Building character

In the realm of investing, mastering temperament is paramount. Adopting a less irrational approach involves recognizing my limitations and adhering to a disciplined process/strategy. Here’s how I try to cultivate a less irrational mindset.

I don’t know

Knowledge grows through subtraction, and character is honed through discipline. Staying focused on the process is key. It involves acquiring knowledge about what we can reasonably know.

This knowledge should be backed by evidence and avoid forecasts, particularly those from individuals in the forecasting business.

I’m no investing expert, and neither are most pundits on business TV or economists. To see for yourself, just check the inconsistency in predictions from even the most esteemed economists regarding US interest rates in the past two years.

It’s not about incompetence; it’s simply beyond human capability to fully grasp complex adaptive systems.

There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.

J K Galbraith

Adopting the mindset of an apprentice, I engage in rigorous learning and concentrate on the knowable aspects of businesses, industries, and business cycles.

Filtering out noise from news, experts, and macro predictions leaves me to focus on analysing the business and industry rather than speculative chatter.

Guided by Process

We prioritize the importance of a structured process in guiding our investment decisions. Rejecting the allure of following intuition or popular trends, we rely on our established frameworks to navigate through market fluctuations. By refusing to participate in a “buy at any price” mentality, we build the character necessary to resist impulsive actions driven by market euphoria or fear.

Maintaining Realistic Expectations

Recognizing the inevitability of missing out on some winning investments, we temper our expectations and remain focused on making fewer bad decisions than our peers. While we may not outperform the index every year, adhering to a disciplined approach and prioritizing risk management should lead to decent outcomes over the long term.

In summary, by cultivating a temperament grounded in humility, disciplined processes, and realistic expectations, we strive to navigate the complexities of the market with prudence and wisdom.