One of our objectives is to help our members adopt a way of thinking, a mind-set, to put you in a position to transform your investing success. This isn’t just about investment knowledge – it would be easy if that was the case. Our concern is to change the way you think about investing.
Building investment knowledge is easy. But won’t in itself help you achieve success.
Having a process to identify outstanding investments is essential. But it is only one of two essential ingredients.
Your ultimate success requires that you think differently.
More specifically, if you are going to think like most others, you will get the results everyone else does – mediocre at best.
There are a number of ways to approach that new thinking.
I first came across this awkward sounding term, anti-fragile, when reading one of Nassim Taleb’s books. It simply means the opposite of fragile – it means you must be resilient and disciplined, but it means even more. It means that you won’t just recover from a shock or a mistake, but we will get stronger.
Here are some principles* to achieve this mental state of great strength:
- Stick to simple rules
- Experiment – take lots of small risks with an open mind
- Avoid risks which would wipe you out completely if they go wrong
- Don’t get consumed by data
- Focus more on avoiding things that don’t work, and less on trying to find things that do work
- Respect the old – look for habits and rules that have been around a long time
- Be prepared to look an idiot in the short term to look a genius in the long term
- Know that small regular advantages compound into huge long term advantages
Hesitant or gung-ho?
One group reading this will tend to be hesitant when investing. Another will always seem to be agitating to do something – anything! I am encouraging both groups to have a time out*.
Why do so few fulfil their potential when investing? Even when they are clearly very successful in other areas of their lives.
The Farnham Street crew put it succinctly—it is the difference between amateurs and professionals.
Most of us behave like amateurs when investing, despite the considerable sums which are often involved. When I say “most of us” I include those whom might ordinarily be regarded as investment professionals or investment experts.
Behaving like a professional isn’t about greater or even better knowledge or perhaps even being regarded as an expert– it is a state of mind.
What’s the difference? There are many:
- Amateurs stop when they achieve something. Professionals understand that the initial achievement is just the beginning.
- Amateurs have a goal. Professionals have a process.
- Amateurs see feedback and coaching as someone criticizing them as a person. Professionals know they have weak spots and seek out thoughtful criticism.
- Amateurs value isolated performance. Professionals value consistency.
- Amateurs give up at the first sign of trouble and assume they’re failures. Professionals see failure as part of the path to growth and mastery.
- Amateurs don’t have any idea what improves the odds of achieving good outcomes. Professionals do.
- Amateurs think knowledge is power. Professionals pass on wisdom and advice.
- Amateurs focus on being right. Professionals focus on getting the best outcome.
- Amateurs think good outcomes are the result of their brilliance. Professionals understand when good outcomes are the result of luck.
- Amateurs focus on the short term. Professionals focus on the long term.
- Amateurs focus on tearing other people down. Professionals focus on making everyone better.
- Amateurs make decisions in committees so there is no one person responsible if things go wrong. Professionals make decisions as individuals and accept responsibility.
- Amateurs blame others. Professionals accept responsibility.
- Amateurs go faster. Professionals go further.
- Amateurs go with the first idea that comes into their head. Professionals realize the first idea is rarely the best idea.
- Amateurs think in absolutes. Professionals think in probabilities.
- Amateurs think disagreements are threats. Professionals see them as an opportunity to learn.
- Amateurs believe that the world should work the way they want it to. Professionals realize that they have to work with the world as they find it.
- Amateurs are scared — scared to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything.
I found responses to my book “Clueless” fascinating in this regard. I was pleasantly surprised with the enthusiastic responses from a number of fund managers, investment advisers, and investment writers and academics
There were a smaller number of negative responses from “investment professionals” than I expected, yet they were predictable. The underlying tone tended to be “how dare you!” or “angry from Canary Wharf”. Their amateurism is caught by 3, 7, 8, 9, 11, 13, 17, 18, 19. Hmmm. Quite a list.
For the avoidance of doubt, if you believe I succumb to any of those traits please do let me know – the “Brian on the couch” feature in the monthly teleconferences is getting quite a following – at my expense!
Food for thought
No blueprint there, but lots of ideas for you to consider.
What’s holding you back?
Whether you are a hugely experienced investor or just starting out – with large sums or small – achieving the right mental approach is vital to your success. But it does require some honesty on your part about the way you are now. Tick off two of the attributes above which are holding you back.
Don’t beat yourself up – just be honest. Because the rewards for getting this right are considerable, as you have seen throughout FundExpert, our long term research, and the Dynamic Portfolios which we update month after month.
* For the avoidance of doubt that does NOT mean ignoring markets. The most important task over shorter periods is always protecting your capital. Make sure you have a clear plan in place now for how you will respond in the event of sharp market falls. Say of 10% or more. Have this documented, and try and keep it simple.
NOTE: Thank you to FarnhamStreetBlog.com for these and other ideas encouraging better thinking and decision-making.