“The first principle is that you must not fool yourself, and you are the easiest person to fool.”(1)
The great physicist, Richard Feynman, was fond of reminding us that we must not fool ourselves. I believe it was also Feynman who discussed our media paradox. This is the tendency to read a story – let’s call it story A - about a subject we know extremely well and quickly pick out all the gaps, inaccuracies, errors, and sometimes even fabrications. Feynman noted that after reading story A we might conclude that “the journalist has no idea what he/she is talking about.” Then, upon moving to the next story – a story in which we have little personal knowledge, let’s call it story B – we absorb every detail as if story B is entirely factual and complete. We might even be moved to take some sort of action on the basis of story B. This tendency to treat story A as rubbish and story B as consequential is just one way to fool ourselves.
Applying to investing the lesson of “you must not fool yourself,” investment manager Marshfield Associates recently penned this quote:
“The warning that preceded this excerpt is perhaps even more relevant to what we do: “The first principle is that you must not fool yourself, and you are the easiest person to fool.” Investors are people first, and people tend to want to follow the crowd and to act in the face of frightening or exciting news. We believe it is our job to slow down, to think, to consider various possibilities, and to adhere to the judgements we have made through calm and informed analysis.”(2)
Note that by “recently” I mean December 2020, which is when the letter referenced above was written. For most in the investing/advising world, December 2020 may as well have been a century ago. One way that we fool ourselves is to assume that only the most current research, opinions, and insights are relevant. In contrast, I believe history – from recent to distant past – is highly useful in providing context for understanding the world today. Not because it tells us with any certainty what will happen next, but more importantly because history can give us deeper insights into how innate (and relatively stable over time) human tendencies give us deep insight into the behavior of economic actors.
To avoid fooling ourselves, let’s read financial media with the simple perspective that “this is what others are paying attention to now.” May or may not be useful in some way. What IS useful though, is thoughtful, patient, diligent research to understand past, present, and what is possible in the future.
Marshfield Associates, Letter to Clients, December 2020