Leverage and Momentum: Part 2, How You Work

[This is the second part in a series, "Finding Your Force: Leverage and Momentum." Part 1 is available here; Part 3 is available here.]

How Leverage Types Work

“Give me a stick long enough and a pivot and I shall move the world,” the crafty Greek physicist Archimedes observed. Although Archimedes did not discover the lever, he did refine and explain the principles behind leverage.

The leverage type is smart and analytical. They do not waste too many movements. Like Archimedes, leverage types say, “Give me a place to stand on, and I will move the Earth.”

The leverage type takes in all available information and then makes one or two really smart, efficient moves that lead to great results. Careful and deliberative is how to describe a leverage type – with the emphasis on careful.

Warren Buffett is the archetype of the leverage type. His investment strategy embodies the leverage type of thinking. In a speech on investing years ago, he said that most investors should only be allowed to make 20 trades over the course of their investing life.

Buffett theorized that most people trade in and out of the stock market far too often. (There’s even an investing strategy called momentum investing.) This causes the vast majority of investors to “buy high and sell low.” If you could only make 20 trades in the course of you life, you’d be careful to only make the right trades, wouldn’t you?

He told students at the University of Georgia (fast forward to 31:05 in the video, although the entire video is worth watching):

You would be better off if when you got out of school, you got a punch card with 20 punches. Every financial decision you made, you used up a punch. You’d get very rich because you’d think through each one very hard.

 

The pitfall of being a leverage type is that they are often too risk average. “Big opportunities in life have to be seized.” Make big moves.

In the same speech to students at the University of Georgia, Buffett himself noted that he missed out on some big opportunities.  “I’ve cost Berkshire at least $5 billion by sucking my thumb,” he told the audience.

How Momentum Types Work

Momentum types move with swiftness, boldness, and audacity. This allows them to achieve great things because they go where angels fear to tread.

General George S. Patton an outstanding example of a momentum type. As Patton remarked, “Audacity, audacity, always audacity!” Patton ran through Germany and caused havoc and we wouldn’t have been in the Cold War with the Soviet Union if Patton had been allowed to keep moving.

The problem with momentum types is that they assume too much risk and often speak and act too freely. Patton lost a command after he smacked a soldier who claimed to suffer form “battle fatigue” (what we now know to be PTSD).

He also spoke too openly about the Russians, observing:

The Russians are mongols. They are Slavs and a lot of them used to be ruled by ancient Byzantium. From Genghis Kahn to Stalin. they have not changed. They never will and we will never learn, at least , not until it is too late.

Even though political correctness wasn’t the dominant force, Patton lost his position for speaking out openly against what was then an “ally” of the United States.

No approach is right.

A leverage and momentum type can each accomplish great things. Neither approach is right or wrong. However, each type must have some self-awareness and realize where his strength and weaknesses lie. “First, know thyself.”

If you’re a leverage type, are you sitting behind a desk waiting for that perfect type to quit your job to start your own business?

If you’re a momentum type, are you too frantically moving when you should instead pause, reflect, and strategize before making a major decision?

  • anon1

    What’s funny about that punch card thing is that I actually do it. Have a notebook with 15 little boxes for 15 killer business ideas to put my full weight behind. I am not satisfied and haven’t even punched out hole 1 yet. I think analysis paralysis got me out of the game many times. There’s something to be said for pattons “a good plan violently executed is better than a perfect plan never executed”. Great article Mike, its always important to know how one works best to maximise themselves.

    • Danger & Play Blog

      Thanks for the feedback. We all have our weak points. I may (if the series draws interest) do a separate one outlining my successes and screw-ups due to my momentum type.

      • http://www.afternoonapprentice.com/ Hugo To

        Would be interested in a post of this nature.

  • http://www.therulesrevisited.com/ Andrew

    This is an important distinction. Great post.

    • Danger & Play Blog

      Thanks man!

  • http://mrthehermit.wordpress.com MrTheHermit

    Introversion vs extroversion gets a lot of attention but this is another aspect of personality that I hadn’t put much thought into before. Even if one is self aware enough to see which side is their more dominate, a pitfall to watch out for is overcompensating to try to be like the opposite (as a leverage force guy I’ve put my foot down and focused on being more decisive many times). Now you’re playing to your weaknesses and the proverbial shit will hit the fan because of a ‘grass is greener’ mentality.

    This is an interesting series and I’d like to read more on the subject if there is any. I’m on the leverage side of the fence and can definitely relate to feeling like I sit on my hands too much. I would say being a perfectionist is part of it and a feeling that if I personally can’t do something well then I’d rather not do it at all (No half measures, if you’re a fan of Breaking Bad). But at the end of the day, chasing perfection is a pipe dream and there are so many aspects of life that you’ll never feel very comfortable about before jumping in and just doing it.

  • http://www.afternoonapprentice.com/ Hugo To

    Self knowledge is the name of the game, and you’ve summed it up nicely at the end of the article. You need to realise that excessiveness in any spectrum usually isnt advantageous. An extrovert needs to introspect from time to time, just like a momentum-er needs to leverage from time to time, or face himself being spread too thin, or jumping from project to project without having drawn them out long enough to be successful.

  • Shiva

    DnP, have you ever read Thomas Jefferson’s analysis of George Washington? Seems to me that he had cultivated the best of both worlds. Slow to decide. Implacable momentum once the course was set.

    http://www.donparrish.com/EssayWashington.html

    • Danger & Play Blog

      I just did. Very cool, thanks!

  • Dman

    This series of posts gave me an idea: the people you surround yourself with can have an effect on your personality…possibly shifting you more to leverage/momentum (among other dualities). The idea of surrounding yourself with successful people is generally recognized in these parts, but what about consciously seeking out male friendships with people who are more how you would like to be with aim of having your approach to life change as a result of these men (I do not mean a mentor/mentee relationship)? I think that’s actually a lot harder than meeting women, but potentially it can be much more rewarding.

    • Danger & Play Blog

      That is actually discussed in Part 3, which I’m finalizing. Nice job at anticipating the next move!