Posted by on May 20, 2018 in Articles & Advice, Blog, Books, Featured, Money in the Arts, Posts |

Image credit: Fool “playing” a dog as if it were a musical instrument, workshop of the Master of the Boucicaut Hours, from Bible Historiale, ca. 1400-1425, Royal 15 D III, f. 262, British Library

 

 

By Jason Zweig  |  May 20, 2018  10:07 pm ET

 

 

And the Lord told me that he wished me to be a new fool in the world, and that he did not want to lead us by any other way than by that wisdom; for by your learning and your wisdom God will confound you.

–St. Francis of Assisi, in John R. H. Moorman, A History of the Franciscan Order  (Oxford: Oxford University Press, 1968), p. 55.

 

Portfolio manager @jposhaughnessy’s brilliant thread on Twitter recently inspired me to set down some thoughts of my own. I forgot to thread them, though! Some people seemed to like them — thank you, @Gidimeister! — so here they are, pulled together for convenience, slightly edited for sharpness, with a couple of new thoughts added and with links throughout for reference.

 

In investing, as in life, too many people confuse wishes for beliefs and beliefs for evidence. Things aren’t valid just because you want them to be.

Fat Tails, Thin Ice

Separating what you believe and what you know may be the most intellectually difficult aspect of investing.

How to Handle a Market Gone Mad

In journalism, good fact-checkers don’t merely verify the evidence. They scrupulously record how and where they verified it. Turning the verification process from binary (“true” or not?) to multi-phase (how and where did I check?) reduces the error rate.

I just put “true” in quotation marks because most of the best journalists I know seldom use words like “true” or “truth.”

The Risk Is Not in Our Funds, But in Ourselves

In investing, as in journalism, there’s always another side of the story.

To Be a Great Investor, Worry More About Being Wrong Than Right

As you “learn” more, if your confidence doesn’t go down before it goes up, then you probably aren’t learning.

Behavioral Finance: What Good Is It, Anyway?

To cleave apart what you can know from what you only think you know, you must make yourself a new fool in the world.

Giving Yourself an Investing Makeover

If you aren’t using blind analysis, you are probably kidding yourself when you proclaim “I see!”

The past, no matter how long and how many data points you believe it contains, is a sample size of one (n=1).

Does Stock-Market Data Really Go Back 200 Years?

The future isn’t a straight line you can extrapolate from the past. The future is a storm into which we are blown backwards.

A (Long) Chat with Peter L. Bernstein

Any investor who thinks he “knows” what the future holds (and you are male if you think that) has a lot to learn — about himself.

Lesson From Buffett: Doubt Yourself

A useful exercise: Assert nothing without prefacing the words “In my opinion.” See whether your beliefs can then stand up.

Whatever You Do, Don’t Read This Column

Develop the habit of converting “I know that…” to “I think I know that…” Your beliefs should suddenly look shaky and naked, even to you.

The Right Way to Handle a Surprise

That should prompt you to seek out the empirical evidence that can either function as a solid foundation for your beliefs or knock them down.

The Lesson of Forex Trading: Learn From Your Losses

Walk as often as you can through the graveyard of your dead beliefs, especially the ones you murdered by your own hand.

Behavioral Finance: What Can Investors Learn From Their Mistakes?

That will remind you how small and absurd most of your beliefs are and how hard it is to outthink the billion-brained mind of the market.

Wall Street’s Wisest Man

Look especially hard at the idea that would make your grandmother or a small child think you must be wrong. It’s approximately 99% likely to be wrong.

The Best Stock Over the Last 30 Years? You’ve Never Heard of It

And there’s a faint chance it could make you rich.

Amazon’s 49,000% Gain: The Most ‘Super’ of ‘Superstocks’ Since 1926

Investing is a profoundly lonely activity, and it’s hard to pick your way through endless minefield of bullsh*t and boobytraps that the financial industry lays down unless you find a community of other investors at least as smart as you.

A Golden Oldie: The Bogleheads

Knowing that you’re not in it alone can help you stay in it.

You Are Not Alone: The Berkshire Hathaway Annual Meeting

Warren Buffett is famous for saying you should “be fearful when others are greedy and to be greedy only when others are fearful.”

On Warren Buffett

An even higher aspiration for investors is to turn your own emotions inside-out.

An Interview with Safal Niveshak

Be fearful when you are greedy, and be greedy when you are fearful.

Is Your Brain Wired for Wealth?

Observe your own emotions, and seek to do the opposite of what your gut is driving you to do.

Neuroeconomics and the Art of Portfolio Management

An investor who bought during the financial crisis, instead of selling or freezing, added rocket fuel to future returns.

When Investing in Stocks Makes You Feel Like Throwing Up and You Do It Anyway

That takes great self-control, but you don’t have to be superhuman to do it.

Tie Me Down and Make Me Rich

You just have to cultivate the knack of seeing yourself as a stranger.

When the Stock Market Plunges…Will You Be Brave or Will You Cave?

“Investors hate uncertainty.” Nonsense! That’s like saying you hate gravity or mortality or evolution. Only fools hate uncertainty.

Afraid of What Comes Next for the Markets and Economy? Read This

Investors accept uncertainty as the fundamental substrate of the financial markets. Anytime investors are “certain” about anything, they are probably wrong.

1974 and 1999: History Turned Upside Down

As Bertrand Russell said: “When a man tells you that he knows the exact truth about anything, you are safe in inferring that he is an inexact man.”

Your job as an investor is less to know something than to know whether you know something and to know how you can know something…

False Profits

…and to see the world around you as strange and ever-changing…

The Trouble with Humans

A Portrait of the Investing Columnist as a (Very) Young Man

…and to see the world within yourself as inconsistent, fickle and unreliable…

From the Archives: Daniel Kahneman

…and to remember that the riskiest moment is when you are right

Are You Hot or Not? For Investors, It’s Hard to Tell

and to treat your gut feelings as information — about what you probably should not believe or do.

Fear

Accept that no one can think like this all the time, but aspire to think like this as often as you humanly can.

Saving Investors from Themselves

 

 

 

For further reading:

Warren Buffett’s annual letters to Berkshire Hathaway shareholders

Jason Zweig, Your Money and Your Brain

Jason Zweig, The Devil’s Financial Dictionary

Benjamin Graham, The Intelligent Investor

Lawrence A. Cunningham and Stephanie Cuba, The Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual Meeting

Roger Lowenstein, Buffett: The Making of an American Capitalist

 

Alice Schroeder, The Snowball: Warren Buffett and the Business of Life

 

Carol J. Loomis, Tap-Dancing to Work: Warren Buffett on Practically Everything, 1966-2013