"To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.”
- George Soros
On defaults ⬇️
- George Soros
On defaults ⬇️
1/ It's important to think about our "defaults"
Do we approach every decision with the default setting that we're always right?
Or that we could be wrong?
Do we approach every decision with the default setting that we're always right?
Or that we could be wrong?
2/ A lot of investors put their identity in the fact that they are great decision-makers.
After all, that's what this game is all about!
But what happens when you're completely sure you're right and the evidence begins to go against you?
After all, that's what this game is all about!
But what happens when you're completely sure you're right and the evidence begins to go against you?
3/ Since your identity is in the fact that you make great decisions, surely you can't be wrong...right?
So we search out confirmation bias, further entrenching our position.
Like Munger says, the human mind is like the female egg, when one sperm gets in (an idea!) it shuts off.
So we search out confirmation bias, further entrenching our position.
Like Munger says, the human mind is like the female egg, when one sperm gets in (an idea!) it shuts off.
4/ So the identity of being a good decision-maker can actually work against us.
On the other hand, if we have an identity of being open-minded, we give ourselves the room to change our mind.
Then, changing our mind is not seen as being wrong, but rather, a part of what we do.
On the other hand, if we have an identity of being open-minded, we give ourselves the room to change our mind.
Then, changing our mind is not seen as being wrong, but rather, a part of what we do.
5/ The problem with open-mindedness as an identity is that we might not have the necessary conviction to hold stocks when we should.
We might be too open-minded and let every argument (bad ones too) persuade us to change our minds.
We might be too open-minded and let every argument (bad ones too) persuade us to change our minds.
6/ This tension is one of the most important qualities of good investors.
I call it the conviction/humility spectrum.
The best investors have the perfect balance of conviction (I'm right!) and humility (I could be wrong!)
I call it the conviction/humility spectrum.
The best investors have the perfect balance of conviction (I'm right!) and humility (I could be wrong!)
7/ Conviction is born out of deep, obsessive research and pattern recognition.
Humility is born out of true understanding of the world. There are so many unknown unknowns and it's easy to oversimplify reality.
In reality, reality is incredible complex 😉
Humility is born out of true understanding of the world. There are so many unknown unknowns and it's easy to oversimplify reality.
In reality, reality is incredible complex 😉
8/ It's sort of interesting because humility is actually born out of deep research as well. The deeper we go, it's easy to realize how much we don't actually know.
But this can be a double-edged sword.
The deeper the rabbithole, the deeper the confirmation bias.
But this can be a double-edged sword.
The deeper the rabbithole, the deeper the confirmation bias.
End/ It's incredibly hard to balance this tension and I often get it wrong.
But the market is a humbling place. Humble yourself or expect the market to at some point.
But the market is a humbling place. Humble yourself or expect the market to at some point.
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