Seeing Both Sides of the Argument

Here was another fun question this week from Tadas at Abnormal Returns:

Question: What have you learned in the past year (or so) that genuinely surprised you? Or said another way, what thing have you changed your mind about recently? 

A: “I’ve started doing this thing where I always assume that other views are right before I assume they’re wrong. For instance, I often hear political narratives about this or that and I tend to defer to my priors first. But now I start by considering all the reasons why that view might be right. Even if I end up disagreeing in the end it’s a nice thought process that helps me better understand the other side of an argument and where it’s coming from.”

My answer was more geared towards a specific change in the way I try to approach things now. I am trying more and more to become less biased about the way I view everything. I think most of us get to a point in life where we know enough about our surroundings that we tend to defer towards thinking that we already know what we need to know. Also, learning new things is hard so it’s easier to fall back on what we already know and just assume it’s right because we already think it’s right. But now when I approach something in the world that seems wrong or even just annoying I try to defer towards the idea that there’s a logical reason for why things are the way they are.

In the answer I used politics as a good example. In a world where we seem more polarized than ever I think it’s important for us to try to better understand where other people are coming from. We all live in our own little local bubbles, but by trying to understand other views and why things are the way they are we can better appreciate the world around us. And as I said before, you might not come away from this thought experiment agreeing with the other side, but at least you’ll have a better appreciation for their view.

I’d argue that this is even more true in the world of investing. Odds are there is a lot happening in any given financial market that doesn’t make sense or just seems wrong. Valuations are high, firms buyback lots of stock, the Fed is implementing QE. These are big confusing topics that have mostly logical and rational answers. For instance, we might think stock prices are wrong at any given time, but what if they’re right? What if there’s a perfectly logical reason for stocks to be priced the way they are? Searching for that alternative view helps you construct a better overall understanding of why things are they way they are.

In short, be open-minded and embrace the potential that you could be wrong! In the long-run it might just help you construct a better way of thinking about the world that helps you become a bit more accurate in the future.

I hope maybe this type of thinking helps you better understand the way you navigate the world. I know it helps me.