What is the last thing you were wrong about? If you can’t remember or have to think hard – don’t worry. That’s perfectly normal. Humans are conditioned to avoid being wrong. And even when we are wrong we will often fight tooth and nail trying to convince ourselves that we are right. It’s a natural defense mechanism. As we have evolved over time human survival has become less about brute force and more about intellectual strength. It has been a natural progression into rational animals. But we don’t always behave rationally and often it is our primitive survival skills that act as the greatest hindrance.
Our minds have always been our greatest tools. Unfortunately, they can also be our most difficult obstacle. We fight being wrong because it is viewed as a weakness. A person who is often wrong is viewed as having an inferior intellect. And an inferior intellect means your survival skills are inferior. And who wants to mate with someone who can’t survive? You see how the evolutionary chain works here. We’re not so far removed from our ancient ancestors despite our very modern societies. And therein lies our greatest weakness. Our rather primitive “survive first” minds cannot accept being wrong. But it is only in being wrong that we can learn to be right.
I started thinking about all of this after watching a TED talk by Kathryn Schulz titled: On being wrong. It’s very good if you have 17 minutes to spare. There’s so much to learn from being wrong. Yet so many people fight it. I spent the better part of my youth being wrong. I was never the most intellectually gifted student so my mistakes were many. But I was persistent in the same way that any hungry animal is. In that attempt to justify my intellect to those around me I developed a near obsessive compulsive disorder attempting to resolve my own wrongness. And in this search for what was right I studied the only logical place – where I had been wrong. I’ve made mistakes in my life. Not just in the world of finance, but in love, in friendship and in work. And I regret not one of them. Because each of them was a learning experience infinitely more valuable than all of the times I was right. I have learned to embrace being wrong with the acceptance that learning from being wrong substantially increases my potential odds of being right in the future.
You might be wondering what in the world this has to do with investing? Well, it has everything to do with investing. Investing is psychological warfare. It is one of the last refuges of natural selection. The strong thrive and the weak die (unless you have superb banking lobbyists on the payroll). But we are ill-equipped to deal with the world of investing. Our primitive minds are built to survive first and act rationally last. In doing so, we often do what is detrimental to our financial health. That big tool inside our skulls acts on our primitive instincts and not the rationally developed processes that have sent the species surging to the top of the food chain.
The point here, is that learning from our past mistakes and accepting the fact that we are often going to be wrong will actually lead to a better skill set with which to deal with our future mistakes. The investor who accepts that there is no such thing as a holy grail in investing will soon realize that he/she must construct a portfolio that protects them from future calamity. And more importantly, through the use of past lessons we should all hope to create procedures to guide us during those times when our primitive mind tells us to react irrationally. You will be wrong. But it is only in being wrong that we can learn to be right.