A cura di Jack Forehand, Validea Capital Management
There are some areas of life where you can never have all the answers – no matter how much you know, how smart you are, or how good the school was you got from your degree from. Investing is one of those areas. As humans, we want to believe we can know everything. We want to believe if we work harder or read more, we can finally get to a place of having all the answers. That belief, when coupled with unpredictable things where no absolute answer exists, can lead to very dangerous consequences.
I was listening to an excellent podcast Ted Seides did with Anthony Scaramucci (click here to listen) the other day and it got me thinking about this. They were talking about the lessons he has learned in life and he said something very interesting that I think gets at the key to investing success better than anything I have heard.
What he is saying here is that for many investors, what you think you know is much more dangerous than what you don’t know. That may sound counterintuitive because many people believe that knowledge is the key and that the more you add to your knowledge, the better you are. And I can’t argue with that. But with knowledge often comes more conviction that you have all the answers. That can lead to overconfidence and poor decisions.
I have certainly not been immune to this myself. As I have learned more about investing, I have made decisions with more confidence. But at times that confidence wasn’t warranted by the facts. And it can be compounded by the fact that, like many people, I have tended to follow those who agree with me, which just serves to reinforce my existing beliefs.
Find Diversity of Ideas
To combat this, I have made a concerted effort to follow more people who don’t agree with me. Getting perspectives that are contrary to what I think has been really helpful. In addition to that, I have tried to take any belief I have about investing and to put it into one of three buckets before I take any action as a result of it.
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