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Investment Process: Arrogance Will Always Get the Best of You in Finance | The Talkative Man

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Investment Process: Arrogance Will Always Get the Best of You in Finance
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Investment Process: Arrogance Will Always Get

the Best of You in Finance
Posted on June 22, 2014 by James Moore No Comments

It is necessary for the investors to think logically while investing and researching a stock. Investing isnt about
beating others at their game. Its about controlling yourself at your own game. Overcoming dysfunctional
psychological heuristics is a trained response. That trained response requires work and disciplineif you want to
avoid that, buy an index fund. In a speech before the Foundation Financial Officers Group in Santa Monica,
California, 14-Oct-1998, Warren Buffetts partner Charlie Munger said:
Human nature being what it is, most people assume away worries like those I raise. After all, five
centuries before Christ, Demosthenes noted that: What a man wishes, he will believe. And in selfappraisals of prospects and talents it is the norm, as Demosthenes predicted, for people to be
ridiculously over-optimistic. For instance, a careful survey in Sweden showed that 90% of
automobile drivers considered themselves above average. And people who are successfully selling
something, as investment counselors do, make Swedish drivers sound like depressives. Virtually
every investment experts public assessment is that he is above average, no matter what is the
evidence to the contrary.
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Smart, hard-working people arent exempted from professional disasters from overconfidence.
Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals
that they have superior talents and methods.
It is, of course, irritating that extra care in thinking is not all good but also introduces extra error.
But most good things have undesired side effects, and thinking is no exception. The best defense
is that of the best physicists, who systematically criticize themselves to an extreme degree, using a
mindset described by Nobel laureate Richard Feynman as follows: The first principle is that you
must not fool yourself and youre the easiest person to fool.
Warren Buffetts success as an investor demanded not only deep analysis of financial documents but also a large
measure of self-discipline and willpower to avoid getting caught in market bubbles and panics. Buffetts decree
buy when everyone else is selling, sell when everyone else is buying requires enormous self-confidence to
implement. Investors dont need to concern themselves with market psychology, price charts, or anything else
not related to the intrinsic value of the company theyd like to invest in. In an interview with CNBCs Becky
Quick on 04-Mar-2013, Warren Buffett said,
But [a lot of Main Street investors] should hold a diversified group of really high-class companies,
which you can do by buying an index fund. And then they should forget it. They should just pretend
the stock market closes for five years and they shouldnt look at prices every day

Recommended Reading on Warren Buffett & Value Investing

The Essays of Warren Buffett: Lessons for Corporate America by
Warren Buffett, Lawrence A. Cunningham
The New Buffettology: The Proven Techniques for Investing
Successfully in Changing Markets That Have Made Warren Buffett the
Worlds Most Famous Investor by Mary Buffett, David Clark
The Warren Buffett Stock Portfolio: Warren Buffett Stock Picks: Why
and When He Is Investing in Them by Mary Buffett, David Clark
The Warren Buffett CEO: Secrets from the Berkshire Hathaway
Managers by Robert P. Miles

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Tagged Charlie Munger Value Investing Warren Buffett
Posted in Investing and Finance
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