Friends,
At the outbreak of the U.S. Civil War, Ulysses S. Grant was down on his luck. He was only able to support his family by manning his father's tannery in a sleepy town on the Mississippi River.
William Tecumseh Sherman was enduring a similar fate, trying to find his way in St. Louis by manning a streetcar company. Both attended West Point; both were heroes of the Mexican-American War.
But that glory had long passed; they were struggling.
Henry Halleck also attended West Point and "fought" in the Mexican-American War. But unlike the other two, he thrived in civilian life -- becoming a wealthy California lawyer. His battle experience was almost entirely theoretical -- having spent most of his time on a boat translating military texts.
By 1862, Sherman and Grant were under the command of Halleck. It didn't take long to see the stark divide between Halleck's book smarts and the real-world instinct of the other two.
Grant and Sherman broke all the rules. They ruthlessly chased down the enemy until its spirit broke instead of being super-cautious. Instead of learning from it, Halleck looked down upon the two Generals.
As Ron Chernow's Grant details:
"Halleck was known as 'Old Brains' ... He was a scholar of war, a bureaucrat, a clerk, but he had no combat experience and no intuition for the fight. He was a man of high intellect but little instinct, whereas Grant [and Sherman] was a man of deep instinct who could not be paralyzed by theory."
It should be no surprise that by the end of the war, Halleck had been relegated to the dustbin of history, while Grant was on his way to serving two terms as President of the United States.
But we shouldn't be surprised by this. History is riddled with the same dynamics: Knowing the rules keeps you out of trouble. Knowing when to break the rules makes you successful.
Consider Benjamin Graham, the father of value investing. Over his career, he averaged a 20% return, while the Dow Jones Industrial Average (the benchmark of his day) returned 12% per year. That's enough to put you on Mount Rushmore.
But Graham's outperformance was entirely owed to an investment in a single company: GEICO.
Yet buying GEICO broke just about every single one of Graham's investing rules. If he had followed his rules and stayed away from GEICO, he would have actually lost to the market.
The point is NOT that Graham was a fraud or that rules aren't useful.
It's that Graham discovered -- on purpose or not -- the real lesson: you protect your downside by studying the lessons history gives you.
You gain the upside by remaining forever vigilant to opportunities and keeping an open mind.
It's a great approach to investing...and life.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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P.S. It's Official, we are splitting up our YouTube Channel. Brian Stoffel is starting a new channel that will cover earnings, his portfolio moves, and more. Subscribe to his new channel by clicking here.
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