If you’re now convinced of the need for greater humility in your investment approach, a natural next question is, “Where do I start?” The journey toward admitting ignorance and culpability is winding and difficult but has both financial and relational rewards. Here are a few places to start:
Man of steel – You’ve likely heard of a “straw man” argument in which a weakened caricature of an opposing opinion is presented, only to be dismantled. A less discussed but more effective critical thinking technique is to create a “steel man”, which represents the very best thinking and most rigorous empirical proof of an opinion with which you disagree. Rather than using the straw man as a rhetorical punching bag to feed your ego, build a steel man that will sharpen your thinking, cause to you to look in dark corners and consider new vantages.
Love the questions – In Letters to a Young Poet, Rainer Maria Rilke writes to his protégé: “I want to beg you, as much as I can, dear sir, to be patient toward all that is unsolved in your heart and to try to love the questions themselves like locked rooms and like books that are written in a very foreign tongue. Do not now seek the answers, which cannot be given you because you would not be able to live them. And the point is, to live everything. Live the questions now. Perhaps you will then gradually, without noticing it, live along some distant day into the answer.” Western culture is in love with certainty and bravado but the uncertainty of markets necessitates that we pursue a dynamic approach that is rooted in a fascination with the process rather than looking for silver bullets. The paradoxical truth is that only by learning to love the questions will we ever find the answers.
Take Your Time – For years scientists have puzzled at the evolutionary reason for depression. Species tend not to adapt in ways that are self-harming and yet depression on its face does very little good and a whole lot of harm to the organisms it touches. But more recent research shows that deep sadness may have a strong evolutionary purpose that is rooted in the depressive tendency to ruminate on problems. By playing and replaying a negative event over and over in our minds, we often arrive at solutions that can be called upon at a future date. What hurts in the moment may be profoundly beneficial down the road. As Warren Buffett has pointed out, there are no called strikes in investing; all the time pressure we may feel is arbitrary and self-imposed. We would do well to follow the admonition of John Dewey in How We Think, - “To be genuinely thoughtful, we must be willing to sustain and protract that state of doubt which is the stimulus to thorough enquiry, so as not to accept an idea or make a positive assertion of a belief, until justifying reasons have been found.”
Take the outside view – When making a decision we tend to rely on what social scientists call the “inside view.” The inside view is our perception of a decision as informed by our own biases, anecdotal experience and a convenience sample of whatever data pops to mind first. Conversely, taking the “outside view” means a more dispassionate appraisal that depends more on base rates, probability and facts than convenience and personal experience. In Think Twice, Michael Mauboussin sets forth four steps to taking an outside view of a problem. They are:
1. Select a reference class – compare your problem to other problems like it
2. Assess the distribution of outcomes – examine rates of success and failure
3. Estimate probabilities – based on the external evidence, estimate timelines, failure rates and obstacles to success
4. Fine tune your prediction – let bumps in the road and changing circumstances alter your estimate accordingly
By relying on external data, you are likely to arrive at a much more realistic picture than by leaning on your personal experience. If it takes most people two years to complete a task, you are unlikely to finish yours in six months. The outside view is an effective way of combatting ego risk by reminding you that you’re not that great.
Those who can, teach – A quick question for you, gentle reader, “Do you know how a toilet works?” On a scale from 1 to 10, how familiar would you say you are with the workings of a toilet? Go ahead and answer. Now, explain to me in detail the mechanics of a toilet, I’ll wait. Done? Ok, now let me ask again – on a scale of 1 to 10, how well do you understand the workings of a toilet? Research by Steven Sloman of Brown and Philip Fernbach at the University of Colorado shows that having to teach a concept has a humbling effect that brings our beliefs more in line with our actual understanding. The pair have used this technique to moderate beliefs about everything from single payer healthcare to, well, toilets and have found that, “As a rule, strong feelings about issues do not emerge from deep understanding.” The next time you feel as though you must buy or sell a security, take a moment to explain, in detail, the factual reasons why this is so. You’re likely to find that your enthusiasm has gotten the best of your brain and nothing brings them back into sync like having to teach.