The market can be an expensive teacher. For a brief moment you think you have everything figured out, then the market shoves that mistake in your face. It happens to everyone. Beginners, veterans, nobody gets a pass from the market’s classroom.
The best investors understand this all too well. They’ve experienced it first-hand…more than once.
Learning is part of the investment process whether you like it or not. You’re better off, of course, expediting the process by learning on your own. It’s cheaper. But if not, investing forces you to learn, sometimes at the most inopportune times. And the lessons include learning about yourself.
The concept of circle of competence gets tossed around often. It’s a fancy way to say you’re good at some things but not everything. It’s about knowing what you’re good at, where you have an advantage, but, more important, not straying into areas that put you at a disadvantage.
Studying finance, market history, companies past and present, and outside your discipline, expands your circle of competence, hones the edges, and improves decision making. That’s the goal, at least. Learning improves your chance of (investment) success.
Worst case, you grow and are smarter for it. Hopefully, your portfolio is better for it too.
The biggest risk is not knowing what you are doing. — Peter Bernstein
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I’m curious, and I try to read and learn from people that I perceive to be smart and successful… I have this motto, in life as well as in business, which is “Every day, I’m lucky if I have learned something new, and I’m doubly lucky if it hadn’t cost too much.” — Chuck Akre
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One of the things you should always be doing with your circles of competence is see if you can push it a little bit more, because the world changes. It keeps spinning, and things don’t stay the same, so you always need to be working and learning and studying to make sure that your circles of competence are relevant. — Tom Gayner
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To me our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness. — Kenneth Arrow
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I don’t play in a game where the other people are wise and I am stupid. I look for a place where I’m wise and they’re stupid. And believe me, it works better. God bless our stupid competitors. They make us rich. Yeah, that’s my philosophy, and I think you have to know the edge of your own competency. You have to kind of know, “This is too tough for me. I’ll never figure this out.” I’m very good at knowing when I can’t handle something. — Charlie Munger
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Knowledge of the past is indispensable to understanding and managing the future. — Arthur Zeikel
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Of course, we learn from history. One of the things we learn from history is that there is no such thing as normal; certainly history shows that. There is no average of historical experience that will help us tell what the future holds. — Peter Bernstein
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The only sound distinction in investment policies for one type of investor or another is based not on his financial position but on his financial competence and financial preparation. – Benjamin Graham
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I had the luxury of being neglected, so I could just do what I wanted when I wanted and learn what I wanted whenever I felt like it. That got me into an independent, self-teaching mode and also into a way of thinking about things in which I didn’t accept what I was told. I didn’t reject what others told me, but I simply wanted to think it through for myself. I came to somewhat of a compromise in life where I didn’t try to reinvent the wheel just because I thought I could. If there was something to be learned from other people, I would learn that as well as I could, but I didn’t hesitate to go out on my own and investigate an idea or a problem that came to me. That’s the sort of orientation that shaped my career. — Ed Thorp
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There’s no lesson like experience. You can read about it, and you can talk to old timers, but there’s nothing like living through it. The most important lessons in investing are learned in the tough times. I started in 1968, and we came across tough times right away, and I learned a lot of very valuable lessons. — Howard Marks
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I’m a big fan of knowing the big ideas in pretty much all the disciplines — the ones that are pretty easy to assimilate — and then using those routinely in your judgments. That’s just my system. — Charlie Munger
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The idea of seeking out evidence that contradicts our belief goes far beyond the financial markets. It goes to the very nature of knowledge itself. For the eminent British philosopher Sir Karl Popper—well-known for his use of the Black Swan metaphor—the key question was “what if science didn’t proceed from observation to theory? What if it was the other way around?” Writing in The New Yorker, journalist Adam Gopnik described Popper’s reasoning: “No number of white swans could tell you that all swans were white, but a single black swan could tell you that they weren’t . . . Science, Popper proposed, didn’t proceed through observations confirmed by verification; it proceeded through wild, overarching conjectures which generalized ‘beyond the data,’ but were always controlled and sharpened by falsification (i.e., proof that the theory was wrong).”
“It was the conscious, purposeful search for falsification by refutation, by the single decisive experiment” (or swan), Popper believed, “that allowed science to proceed and objective knowledge to grow.” Yet most of us—in our investment ideas and political ideas alike—do quite the reverse: we search for facts that confirm our beliefs (reinforcement bias), not for the facts that would negate them. — John Bogle
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A public opinion poll is no substitute for thought. — Warren Buffett
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I have adopted what Charlie Munger says. His view is that if you have a basic grounding in Psychology 101, Economics 101 — most of the various disciplines — and you can combine them properly, they can provide you with all you need. I think that’s mostly right. So, you don’t need a great understanding of psychology. Psychology 101 works well. — Bill Miller
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I developed a habit I was never to forsake — of analyzing my losses to determine where I had made my mistakes. This was a practice I was to develop ever more systematically as my operations grew in size. After each major undertaking — and particularly when things had turned sour — I would shake loose from Wall Street and go off to some quiet place where I could review what I had done and determine wherein I had gone wrong. At such times I never sought to excuse myself, but was concerned solely with guarding against a repetition of the same error.
Periodic self-examination of this sort is something all of us need, in both private and governmental affairs. The more we know of our own failings the easier it becomes to understand other people and why they act as they do. — Bernard Baruch
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I really believe it’s better to learn from other people’s mistakes as much as possible. — Warren Buffett
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No stock picker knows so much that he can’t learn a trick or a tip from a peer. — Peter Lynch
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The single most important thing, if you want to avoid a lot of stupid errors, is knowing where you’re competent and where you aren’t. Knowing the edge of your own competency. And that’s very hard to do because the human mind naturally tries to make you think you’re way smarter than you are. — Charlie Munger
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It is not really within human nature to comprehend that you may not know everything you think you know, and, further, that what you believe in could change on a dime. — Seth Klarman
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Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas. — Dean Williams
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I think investors always learn the lessons of the recent past. And that is the lesson. — Seth Klarman
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There’s an old saying, dumb is forever. — Charlie Munger
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