Rethinking Your Investment Assumptions

December 27, 2021
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All of us have opinions. Lots of them. Too many nowadays.

Well, no, that isn’t really the problem. Opinions are good. It’s just that it feels like we must have an opinion and announce it as a fact all the time, especially on our social media feeds.

It’s amazing how one individual can be a biologist, politician, lawyer, virologist, banker, international ambassador, doctor, nutritionist, professor, and investment guru all at the same time. We have a Ph.D. in everything.

Except that we don’t.

We do have assumptions, though, about the world, and our views about investing are no different. Most of us have anything from a hunch to an entire theory about what might happen in the investment world. Others couldn’t care less about investing, assuming it’s for rich people, and the lack of forming an investment opinion may have kept them from ever investing or prone to fall for investment schemes that are dangerous.

No matter where you exist on that spectrum, all of us need to rethink our assumptions. Adam Grant, an organizational psychologist at The Wharton School, in his book Think Again: The Power of Knowing What You Don’t Know offers some “Actions for Impact” at the end of his book to give practical steps to enhance our thinking skills.

Here are a few that are applicable for reframing our investment opinions:

“Define your identity in terms of values, not opinions” (p. 251). Grant writes, “It’s easier to avoid getting stuck to your past beliefs if you don’t become attached to them as part of your present self-concept” (p. 251) I’ve seen how one’s investment choices get tied to the kind of person you think you are. I’m blue-collar, so I stick with land, real estate, and working with my hands. I’m white-collar, I only work with human beings through a medium of the digital world and I’m fine with the securitization and digitization of every asset. You can miss out on (or get burned by) investment opportunities that may or may not fit your “identity”.

“Seek out information that goes against your views” (p. 252). You a massive stock market bull (those Tiger’s always bouncing up)? Seek out the bears (those Eeyore’s always on the verge of crashing). You a perma-bear? Read a few optimistic bulls. Don’t treat the “other side” as the enemy. Listen to those you don’t agree with.

“Embrace the joy of being wrong” (p. 252). This can hurt more than your feelings; it hurts your bank account. If you can’t admit you are wrong, you will make the same money mistakes repeatedly. Displeasure from the monetary loss of being wrong a few times and changing our money habits, is better than continuously being wrong, committing the same financial mistakes till death do you part.

“Ask, ‘What evidence would change your mind?’” (p. 254). Grant poses this as an interpersonal question, but this is also a question you should ask yourself regularly. What evidence would change your mind about the benefit of regularly investing in the stock market? What evidence would change your mind about investing in bonds, or technology, or real estate, or a new business? What would have to happen to change your view about money or the economy? If the answer is nothing, you just might have a problem Narcissus (too far?).

“Beware of getting stranded at the summit of Mount Stupid” (p. 252). He goes on, “Don’t confuse confidence with competence. The Dunning-Kruger effect is a good reminder that the better you think you are, the greater the risk that you’re overestimating yourself—and the greater the odds you’ll stop improving” (p. 252). Overconfidence can kill curiosity. And if you’ve slayed curiosity, you are a servant to your assumptions. Those assumptions may no longer be serving you well. Your bank account and portfolio just might reveal that.

As we approach the closing out of the year, why not start thinking again?! You know what they say happens when you assume, right?

Let’s do some rethinking in 2022.