Its tough to distinguish

7 April 2022 - 9:55 am

Investment is in general rather straightforward. You invest at a value that thereafter increases by the point you exit.

How do you know if the value will increase and when?

That is the hard part obviously, and it is difficult to distinguish one proposition from another in a very competitive marketplace.

Ideally in life and in business, we would like everything to be as straightforward as possible, yet not as straightforward as to make it too easy. If it is perceived as too easy then there must be something wrong, right?

Some context…

It’s difficult to distinguish between personal opinion and general opinion:  Donald Trump’s personality was once portrayed as, “An inability to determine between what occurred and what Trump thinks should have happened.” The majority of us encounter this to one level or another. Ideally, we need to tell ourselves a story about how our lives work, and the easiest exercise is to remind ourselves of a straightforward life experience. That could be travel, a business deal, or a family event, for example. Yet the reality is those experiences are minuscule compared to all life experiences of the human race. Subsequently, we fill the gap of what we don’t know with what we do know, shaped by our personal experience. “The successful sale completed due to this certain aspect as that aspect is the reason I would have bought.” “The market boomed due to this particular shift in trends that I observed in my own domain.” We tend to rationalise something to the fullest extent, call it 100%, when actually we have only experienced 0.000000001%.

It’s difficult to distinguish between motivation and inspiration: Here is the fundamental difference: Jeff Bezos in the formative years of Amazon was highly motivated. The Lehman Brothers traders were inspired to sell tranches of toxic mortgage-backed securities for financial incentive. Both examples are based on the rationale of a systematic, “If we do A, we will be rewarded with B.” Yet Bezos had a desire to achieve the reward of a successful business disrupting the e-commerce space for generations to come, and the Lehman Brothers traders required the reward as they knew the company was going to the wall and they would shortly be out of their jobs. Only hindsight allows us to tell the difference.

It’s difficult to distinguish between ‘Having patience’ and ‘Changing our position when the situation changes’. All valuable investments are to some degree seasonal, they change and evolve from one phase to the next, so achieving long-term sustainable profit demands patience through volatile periods. However, over 90% of businesses close within 10 years of trading, whilst over 35% of established public companies face the loss of most of their value and never reach the same heights again. Stubbornly saying “Be patient” is not always prudent in a marketplace where most norms often change or evolve for good. We should evolve our mindsets and perceptions when the environment changes otherwise we get left behind. Although usually by the time we recognise evolution has occurred and it’s not just a seasonal effect, it can be too late to address. The same individuals who are praised for holding on for dear life in Amazon positions during its difficult times, could be chastised for remaining patient with GM during its decline.

It’s difficult to distinguish between information and information sourcing: We need our strategies to be formed by relevant information, not by instinct. Yet if my instincts, generally formed by experience, can not logically comprehend why the information states what it does, perhaps the information is inaccurate, out of date, prejudiced, or we feel we have found a subjective source. Sourcing information without questioning, “Is this really accurate? Is this relevant? Is this comprehensive?” can lead to misguidance. However, when we allow ourselves to challenge the information we have sourced, our views change from what we want to find and see, to discovering what we must see and how that information was defined. Thereafter, we must be cautious of perceptions as many people look at the same information yet come to polar opposite conclusions. Consensus thus becomes critical, as without it, we benefit from an era with huge information accessibility yet have the possibility of making poor decisions.

It’s difficult to distinguish between “I made a mistake” and “The chance of success was high but I was unlucky.” The education we can garner from mistakes is only valuable if we can actually understand why the mistake was made in the first place. This of course sounds rather obvious, yet it seems it is harder than we appreciate. An investment that failed may have been a mistake you made, or it may have had a very high chance of success with an attractive ROI profile, yet due to unforeseen circumstances it ended in failure. The issue fundamentally is that we cannot see something that is unforeseen; we can only make educated decisions, and those decisions can be influenced by our emotions and desires. I know I am stating the obvious here but it is important to remind ourselves that it can be easy to miss what is standing right in front of us. We must keep reminding ourselves that mistakes happen, and that they can either send us into cover, or we can come out fighting with invaluable lessons garnered from those mistakes. If we learn from not our mistakes, but are fortunate to learn from others and their failures or successes, the probability of positive outcomes exponentially increases.


Iain Crawford