A Bitter Ending
chronicle.com
chronicle.com
He responded after sighing a bit empathetically, "I'm not sure, but I think you should just constantly ask your friends and keep talking with people about your decisions."
I thought this was a great bit of wisdom that I keep at heart. I've noticed that people who isolate their decision making, esp in critical scenarios, more often than not make bad choices. He highlighted that diversity of friends, constant networked thinking, and the humility to take feedback are the real keys to overcoming the pitfalls his work highlights. He didn't say you had to take their feedback exactly, or always change your mind -- just keep talking about it though.
As an investor, my livelihood depends on my ability to consistently make sound decisions. And fortunately, decisions are not set in stone, so I have opportunities to negate poor ones.
I have thought a lot about how to improve my decision-making. One is what you are talking about, sharing my decisions and thought processes with others. An obvious conclusion (to me) is that doing so on the internet is horrible, as there is no real ability to filter opinions on my part, with no background knowledge of those giving feedback. Yet they can still sow seeds of self-doubt.
But even talking with friends can be tricky, as you have to account for their backgrounds and biases. Sometimes it's easy. For example, if I'm looking at real estate, something I know little about, I would heavily count the thoughts of my friend who is a REIT analyst. Other times it is not clear how much to weight their opinion. A Bayesian approach seems to work here.
Another idea which I find as effective, if not more, is constantly turning the decision over in my own mind. I am not the same person I was yesterday. My thought processes in the morning, after a cup of coffee, are different than Friday evening, after a few beers. It is definitely different after a period where the market is up ("I'm an invincible genius!") vs. down ("I'm a moron! Maybe I should go back to writing code...") By revisiting over a span of time, you can gather new insights solely based on where your head is at any given time.
And at the end of the day, you have to honestly evaluate the results of your decisions. If I discount the opinions of others and follow my own intuition, but consistently lose money, then well, I should revisit some part of the process. Surprisingly many are unable (unwilling?) to do this.
So not every poker market is wicked, which is why you see good players always seeking tables of suckers.
For example, in poker you may call with pocket Kings and lose, yet with hindsight it is still clear that you made the right decision. The probabilities say so.
In investing, even after you lose money, it can sometimes be quite difficult to determine if you made a mistake or not, since the probabilities are never known.
For example, did Mohnish Pabrai and Guy Spier make a mistake with Horsehead Holdings? The only clear mistake I can see is Pabrai's position sizing, but it is not clear to me whether the investment itself was a mistake or not.
A tangent: is there a name for an automated investment approach that takes a large pool of investors, and tries to use Bayesian clustering to extract the "super-predictors" from the data, to base its investments on them?
What follows is that every disagreement should be followed by new information. At the point where disagreements are close to "agree to disagree", I know that at least one of the two participants (either me or the other person) is not participating in an honest rational manner allowing me to note that the conversation should not be a means to inform myself. This is not an indictment of character. It's merely the nature of our minds that we are not always capable of usefully transmitting information to others.
Repeating the discussion with a sufficient number of people will allow me to consider whether I'm the poor partner or whether it's the other people.
Of course, the practice of this is somewhat removed from the description above, but I believe it's improved my ability to truth-find (judging by the degree to which my new opinions match reality) to even attempt this approach, even in a flawed manner. I _am_ doing better on the market now, but naturally it's impossible to tell if that's because I'm more well-informed or if that's luck.
¹ discussions where I'm attempting to actually expand my knowledge, as opposed to ones I'm participating in for social reasons
² people familiar with this will argue that you can't find people with the same priors as you, but is this really true? Shouldn't all rational agents arrive fully formed into the world void of any knowledge? If so, all you have to accept is fully conditioning everyone's statements on their entire experience from birth. Fortunately, this shouldn't be terribly hard if you both otherwise meet these conditions: http://www.scottaaronson.com/papers/agree-econ.pdf
Unabashed openness in how and why you think something appears to be the hardest part for people. Maybe because it includes saying things like "I don't know" or saying to a group of people a sentence like "My opinion on xyz is based on intuition, I apologize I can't point to a more scientific reason for my opinion right now but just because something is a gut feeling doesn't mean it is incorrect". This kind of talk is especially difficult in corporate environments where, in general, managers or aspiring leaders saying something like "I don't know" is verboten.
Q: You mentioned you are an investor. It wasn't clear what type of investing you do or if you do this professionally or if you're a one-man shop. But you also said something about getting feedback on decisions on the internet? (I also saw you said it is horrible :). I'm just curious where on the internet could you even have tried this getting feedback as an investor? While I don't know of a professional investment firm that would allow employees to discuss live investment decisions on the internet assuming it happens anyway; is there a website or something where professional investors discuss investment decisions and their theses online?
I work in finance and invest professionally (I don't call myself an investor though maybe because most of the money belongs to other people). Anyway my experience has been (both at my current fund and previous fund) the PM decision-making processes and managing risks like bias or miscalculation are taken so so seriously now: There is a formal internal procedure for decisions that lead to investment portfolio changes and an external company/consulting firm is hired specifically to evaluate and improve decision making by humans and machines. Decision making has fallen into the "risk management" category and it is not taken lightly.
I'm a one-man shop investing my own money (in plain jane public markets), so I have no restrictions on discussing.
Value Investor's Club is good, as is Corner of Berkshire and Fairfax. I use Seeking Alpha because these people are amazing at digging up data. I just ignore the analysis cause it's usually pretty weak.
I see people share their theses on these sites and places like Reddit and from the inconsistent quality in feedback they get I decided it would not be a valuable thing for me to do. To each their own, I guess.
Crazy how institutionalized risk management is (hopefully it is beyond just VAR these days). My risk management is a little folksy by comparison: what's the most I could lose here? how likely is that to happen? and how much am I willing to lose?
Are you an analyst at a fund?
I have a colleague who eats lunch with his wife 2-3 times a week and I have seen how much it helps him at work on those days. She is not a finance person but she is super smart and consistently offers unique perspective (I have asked if we can hire her).
Connected idea (and admittedly I don't do this often as I probably should) but in general talking to a smart non-finance person about a finance idea can have tons of benefits for a trader:
1) You get to simplify things when you explain and can't use bullshit ambiguous obscuring "finance speak" vocab (leverage delta asymmetry you say?...Nope)
2) There is this hard to explain benefit when no one is trying to "win" in a discussion. By "win" here I mean, we debate finance shit in the office all the time, every day all day, and it's genial and effective and all that, but everyone is vested in it and there is this tint of guys trying to "win at discussions" or show off knowledge or be more right or they just want to have had a part in it (sorry hard to explain this, it's not alpha male posing, rather it's people want to help and want to feel they have contributed to things, like if this was a movie being made everyone wants their name in there when the credits roll, that's ok but it can be counterproductive).
Someone willing to help and listen and maybe offer insight, without consciously or subconsciously caring about credit or getting anything in return is quite hard to find, but it's a real gift when you find such a person...AND it's a gift worth giving if you can be such a person to someone else.
Yes way past "VaR", only really hear that term in government or regulatory stuff, internal risk management would never use such unclear, inexplicit terminology like "value" or "risk" nor simplify bad serious events to a number or two. I like your style, it's not folksy, how many US dollars could someone lose is fundamentally THE risk and the rule in finance that matters.
Spent years as an analyst, now in more of a management role, supervising and training the new younger analysts who don't hate flying yet and who apparently learned nothing in school relevant to working in asset management in the real world. I still do financial analyst work mainly in special situations as they come up. Yes, mid-size multi-strat fund, I co-babysit the credit L/S desks for now. Might semi-retire if the office keeps talking about politics all day. No patience for it :)
[1]: https://www.amazon.com/gp/product/0374533555/ref=as_li_tl?ie...
If your expectations are "reasonably entertaining book that's reasonably informative" and you're remotely interested in econ or behavior, it really hits the spot.
Not central to the story but a very good thing to always keep in mind.
"Amos wrote an article, addressed directly to economists, to repair technical flaws in prospect theory. "Advances in Prospect Theory," it was called, and though Amos did much of the work on it with his graduate student Rich Gonzalez, it ran as a journal article by Danny and Amos. "Amos said that it had always been Kahneman and Tversky, and that this had to be Kahneman and Tversky, and that it would be really strange to add a third person to it," said Gonzalez."
...would piss the crap out of me, if I were the student.
Edit: Reading more about them,my perception is that Amos was like the "rock star" programmer who can do great things, but who is impossible to work with.
Amos not crediting his student is unforgivable.
The best way I can describe it is that Amos was very devoted to a process. The way Lewis tells the story, what haunted Danny was the very thing that Amos and Danny both worked on - self-doubt because of perception.
It seems at least that Lewis has as a goal making Amos out to be kind, but rigorous. Daniel simply suffered deeply crippling self-doubt. He did not want to release "Thinking.." because he was convinced it would destroy his reputation.
My primary source is here: https://www.c-span.org/video/?419485-1/michael-lewis-discuss...
Is there anywhere online that presents an overview of their arguments and theories?