Supercharging the engine
Okay, I know nothing about engines, but I think there is a way to increase the efficiency and effect by feeding some of the exhaust fumes back into the carburetor – or something like that.
A positive feedback loop works in a similar way, with your introspection insights strengthening the other facets of your game.
In practice self-analysis means you should track and study various aspects of your investment process as well as the results.
Why did you gain or lose money in a certain investment? Did you adhere to the other 11 TAOS guidelines?
Did you follow your strategy, was the strategy well-founded? Did you wait patiently for the right entry and exit points? Did you size your position responsibly? Did you go the extra mile, doing the math yourself rather than trusting an authority? Did you keep your calm and rationality? Did you explore other sides of the story or did you fall prey to availability bias and selective perception? Did you become cocky, thinking “I’ve got this“? Did you follow your best practices and other procedures to discover and neutralize dangerous and biased tendencies? Did you stick firmly to your own conclusions or were you swayed by clever salesmen or the cozy feeling of belonging to the herd?
For every TAOS trait, an intellectually honest analysis can reveal mistakes and weaknesses as well as strengths and strokes of genius. Feed back whatever you learn from both your winners and losers about the way you handle the other eleven TAOS traits of a great investor. Maintaining a habit of introspection can refine and enhance both psychological, technical and and mental aspects of your method. Thus cutting out unwanted aspects, creating boosters and brakes, checks and balances that make you perform more consistently on the markets.
The naked ape
Desmond Morris studied humans from the perspective of a zoologist, as if humans were just one more primate. Do that with yourself. Make an impartial FBI serial killer profile on yourself, as you would any other portfolio manager. What is your style really? How do you actually take decisions, follow up on your trades etc. Try to categorize if your actual investment decisions are value based, trading oriented, impatient, emotional, … and so on. How do you actually behave and how would you want to behave? What’s been the difference between your game plan and your actions or failure to act?
Please notice that there are at least two aspects to this. One is identifying your strategy. The other is mapping out your psychological profile in order to gradually modify your temperament.
Scrutinize your own Modus Operandi
Remember that both successes and failures need to be analyzed
It’s easy to only pick apart your bad trades, but don’t forget about the winners. Sometimes they were the result of a good procedure, sometimes luck. Sometimes you made a lot of mistakes, being impatient, reckless and emotional but got a good result for other reasons. So, take a good, hard look in the mirror, whether your bank account just got fatter or thinner.
We are all burdened by biases, by homeostasis, by laziness, by greed and fear. By identifying which ones are your worst, you can put systems in place beforehand, e.g., best practices check lists and filters, that preempt unnecessary mistakes. Counter your cons and boost your fortes with clever routines and habits, based on your commonplace notes and self-analysis.
Identify your irrational tendencies, biases, inclinations and flaws
Preempt your own reflexes and emotions,
and control them with bespoke tactics and strategies
In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.
This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.
Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.
Strengthen your strengths
Self-analysis means realizing your investments are prone to human error.
It’s not enough to gather numbers and pictures, you have to actively fight against and try to shrink your blind spots of cognitive biases. Sure, knowing Apple’s strategy, numbers and image is a good start. But if you don’t keep your own human irrationalities under close guard, or forget to constantly improve and evolve your method and execution, you’ll find yourself on the losing side sooner or later.
Know yourself. Keep track of yourself. Analyze yourself. Implement brake systems for your worst psychological biases, and reward your strokes of insight. Allow yourself to consistently improve by feeding back lessons about yourself, fully owning both your strengths and your weaknesses.
Your investments are made in the interface
between you and the world
You need to know both to get it right
Self-analysis is the twelfth and final article in my 12-part series of TAOS – The Art Of Sprezzatura (You can buy the artwork here). If you missed the previous eleven articles you can find them here: Strategy, Patience, Resilience, Endurance, Zeal, Zen, Agility, Temperateness, Unbiasedness, Resoluteness and Adequateness.
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