusted his approach, acknowledging that he needed to stay within his circle of competence.
In conclusion, while “fuzzy but correct” decisions can be beneficial, it’s crucial to be aware of their potential downsides. Making informed decisions based on a mix of intuition, experience, and data can increase the likelihood of success while minimizing risks.
FAQ
| What did Elon Musk say about Warren Buffett? – Elon Musk has criticized Warren Buffett’s approach to investing in the past, calling him out for not investing enough in sustainable energy and instead focusing on traditional energy companies. – In May 2021, Musk tweeted a meme that read “The best investor is Steve Jobs. The second-best is Elon. The third is probably, like, some cat.” While not a direct comment on Buffett, it is widely believed that the tweet was a subtle dig at the billionaire investor. |
| What does Buffett say about inflation? – Buffett has often spoken about the dangers of inflation and its potential impact on investments. In his 2021 annual letter to Berkshire Hathaway shareholders, he warned that “a flood of money that government has poured out” could cause inflation to rise significantly. – Buffett has also stated that investing in companies with strong pricing power can help protect against the negative effects of inflation. |
| What did Elon Musk warn us about? – Elon Musk has warned about a variety of issues over the years, ranging from the dangers of artificial intelligence to the risks of not investing in sustainable energy. – In recent years, he has been particularly vocal about the risks of climate change and the urgent need for society to transition to clean energy sources. |
| What is a famous quote Elon Musk said? – Elon Musk has said many memorable things over the years, but one of his most famous quotes is “I would like to die on Mars. Just not on impact.” – He has also said “When something is important enough, you do it even if the odds are not in your favor” and “The first step is to establish that something is possible; then probability will occur.” |
| Who will be hurt the most from inflation? – Inflation can hurt different groups of people in different ways, but it is often the most vulnerable and marginalized who are hit hardest. Those on fixed incomes, such as retirees, can struggle to keep up with rising costs of living. – Low-income earners may also feel the effects of inflation more strongly, as they often have less disposable income to begin with. – Additionally, those who do not have assets that appreciate in value with inflation, such as real estate or stocks, may struggle to maintain their purchasing power over time. |
| Is inflation worse for rich people? – While inflation can affect people of all income levels, it is generally thought to be less harmful to the wealthy. – Rich individuals often have access to more diverse investments that can appreciate in value with inflation, such as real estate or stocks. – Additionally, they may have more flexibility to adjust their spending habits or invest in inflation-protected assets like TIPS (Treasury Inflation-Protected Securities). |