Last week ended with President Trump tearing into Federal Reserve Chair Jerome Powell.
“Too late” Jerome Powell is costing our Country Hundreds of Billions of Dollars. He is truly one of the dumbest, and most destructive, people in Government, and the Fed board is complicit. Europe has had 10 [interest rate] cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden’s Short Term Debt. We have LOW inflation! TOO LATE’s an American Disgrace!
As if that didn’t make his position clear, he also wrote:
I don’t know why the Board doesn’t override this Total and Complete Moron! Maybe, just maybe, I’ll have to change my mind about firing him? But regardless, his Term ends shortly!
Trump’s “expressive” wording aside, he may be right. After all, higher rates are meant to tamp down inflation by suppressing economic growth.
Yet inflation has been falling. The latest top-line reading of the Consumer Price Index showed consumer inflation of 2.8%. That’s a little above the Fed’s stated 2% goal, but it’s also well off the nearly double-digit readings from 2022.
And yet, Powell has barely budged an inch. And isn’t now the time to encourage investment into the American system?
The rest of the world seems to be doing so with their own economies. As Trump pointed out, 37 other countries have lower rates than we do. We’re tied for last on that list with Cameroon, Congo, Guatemala, Israel, and Norway.
Admittedly, there is a case for keeping them as-is, especially after the latest strikes in Iran, which, all else equal, could spike the price of energy commodities.
But another possibility is that Powell doesn’t want to get caught flat-footed again like he did in 2021. Coming out of COVID, the Fed kept its key rate close to zero even as inflation readings ticked higher. Powell dismissed these higher readings as “transitory.”
But, of course, he had to eventually admit something was wrong. “Transitory” was retired, and the Fed was forced to hike rates in a hurry to catch up. That led to a bruising year for equities and an outright crash for long-dated Treasurys.
And if that is Powell’s motivation, he’s ignoring the “law of failure.”
And for investors, as well as Fed chairs, that’s a concept worth understanding…
Humility Tends to Pay Off Much Better
Around 2009, I was in San Diego visiting with Tom Lewis, the CEO of Realty Income (O) – my favorite real estate investment trust.
Even 16 years ago, the company was busy growing its business, its dividend, and an impressive balance sheet. So when its leader spoke, I paid careful attention.
Lewis didn’t disappoint that day when I asked how Realty Income differed from its competitors. His answer was detailed… but very much centered around a book titled The 22 Immutable Laws of Marketing.
I ordered it right away when I got home, and it turned out to be truly worthwhile. Chapter 19, “The Law of Failure,” stood out especially, with coauthors Al Ries and Jack Trout explaining how:
Too many companies try to fix things rather than drop things. “Let’s reorganize to save the situation” is their way of life… [But] admitting a mistake and not doing anything about it is bad for your career. A better strategy is to recognize failure early and cut your losses.
Sir John Templeton – whom Time magazine dubbed “the greatest global stock picker of the [20th] century” – expounded on this concept in his own book, The Humble Approach:
… humility is the key to progress. Without it, we will be too self-satisfied with past glories to launch boldly into the challenges ahead. Without humility, we will not be wide-eyed and open-minded enough to discover new areas of research.
Moreover:
Humility is the gateway of knowledge. To learn more, we must first realize how little we already know. The unknown before us may be a million times greater than what we already know, despite the myriad of discoveries made in recent years.
The alternatives are downright depressing: to stay stuck where we are or, worse yet, lose everything we’ve gained and never recover.
I Want to See CEOs Learn From Their Mistakes
I know I wouldn’t be where I am today if I hadn’t admitted my mistakes. In fact, I’ve built my entire career around acknowledging them and making sure to do better.
There are plenty of famous billionaires out there who can say the same. I would even argue that nobody makes real, lasting wealth without exerting some humility.
Take Donald Trump. That word, “humility,” isn’t one people normally associate with him, but he actually does admit to (some) mistakes. He had to in order to come back from “friendly foreclosures” such as New York City’s Plaza Hotel.
I had to study that failure when I wrote The Trump Factor: Unlocking the Secrets Behind the Trump Empire in 2014 and 2015. As I did, it became clear that Trump highly leveraged himself when he paid $400 million for the Plaza in 1988.
Four years later, he had to hand the keys over to Citibank, losing around $83 million in the process.
Yet he ultimately learned from that experience. He started staying away from personal guarantees and taking on much more modest amounts of leverage.
As a result, his empire today is worth much, much more than he lost back then.
Or consider Bill Ackman, the billionaire I just met. I wrote on June 9 how he lost $4 billion – and nearly his entire company – when he bought out Valeant Pharmaceuticals years ago. But he committed to using that unhappy experience to grow his investment skills and his firm.
“Humility is the beginning of progress,” he told me, and it’s so very true. It’s exceptionally difficult to get where you want without considering questions like:
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Where is your ego holding you and your portfolio back today?
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What investments aren’t you questioning that you should be?
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Are there underperforming decisions you’re trying to fix when you should just admit defeat and drop them?
Never automatically assume your investment missteps were due to something or someone other than yourself. Instead, embrace the Law of Failure.
When you do, you might be pleasantly surprised at how much more you truly succeed.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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