fear and greed, investing advice, literature, Nosce Te Ipsum, portfolio performance, readers, reading, South Sea Bubble, Warren Buffett
Continued from here.
I encouraged you to ‘Read, read, read & then read some more (’til you puke..!)’, and in return I promised you’d gain:
i) Knowledge, Experience & Inspiration
Readers appeared to enjoy the post, but perhaps it was a bit of a cop-out… ‘Cos there’s plenty of great investors who’ve already highlighted how much you need to read if you aspire to be a great investor too. That’s obviously excellent advice, and I probably didn’t add very much to it. But perhaps I can offer something valuable here – I believe there are two far more important benefits to reading. I should warn you, I’ll be writing about these from a far more personal perspective – so there’s definitely a chance they may not appeal to, work for, or even make sense to you (as an investor). That being said, it’s always worth remembering investing is ultimately ‘an art, not a science’:
ii) Nosce Te Ipsum
How often do you encounter people who are formidable experts in dispensing advice…but appear incapable of following their own advice? Dare I ask, maybe you’re one of those people?! But honestly, we all do it sometimes – when it comes to other people’s problems we have the wisdom of Buddha, but in our own lives we all too often make poor decisions, we deceive ourselves, we procrastinate, we trip ourselves up, etc.
Investing’s a lot like that too…
On the one hand, there’s a great unwashed mass of investors out there who literally never learn. Forget ’em – they’re hopeless cases anyway, simply fodder for the next stock promoter or corporate disaster. But what about the rest of us, who are (or at least aspire to be) serious investors? We spend our lives earnestly accumulating & applying our investing knowledge, experience & inspiration – despite that, we still make the most basic & stupid of mistakes, we panic, we act like our own worst enemies, etc. Why..?!
Well, when it comes to money (& investing) nothing’s simple. [The fact money’s unconsciously equated with faeces tells you how murky the whole subject is…actually, Michael Lewis recently revisited the topic]. But most of the time, we can trace the source of our downfall back to two old reliables:
‘Fear and Greed’
Yes, that’s a phrase we all enjoy trotting out occasionally, like old hands – but as with most glib phrases & sayings, it has more than its fair share of truth. You may have a lifetime of investing knowledge & experience, but fear & greed can all too easily sweep away logic & analysis – undermining your returns, or even leading you into complete disaster. Isaac Newton perhaps said it best (as he contemplated his own South Sea Bubble losses):
‘I can calculate the motion of heavenly bodies, but not the madness of people.’
And when it comes to experiencing (and mastering) such emotions, we are all alone… Unfortunately, seeking advice from other investors may offer precious little help. [If I gave you useful tips on dealing with an angry grizzly bear, are you really going to feel any less fearful of losing your life if you happen to meet said bear? I think not…] But there might be a good reason why – conquering fear & greed may not actually be the toughest challenge you face. Because I suspect the act of first recognizing these weaknesses in yourself – to really know thyself – is a far more difficult hurdle to overcome. And it’s a hurdle we trip over all too often, there’s nothing more difficult than raw & unflinching self-criticism. Particularly if you attempt to apply it on a continuous basis…
Actually, with the advent of the Me Generation & its progeny, one might reasonably expect we’ve all finally become truly self-aware. Alas, no… Self- involvement & selfishness are poor substitutes for self-examination. More than ever, I believe you first have to strive to truly know others, before you have any real chance of knowing yourself.
So, how do you go about that..?
Well, you know the joke – movies are life with the boring parts cut out! So no help there… At the other extreme, life itself can feel like a (pretty boring) movie, but one where the soundtrack’s missing: You see everybody, but much of the time you only have a vague grasp on what’s really going on. If you really want to dive below the surface, or see beneath the skin, you have to access the interior monologue(s) of life – by reading literature, and lots of it. Right, that bears repeating:
Read literature, and lots of it!
You’ll note I said literature, not fiction – life’s far too short to be reading bestsellers, or shopping & fucking books. And the best you can hope for with a bad novel is a half-way decent story. [Fortunately, I think quite a few crime novels/series offer a pleasant exception to the rule]. There really should be some purpose to this pleasure – with a good novel you hear the writer’s real voice, but with a great novel you hear the real voices of the writer’s characters. Great novelists also illuminate how the arc of people’s lives is often dictated by, or hurtles toward, a key defining event. All of which offers a window into people’s hearts & minds, which you’ll find nowhere else. And the more you read & analyze, the more you’ll understand the hopes, fears & passions that drive other people…who perhaps aren’t that much different from yourself.
Of course (assuming you’re still with me), you’ll also realize great drama & poetry might ultimately offer a far better distillation of insights into human nature. Which conjures up the slightly odd notion that investors might be better off reading annual reports and poetry… Maybe that’s why great investors generally just stick to recommending non-fiction reading. 😉
But I’ll stick my neck out & say great literature may actually be the most important reading you could ever do as an investor.
Because, if we’re honest, we all know our investment returns are probably defined far more by our losses, than our gains – no less an investor than Buffett echoes that. And I’m confident the majority of those losses are caused by some deadly combination of fear & greed… [And that’s just the tip of the iceberg – Buffett also reminds us of losses by omission – think of all those once-cheap stocks you were too fearful to ever buy]. To truly know thyself, and others, offers each of us (in our own special way) the best chance of ever recognizing & stamping out the pernicious impact of fear & greed in our investing.
So, how about a nice browse in your local bookshop, or library?
To be continued (Part III – Magic Eye)…
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Ethan Reese said:
I have a friend who epitomizes the idea of dispensing advice they don’t follow. I agree with you that the most crucial part of investing success is investing in knowledge. I could read about stocks and investing strategies all day (why I read this).
When I felt like I had acquired enough knowledge I actually started writing for http://www.invest-your-money-now.com/. I’m relatively new to investing but its an exciting world out there. Thanks for the tips
Chevalier d'Aven said:
Great post. May I suggest “Atlas shrugged” by Ayn Rand,1168 pages in the glory of greed and ambition and what would happen to an ucronian USA where the best citizens would stop “bearing the weight” of a society that vilifies the search of profit.