One of My Favorite Ideas for Studying Investors!
I saw this amazing interview today that talked about all sorts of topics. One thing that was mentioned and retweeted a ton of times was bits and pieces of the following quote.
This is some really powerful stuff and I don't think it can go understated. It's from Naseem Taleb's Skin in the Game
"It is about the distortions of symmetry and reciprocity in life: If you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes. If you inflict risk on others, and they are harmed, you need to pay some price for it. Just as you should treat others in the way you'd like to be treated, you would like to share the responsibility for events without unfairness and inequity."
Skin in the game is about many things. The idea itself has a lot to do with what's described above. That's 1 aspect of having Skin in the game.
Something that's said shortly after that in the book is this idea of evaluating another investor, which is something I'm obviously interested in as a full-time investor.
When evaluating an investor, all the answers you need lie in their portfolio.
If you can evaluate their skin in the game, then you can see all that you need to see. You can see their risk tolerance, their values, their economics...
It's almost like body language. I think body languge is a very apt comparison to this idea.
If you ever meet someone who is a master at reading body language, they're able to tell what people are thinking simply by the subconscious movements of their body.
It's very incredible when you think about it. But I think it's a great way of rooting out the fundamentals of this idea of having skin in the game.
When someone has skin in the game, it means they're risking their own hide in order to get some sort of return or outcome.
Their equity is their mark of confidence in whatever it is they're a part of.
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