on being wrong for the right reasons

From investor Howard Marks:

"The correctness of a decision can’t be judged from the outcome. Nevertheless, that's how people assess it. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful, and vice versa.” 

A few weeks ago, I wondered: Is it better to be right for the wrong reasons, or wrong for the right reasons. I've been reading a lot lately to see if there's an answer to this question. Howard Marks clearly has one -- and he bases it in part on the distinction between "first-level thinking" and "second-level thinking":

"First-level thinking says, 'It's a good company; let's buy the stock.' Second-level thinking says, 'It's a good company, but everyone thinks it's a great company, and it's not. So the stock's overrated and overpriced; let's sell."

Many smart people only get as far as first-order thinking. When there is a problem to solve, efforts spill towards the same small handful of solutions. When you possess above-average intelligence, it's easier to do fake-smart things that only appear smart than to do actually smart things (which often appear crazy or stupid).

"First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority. [...] Second-level thinking is deep, complex and convoluted."

"[...] The bottom line is that first-level thinkers see what's on the surface, react to it simplistically, and buy or sell on the basis of their reactions."

For first-level thinkers, the competition is over who can perform marginally better. However, this leaves huge swaths of the possible solution space uncovered. First-level thinkers have a tough time distinguishingpopularity from truth.

Second-level thinking often results in solutions that counter conventional wisdom. This is because second-level thinkers try to expand the relevant solution space, then prod/poke/tinker around in this expanded space (rather than instinctively rushing to where everyone else is).

So being right for the wrong reasons is the fluke of a first-level thinker. You make the false conclusion that what you're doing is working, and you double-down on it. This is a fragile strategy. By contrast, being wrong for the right reasons is the fluke of a second-level thinker.

A few scattered examples that come to mind:

  • Housing: the difference between paying $$$$ for a small apartment in a swanky area v. paying $$ for a larger apartment in a more up-and-coming area.
  • Learning: short-term recognition v. long-term recall. Learning through rote memorization v. learning through teaching.
  • Career: forcibly linearizing the path v. riding the path nonlinearly
  • Raising a Child: authority-based parenting v. reason-based parenting. Draconian v. Virgil.
  • Leadership: charisma that induces over-reliance on one person v. mentorship that raises all boats