Curiosity killed your investment
Posted by: Brian Dennehy
I am very fortunate that as part of my job I get to read loads every week, and more often than not written by some remarkable people. (As an aside, much is paid-for research, but I will share what I can from time to time). But it can also be a curse.
The desire to read is a key element of our curiosity gene. As Albert Einstein said:
“I have no special talents. I am only passionately curious”
From the day we are born curiosity is what drives us to explore and learn and have fun. This desire to discover is deeply ingrained, on a par with the basic desire for food or sex according to Christopher Hsee of the University of Chicago.
Curiosity in general, and reading in particular, can drive considerable success. The world has already tried thousands of things. All you have to do is learn from them. The world’s most successful investment partnership certainly knows that - Warren Buffett and Charlie Munger.
Buffett says he spends 80% of his day reading and thinking, which can be 500 pages every day.
While 500 pages might be a tad ambitious, how about just 25 pages every day? That’s about 1 hour.
The problem? Most of us will find excuses, similar to the ones we trot out when asked why we don't go to the gym - even though we pay for a gym membership!
But if you focus, you can do it. You can carve out an hour in the day to read.
Buffett told this story:
“Charlie, as a very young lawyer, thought to himself “Who’s my most valuable client?”. And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning… Everybody should do this, be the client and sell yourself an hour a day.”
Think about this hour. On the one hand you could check Twitter or Facebook, mindlessly trawl through the BBC online, reply to a few emails which aren’t either that important or time sensitive. Or you could invest one hour in yourself.
But that reading and building your knowledge isn’t enough. Curiosity has its dark side. Does your reading cause you to navel gaze or get on with stuff?
Some years ago I realised that a high level of reading, while hugely enjoyable, was also a distraction. Interestingly I could observe this by virtue of the people around me, and my clients, making good money (based on my research) but I wasn’t!
Philosophers like Leibniz and Diderot were already complaining about information overload in the 17th and 18th century. Imagine how mind-boggling they would have found the internet age.
Whichever century we consider, the issue is not how much information we can access, but how we manage it.
If you have a little too much of the curiosity
curse gene, if your school reports were littered with “easily distracted” (mine too!), and you have a messy-cum-eclectic collection of investments, you have a clear need to re-focus.
Someone (I can’t recall who) said that I couldn’t change the personality trait which gives me an over-active curiosity gene – I couldn’t change that desire to read intensively. But I could change how I responded to what I learnt or discovered.
If I was reading about investment-related matters (endlessly fascinating for me) I must put most of this in a mental box marked “interesting but otherwise wallpaper”.
A much smaller amount should be put into a separate mental box marked “critical facts, must prioritise action”. Obvious really!
But which were the critical facts? This is where you have to have a tight objective, and a clear process to achieve it. As you see this represented on FundExpert, the objective is to identify funds with a high probability of performing better than their peers (outperformance). And the process to achieve this is (in our case) Dynamic Fund Ratings.
Therefore the critical facts on which I needed to focus (Dynamic Fund Ratings) were very clear and few. This has made my reading more fun and more relaxing – and made my investing vastly more profitable.
If you fall into the category of having a messy-cum-eclectic collection of investments, don’t get distracted by the latest missive from Woodford or me – we are just wallpaper. You already have the small number of critical facts you need to transform your investing potential.