On Sundays, I like to post some form of general trading/investing advice. It makes for a nice respite from the week’s event-driven mayhem. Yesterday, however, I did not get around to it.
To make up for that, we wax philosophical this morning on a fascinating topic — and find that perhaps all those PHI courses in college — after 3 years of Physics and Appl. Math — weren’t a waste after all.
I happened across an interesting phrase recently that perfectly summed up a philosophical mindset quite suitable for investors: Strong Opinions, Weakly Held.
A random click had led me to the blog of Professor Robert Sutton, who teaches Management Science and Engineering at Stanford. Sutton is the author of (I kid you not) The No Asshole Rule (Feb 2007), as well as several other management books.
Ahem — where was I? Oh, yes, strong opinions, weakly held. That turn of a phrase really got my attention. The author was seeking to distinguish between what was "smart" and what was "wisdom." It perfectly sums up a crucial mental aspect required for the markets.
Being a successful investor often requires you to hold numerous internally conflicting concepts simultaneously — something many the average psyche has difficulty with. One must think through the best possible analysis for your positions, and expend time and effort to thoroughly test them. You need to be able to strongly argue your postion — bullish, bearish or cash — but at the same time, be ready to admit error and change views.
Interestingly, the idea of strong opinions, weakly held was drawn from a different field than investing. The idea comes from Bob Johansen at the Palo Alto Institute for the Future. This independent, nonprofit research group focuses on helping companies make "better, more informed decisions about the future." That certainly sounds like something investors could profit from.
Consider the following:
"Johansen explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.” They’ve been giving this advice for years, and I understand that it was first developed by Instituite Director Paul Saffo. Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. It was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.” (emphasis added)
This is dead on accurate for traders, and we’ve discussed related concepts in Investor, Know Thyself. Its why so often Psychology trumps Economics. My favorite related book is Thomas Gilovich’s How We Know What Isn’t So — and for a psychology book, its surprisingly applicable to investors.
When I think about the phrase strong opinions, weakly held, a number of market aphorisms come to mind:
-You cannot "fight the tape," but sometimes you need to "fade the trade."
-Its often said that the Trend is your friend, except for that darn bend at the end.
– I was drawn to a more technical approach due to its agnosticism of positions: Buy at support — unless it breaks, then short.
-No matter what your overall approach, one often hears the advice that
"no one is smarter than the market." Yet any contrary strategy is just
that — an attempt to outsmart the crowd.
– Don’t fight the Fed is another famous cliche. However, history shows that once the Fed stops tightening, markets typically head lower.
The list goes on. The bottom line is that strong opinions, weakly held is a mindset more investors need to familiarize themselves with.
The Big Picture: Strong Opinions, Weakly Held…
It is astounding to hear management, barring operations, and science mentioned in the same sentence. Management is informed foremost by luck. The pot of gold comes when luck and art exploit a propitious moment. Having been forced to sit through management courses at one of the preeminent business schools, I can confirm the uselessness of management curriculum. Perhaps that is why so many of the thought leaders are undertaking a period of introspection meant to reorganize business curriculum.
On “strong opinions, loosely held”, I think one could just have easily said “no difference between being early and being wrong.” Flexibility is key.
Be brave (have conviction) enough to pull the trigger, BUT, once in, don’t fight the tape (and honor thy stops)!!!
Is today going to be another 200 dow point day?
pretty F*in cool
nice post Barry…..and of course it contrasts so well with BushCo’s “weak opinions-strongly held” stategery.
Thanks brion, that made me laugh pretty good today.
I think there is a great similarity between what Sutton describes and the quality that poet John Keats famously called “Negative Capability.”
Keats described Negative Capability (I am going on memory–you should check with Wikipedia) as the ability to internalize doubt and conflicting information without any irrational groping toward fact or reason.
In other words, negative capability is the ability to ACCEPT that the world is a state of uncertainty and mystery.
I find it interesting that Keats viewed negative capability as a prequisite for being a great artist.
I have often considered it a quality of a good trader as well.
Barry would have made a great scientist if he hadn’t decided to make his living trading. Strong opinions weakly held is exactly how science works – I make a hypothesis after looking at quite a bit of data, then defend that hypothesis, but if I’m wrong, I accept it and move on. In fact, some of the best retail investors I know are life science people. They’re so used to dealing with constantly changing info and the fact that they are so often wrong or at least not completely correct in their professional work that taking losses is second nature.
How about… “The markets always look the best at the highs and worst at the lows….”
“No market collapses unless you (I) are (am) long….”
Thanks for the Keats! Truth is beauty, baby. Bush strategy made me smile, sadly, but still a smile. So true.
«The author was seeking to distinguish between what was “smart” and what was “wisdom.”»
I have worked in a mad dot.com with a bunch of Oxbridge people, and I used to say it was a perfect illustration of the difference between ”intelligence” and ”wisdom”.
«It perfectly sums up a crucial mental aspect required for the markets. It perfectly sums up a crucial mental aspect required for the markets. [ … ] One must think through the best possible analysis for your positions, and expend time and effort to thoroughly test them. You need to be able to strongly argue your postion — bullish, bearish or cash — but at the same time, be ready to admit error and change views.be ready to admit error and change views.»
As said, this is good for market traders trading largely on their own account. For corporate (or political) careers arguing strongly and easily changing opinions with facts gives an impression of fallibility and often is considerably counterproductive.
”Structured” careers are built on facts, like credentials and platitudes, not on making profitable calls of judgements more often than unprofitable ones.
And as Briggs says in “Hedgehogging” even when trading on other people’s behalf, being apparently infallible (never having dips) is more important than total retun.
«In other words, negative capability is the ability to ACCEPT that the world is a state of uncertainty and mystery. [ … ] I have often considered it a quality of a good trader as well.»
Again, I am adding here that it is a terrible trait instead for a corporate/political career, because making calls of judgement makes you look weak.
Uhm, now I see the pattern: both ”strong opinions weakly held” and ”negative capability” are good for the buy side, but exactly the opposite is needed for the sell side.
Issac Asimov once said: “ The most exciting phrase to hear in science, the one that heralds new discoveries, is not “Eureka!” (I found it) but “That’s funny…””
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