Investing is a lot like life.
Lots of ups and downs, and craziness, yet ultimate progress. But it isn’t easy.
We can read and learn from other people who have had some success but we ultimately have to make the decisions.
Externally, everyone has an opinion on what we should do and some people even offer us success without hard work.
The highs are great and we think they’ll go on forever and the lows are crushing and we also think they’ll go on forever.
Investing is a lot like life.
Another similarity springs up in the metaphor and that is the need for humility. The stock market is a humbling place and life can be too. After all, pride goeth before a fall.
Right when we think we’re the best and we can’t lose, we’ll most likely get punched in the gut. The opposite of humility is pride and I think it can be avoided with a shift in perspective.
Pride is a perspective of linearity. I worked hard = I deserve.
Humility is much more nuanced. Humility says I may have worked hard but if it weren’t for that guy who helped me here and that woman who did that for me there and wait, how did I get my interests in the first place?
Pride is too simplistic. It’s too shallow of a mindset. This is one of the reasons pride does go before a fall. Because it doesn’t lend itself to critical thinking and nuance. Once we are geniuses in our own mind, we take shortcuts; we don’t do the work necessary to make good decisions. We stick to our first inclination rather than digging deeper because we, after all, are self-made geniuses.
Humility, on the other hand, seeks truth. It isn’t self-seeking. It’s not worried about who gets the credit or protecting the ego. It’s focus is outward. Humility is the foundation of many other qualities that are important in both life and investing.
The next is open-mindedness.
When I think open-mindedness I think hippies. Whatever man…it doesn’t really matter anyway (*think Chicken Joe’s voice from Surf’s Up). But that is not really what I’m talking about here. I’m talking about your willingness to change your mind.
In today’s society, changing your mind is thought of as weak and indecisive. We follow leaders who stick to their guns no matter what. But we are fallible. What if we are wrong? Should we ever change our minds?
It goes back to the humility versus pride thing. Pride seeks to preserve the self. Humility seeks truth. Therefore, both directly bleed into open-mindedness. If you’re wrong, do you battle back to preserve your own image or are you more interested in the truth?
This has a lot of implications in investing. If you believe a stock is going to do really well, but the facts change, will you change your mind or defend your choice?
The actual thing you will be defending is your image, not your choice. Since the facts changed, your choice implicitly changed also. Initially, you might’ve made the best decision with the information you had at that time. But if the facts changed, what is stopping you from changing your mind?
This brings us to the third life-investing quality: a future-oriented disposition. Both pride and close-mindedness are inherently backward looking. You worked hard and made a lot of money. That is past tense; worked. Who says it will continue in the future? You made a poor decision but won’t change your mind. That is past tense; made. Who says it is the right decision anymore?
Being future-oriented is different. It seeks truth just like humility and open-mindedness. It looks to the future to achieve the best outcomes, not to be enticed by the past. It also doesn’t get bogged down with the past due to the f-word. No, not that f-word.
Failure. If you’re constantly brought down by failure, that is a backward orientation. Failure is an event, not a person. In other words, if you fail, you don’t become a failure, it is simply a suboptimal outcome. It is not defining.
So ask yourself: do I think more about the past or the future? If it’s the past, that’s ok. Just know, it helps to be future-facing.
So those are the three qualities that are important in investing and life; humility, open-mindedness, and a future-oriented disposition. There are so many more qualities but these three are foundational. Here is a summary of the qualities are their counterparts.
Humility: life isn’t linear and neither is your path. Pride is too simplistic.
Open-mindedness: go ahead, change your mind. Closed-mindedness is too self-seeking.
Future-orientation: life’s too short to focus on what has been. Past-bent: don’t be that person talking about the good ole’ days.
So time for some caveats. What about confidence, what about perseverance and conviction and learning from your mistakes? Ok, ok, ok. Hold on a second.
As I said, humility leaves room for nuance.
First, humility is not self-degradation. That is fake humility. Humility is not thinking less of yourself, it is simply thinking of yourself less. Humility breeds a quiet confidence because it is not all about you.
Second, if you fail, it’s not the end of the world. You don’t need to preserve your image. Instead, you can stay open-minded and focus on changing your mind.
But what about conviction and strong beliefs. Should you change those? Or what about looking to the past and learning from it?
Not all beliefs should be fungible. Assuming there is such thing as absolute truth, you shouldn’t stray from that. After all, it is about seeking truth. I won’t change my mind about the core tenets of my faith but I very well may be wrong about some ways I view it or am living it out.
So as long as you focus on truth, everything else can change. In business, there are some absolute truths like how price is what you pay but value is what you get. But still, what about the past, is it useless?
When you’re focusing on the future, it doesn’t mean you never think about the past. If you ignored the past completely, you would miss out on a lot of good memories and mistakes. Learning from your mistakes is good.
Repeating the same mistake over and over is not good. So you glean stuff from the past and don’t shy away from learning about your failures but you focus on implementing those lessons in the future. If you only obsess over the past, you get stuck. Stuck is not good. So there definitely is some nuance; humility requires it.
In summary: relentlessly seek truth and use it for the future.
Hopefully a helpful lesson in investing and life.