Source: Abnormal Returns
“These situations where I can’t make a choice because I’m too busy trying to envision the perfect one—that false perfectionism traps you in this painful ambivalence: If I do this, then that other thing I could have done becomes attractive. But if I go and choose the other one, the same thing happens again. It’s part of our consumer culture. People do this trying to get a DVD player or a service provider, but it also bleeds into big decisions. So my rule is that if you have someone or something that gets 70 percent approval, you just do it. ‘Cause here’s what happens. The fact that other options go away immediately brings your choice to 80. Because the pain of deciding is over.
“And,” he continues, “when you get to 80 percent, you work. You apply your knowledge, and that gets you to 85 percent! And the thing itself, especially if it’s a human being, will always reveal itself—100 percent of the time!—to be more than you thought. And that will get you to 90 percent. After that, you’re stuck at 90, but who the fuck do you think you are, a god? You got to 90 percent? It’s incredible!”
“The NCAA, in its simplest form, is a cartel designed to exploit amateur arbitrage: That is, to profit on the spread between the cost of minimal-wage athletic labor and the value of television sports contracts.”
After treating a woman for Charles Bonnet syndrome, a condition which causes sufferers to hallucinate and see small people and animals, bright moving shapes or distorted faces, Dr. Bharat Kumar, an internal medicine resident at the University of Kentucky noted that the brain isn’t a sophisticated computer that processes information objectively and efficiently. “It’s more of a wibbly-wobbly, messy-guessy ball of goo.”
These questions were raised in a comments thread with respect to a book review (here). They are particularly astute and are apt in a wide variety of contexts, including investing. I commend them to you.
How might this statement [idea/policy/proposal/approach] stand up to attack? What is the evidence for it? Is the fact that all my friends believe it a bug or a feature?
From legendary investor Seth Klarman: “While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish.”
To support this point, take a look at the returns Bear Stearns provided, right up until the firm blew up in March of 2008:
It’s worth repeating.
“While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish.”
Here’s another gem: “We prefer the risk of lost opportunity to that of lost capital, and agree wholeheartedly with the sentiment espoused by respected value investor Jean-Marie Eveillard, when he said, ‘I would rather lose half our shareholders…than lose half our shareholder’s money….'”
Yet another: “We continue to adhere to a common-sense view of risk – how much we can lose and the probability of losing it. While this perspective may seem over[ly] simplistic or even hopelessly outdated, we believe it provides a vital clarity about the true risks in investing.”
“‘Can we do better?’ The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves, and then we shall save our country.”
Second State of the Union Address
Quote of the day (from a new favorite blog, Interloper): “[T]here is nothing you should be more afraid of than a market pundit who is certain.”
What follows is just as good.
Certainty is a tremendous marketing tool but there is a reason that the “con” in con man is short for confidence. Remember that it would only take one highly-leveraged trade to make someone wealthy enough to never work again. This implies that if the “certain” dude (and its 99% of the time a dude) was really 100% sure, they would be leveraged 200-1 on the trade and, if it were successful, you’d never see them again outside of Saint Tropez-situated photos in celebrity magazines. In truth they are not sure – it’s a marketing gimmick to attract your investment dollars.
All of this is just one more facet of the behavioral economics issues I’ve mentioned before as detailed wonderfully by the Psy-Fi blog. We are naturally attracted to certainty and we want to believe that someone has the answer because psychologically the random nature of markets is repellent. But in the end it is most often a trap and all investors should remember what a portfolio manager once told me:
“People don’t like to hear it but we are in the probability game, not the certainty game.“
Interloper is a must-read.