Don't Do Dumb Things With Money.
Capital Thinking · Issue #969 · View online
Lot’s of good stuff here. Not much fluff and all of it deals with the lies we tell ourselves.
All of these are good, but if you have time to only choose one, try Little Money Rules, the last link for the day. Here’s just a taste:
“An asset’s ability to let you do what you want, when you want, with who you want, is ROI that can’t be found on a spreadsheet. Spending money to show people how much money you have is the surest way to have less money. Your circle of competence is smaller than you think. Your susceptibility to bias is larger than you think. Solutions to problems can be shockingly simple; Getting people to adhere to simple solutions can be shockingly difficult. No one’s impressed with what you have.”
And so it is.
An Investment Pyramid
“We’ve all read the studies and are aware that, left to ourselves, we’ll often find a way to vastly underperform the benchmarks.
However, many of us still can’t seem to get out of our own way. Whether it’s chasing the latest hot stock, doubling down on a train-wreck investment because it just has to bounce soon, or getting swept up in a herd-mentality-buying-frenzy when fundamentals are screaming the opposite, we still find ways to hurt ourselves.
You begin to avoid these outcomes with the help of two things: awareness and humility.
Awareness is no more than the simple recognition that you’re inclined to hurt your portfolio. Humility is what enables you to accept that reality and seek a better way, which leads to our next layer…”
Often Wrong, Never in Doubt.
In his fascinating book, On Being Certain, neurologist Robert Burton systematically and convincingly shows that certainty is a mental state, a feeling like anger or pride that can prove useful, but that doesn’t dependably reflect anything like objective truth.
One disconcerting finding he describes is that, from a neurocognitive point of view, our feelings of certainty about things we’re right about is largely indistinguishable from our feelings of certainty about things we’re wrong about.
All of which confirms the (usually unspoken) truism about humans – we’re often wrong but never in doubt.
Information Versus Noise
“The point here is that investing is both art and science. Some things are countable. Others you have to just feel out.
Gathering information is a science. Filtering out noise is an art.
Net present value is a science. Identifying the trust and passion of a CEO is an art. Measuring what worked in the past is a science. Understanding why things are different now is an art.
If you think the world is all art you’ll miss how much stuff is too complicated to think about intuitively. Most people get that.
But if you think the world is all data you’ll miss how much is too complicated to summarize in a statistic.
That one’s a little harder.”
Everybody Plays the Fool (sometimes)
Ah, ain’t it the truth. We’re never as smart as we think we are. Not all the time anyway.
No one’s impressed with what you have.
So what’s the takeaway here?
What can we learn about ourselves? How about a small set of rules?
But until you’ve walked through the fire yourself, you won’t really know why you need these.