Internal vs. External Benchmarks

There are two ways to measure how you’re doing: Against yourself and against others. Internal vs. external benchmarks.

There’s a time and a place for both, but I’ve come to appreciate how much happier you can be if you appreciate when internal benchmarks should get the spotlight.

If Jeff Bezos started a new company that got to $100 million in revenue and sold for a billion dollars, it would mean … nothing to him, both financially and on his list of accomplishments.

But if I did it, it would be … unbelievable. Everything would change.

So accomplishments have a cost basis. What you gain or lose is always relative to where you began. And since we all begin at different spots, there’s a range in how people feel when experiencing the same thing.

In his book on the final days of World War II, Stephen Ambrose writes about a wounded American soldier who’s carried back to the medic tent. He knows he’s going home – his war is over. “Clean sheets boys!” he yells back to his comrades still fighting. “Clean sheets, can you believe it! Clean sheets!” Living in foxholes for weeks caused soldiers to daydream about normal life, and few things tickled their imaginations like the dignity of clean sheets. Not money or status or respect or glory. Just the absolute pleasure of clean sheets. It’s an extreme example of when the outside world ceases to exist and everything becomes relative to an internal benchmark.

A lighter version of this happens in business and finance, which are home to so many staggeringly successful people whose lives are broadcast over a staggeringly loud social media system.

If you measure your career solely relative to them – the external benchmark – you’re on the neverending path of feeling inadequate, incompetent, and poor. Nothing you do will ever feel that great because someone is always smarter than you, more popular than you, better looking than you, getting richer faster than you, and making sure you know about it.

It’s not until you focus on internal benchmarks and see how far you’ve come, relative to where you began – the gap between today and your own cost basis – that you have a good view of where you stand and what you’ve accomplished. Even if it’s the career equivalent of clean sheets.

External benchmarks can be great because so much innovation comes from the urge to chase whoever’s in front of you. They’re also just necessary to survive a competitive environment.

But great things backfire when taken to an extreme, and external benchmarks are no different:

External benchmarks are deceiving because accomplishments are advertised while the ugly, hard, and painful parts of life are often hidden from view. Almost everything looks better from the outside. When you’re keenly aware of your own struggles but blind to others’, it’s easy to assume you’re missing some skill or secret that others have. Few things are as awful as chasing something you eventually realize you never actually wanted.

People play different games, some of which might not be related to your own goals. Investors range from nineteen-year-olds learning how to day trade to endowments with century-long time horizons and everything in between. But so often there is just one external benchmark: How you have performed in the last 365 days relative to the S&P 500. Can we not imagine a world where different people have different goals stemming from the different games they play?

Another version: Working 100-hour weeks and squeezing every penny out of your career potential is the ultimate goal for some people, but a nightmare for others whose priority is, say, quality time with their kids. “To each their own” only works when benchmarks are internalized.

The key to a lot of investing success is to be motivated by opportunity while immune to FOMO. The difference is subtle, but mostly comes down to FOMO being a byproduct of anchoring on the external benchmark of how rich other people are getting.

It’s hard to know how much of some external benchmarks owe their performance luck, which you cannot replicate no matter how smart you are or how hard you try. This is especially true when you’re anchoring to a specific person or company’s success.

The most important point may be this: Internal benchmarks are only possible when you have some degree of independence.

The only way to consistently do what you want, when you want, with whom you want, for as long as you want, is to detach from other peoples’ benchmarks and judge everything simply by whether you’re happy and fulfilled, which varies person to person.

I recently had dinner with a financial advisor who has a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client; All he cares about is whether he has enough money to keep traveling with his wife. That’s his sole benchmark.

“Everyone else can stress out about outperforming each other,” he says. “I just like Europe.”

Maybe he’s got it all figured out.

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