Judgment Is the Decisive Skill

We spoke about specific knowledge. We talked about accountability. We talked about leverage. The last skill that Naval talks about in his tweet storm is judgment, where he says that leverage is a force multiplier for your judgment. We are now living in an age of nearly infinite leverage, and all the great fortunes are created through leverage.

So, your first job is to go and obtain leverage, and you can obtain leverage through permission by taking risks and getting people to work for you or by raising capital. Or you can get leverage permissionlessly by learning how to code or becoming a good communicator and podcasting, broadcasting, creating videos, writing, etc. So that's how you get leverage.

But once you have leverage, what do you do with it? Well, the first part is a career spent hustling to get leverage. Once you have the leverage, then you want to slow down a bit because your judgment really matters. It's like you've gone from steering your sailboat around to now you're steering an ocean liner or a tanker. You have a lot more at risk, but you have a lot more to gain as well. You're carrying a much higher payload.

So, in an age of infinite leverage, judgment becomes the most important skill. Warren Buffett is so wealthy now because of his judgment. Even if you were to take away all of Warren's money tomorrow, investors would come out of the woodwork and hand him a hundred billion dollars because they know his judgment is so good, and they would give him a big chunk of that hundred billion dollars to invest.

So ultimately, everything else that you do is actually setting you up to apply your judgment. One of the big things that people rail on is CEO pay. For sure, there's crony capitalism that goes on where these CEOs control their boards and the boards give them too much money. But there are certain CEOs who definitely earn their keep because their judgment is better.

If you're steering a big ship, if you're steering Google or Apple, and your judgment is 10 or 20 percent better than the next person's, Society will literally pay you hundreds of millions of dollars more because you're steering a hundred billion dollar ship. If you are on course ten or twenty percent of the time more often than the other person, the compounding results on that hundreds of billions of dollars you're managing will be so large that your CEO pay will be dwarfed in comparison.

So, demonstrated judgment credibility around the judgment is so critical. Warren Buffett wins here because he has massive credibility. He's been highly accountable; he's been right over and over in the public domain. He's built a reputation for very high integrity, so you can trust him.

So, a person like that, people will throw infinite leverage behind him because of his judgment. Nobody asks him how hard he works; nobody asks him when he wakes up or when he goes to sleep. It's like, "Warren, just do your thing."

So especially demonstrated judgment with high accountability and a clear track record is critical. Let's define judgment. I would define it as knowing the long-term effects of your decisions or being able to predict the long-term effects of your decisions.

It's funny; my definition of wisdom is knowing the long-term consequences of your actions. They're not all that different. Wisdom is just judgment in a personal domain. Wisdom applied to external problems, I think, is judgment. So, they're highly linked. But yes, it's knowing the long-term consequences of your actions and then making kind of the right decision to capitalize on that.

Judgment is very hard to build up. This is where both intellect and experience come into play. There are many problems with the so-called intellectuals in the ivory tower. But one of the reasons why I must seem to rail against them is because they have no skin in the game; they have no real-world experience.

Right? So they just apply purely intellect, and intellect without any experience is often worse than useless because you get the confidence that the intellect gives you, and you get some of the credibility. But because you had no skin in the game, and you had no real experience and no real accountability, you're just throwing darts.

The real world is always far, far more complex than we can intellectualize, especially all the interesting, fast-moving edge domains and problems. You can't get there without experience. So if you are smart and you iterate fast, it's not even about putting 10,000 hours into something; it's about taking 10,000 tries at something.

If you are smart and you have a lot of quick iterations and you try to keep your emotions out of it, the people with the best judgment are actually among the least emotional. A lot of the best investors are considered almost robotic in that regard.

But I would be surprised if even the best entrepreneurs often come across as unemotional. There is sort of this archetype of the passionate entrepreneur, and yeah, they have to care about what they're doing. But they also have to see very clearly what's actually happening.

The thing that prevents you from seeing what's actually happening is your emotions. Our emotions are constantly clouding our judgment in investing, or in running companies, or in building products, or being an entrepreneur. Emotions really get in the way.

Emotions are preventing you from seeing what's actually happening until you can no longer resist the truth of what's happening. Until it becomes too sudden, and then you're forced into suffering, which is sort of a breaking of this emotional fantasy that you would put together.

To try and connect some of these concepts, I would say that first, you're accountable for your judgment. Judgment is the exercise of wisdom. Wisdom comes from experience, and that experience can be accelerated through short iterations.

The reason why a lot of the top investors— a lot of the value investors— if you read Jeremy Grantham, or you read Warren Buffett, or you read up on Michael Burry, these people sound like philosophers. Or they are philosophers, or they're reading a lot of history books or science books.

Like, what are they doing? Shouldn't they be reading investment books? No! Investment books are the worst place to learn about investment because investment is a real-world activity that is highly multivariate. All the advantages are always being competed away; it's always on the cutting edge.

So what you actually just need is very, very broad-based judgment and thinking. The best way to do that is to study everything, including a lot of philosophy. Philosophy also makes you more stoic, makes you less emotional, and so you make better decisions. You have better judgment.

One simple thing is I see that go out on Twitter, and it seems like half of Twitter is outrageous something at all times. You can go within someone's Twitter feed and get at least some semblance of what it must be like to be in their head all the time.

The more outrage somebody is, I guarantee you the worse the judgment is. If someone is constantly tweeting political outrage and seems like an angry person getting into fights, you don't want to hand this person the keys to your car, let alone the keys to your company.