How to Get Less Stupid at Investing

Talking to people who think you're crazy.

Jul 8, 2014 at 9:22AM


A few weeks ago I shared a list of things I've learned about how stupid we all are. We're short-term thinkers, biased by politics, tempted to fiddle with our portfolios and overcomplicate simple tasks. All of us.

One reader responded: "It doesn't help to tell us we're stupid without recommending how to be less stupid. Be less of a jerk next time."


If you want to become less stupid at investing, one of the best things to do is surround yourself with people who disagree with you, and are in different emotional states than you are.

The process of becoming less stupid is different from the process of getting smarter. Getting smarter means learning things you didn't know before. You start from average and go up. Becoming less stupid is realizing that some things you already know are wrong. You start below average and try to get back to par.

People want to feel like they're making good decisions. The easiest way to get that feeling is to make friends with people who agree with you. But surrounding yourself with agreement doesn't teach you anything; in fact, it works wonders at reinforcing bad ideas and falsehoods. You only become less stupid by hanging out with people who think you're wrong. They're the ones who can point out the things you believe that just aren't true.

But doing this is hard. Kathryn Schultz, author of the book Being Wrong: Adventures in the Margin of Error, once explained:

The first thing we usually do when someone disagrees with us is we just assume they're ignorant. They don't have access to the same information that we do, and when we generously share that information with them, they're going to see the light and come on over to our team. When that doesn't work, then we move on to a second assumption, which is that they're idiots. They have all the right pieces of the puzzle, and they are too moronic to put them together correctly. And when that doesn't work, we move on to a third assumption: they know the truth, and they are deliberately distorting it for their own malevolent purposes. So this is a catastrophe.

It's a catastrophe because everyone knows that bad ideas and dumb behavior exist, but most assume it's a problem that afflicts other people, and that you are doing the right thing. If you don't surround yourself with people who disagree with you, you'll never realize that you are just as biased and wrong as everyone else -- and you'll keep making the same mistakes. This is why the average investor not only underperforms the market, but has been doing so for his or her entire investing life.

I attended an investing conference in Vancouver a few years ago. I didn't realize it beforehand, but the most of the speakers and participants were fanatical gold bugs. I expected a debate when telling everyone I didn't own any gold, but got something different: avoidance and pity. Few were willing to talk to someone who didn't believe in gold, and those who did felt bad for my ignorance. This made me realize the First Law of Financial Conferences: People think they go to conferences to learn something, but most often they go to have their beliefs confirmed and reinforced by others.

Study successful investors and I think you'll find the opposite approach. They not only accept differing views, but seek them out.

In his book Ignorance: How It Drives Science, Stuart Firestein writes that science eventually discovers the truth because it encourages doubt, uncertainty, skepticism, and questions. "Scientists don't concentrate on what they know, which is considerable but also minuscule," he writes, "but rather on what they don't know." And focusing on what you don't know is the only way to get better at something.

Berkshire Hathaway Vice Chairman Charlie Munger praises Charles Darwin for this reason. Darwin, Munger says, wasn't exceptionally bright, but he became a first-class scientist by spending his life trying to prove himself wrong. "One of the great things to learn from Darwin is the value of the extreme objectivity," Munger once said. "He tried to disconfirm his ideas as soon as he got 'em. He quickly put down in his notebook anything that disconfirmed a much-loved idea."

Munger tries to do the same himself. While he "can't stand" the political views and economics of New York Times columnist Paul Krugman, Munger says he pays special attention to Krugman's articles in order to expose himself to opposing views. That's how he fights confirmation bias. George Soros does the same, obsessing about why he could be wrong and studying the arguments of those who disagree with him. "I am not a professional security analyst," he once said. "I would rather call myself an insecurity analyst."

More of us should try this. No matter what you're doing in investing, you should always be asking the question, "What am I doing wrong?" It's probably the most important question you can ask yourself. The only way you'll answer it is by seeking out the opinions of people who think you're crazy. As a rule of thumb, the stronger you believe in an investment idea, the more important it is to be able to accurately state the opposing side's position. That's the easiest way to get less stupid at investing.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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