How Important is Being Right?

by on March 7th, 2015
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Most everyone wants to view ourselves as being open and willing to take advice. But in reality it is a challenge for most of us to be able to admit we are wrong and move in a different direction. This can be painfully learned in the stock market which is a reflection of what happens quite often in our daily lives.

I once read a book titled “Being Right or Making money” by Ned Davis and the main point is that we become so invested in being right or thinking that we should or must have the right answer that it actually makes us blind to any future information we receive.

As an example, so often in the stock market what we do is grounded in some theory that we have about finance or the economy or about some product we just happen to like or not like. Once we invest this way we then must come face to face with how the marketplace actually values our investment and often quite quickly the marketplace disagrees with our grand theory. This is where human emotions seem to take over because it is at this point that most of us start with the excuses and the interpretation that somehow the marketplace is wrong and we just need some time to see the brilliance of our own analysis. So often the expression long term investment comes from those investments that went the wrong direction and it is just going to be a long time before we get our money back!

It doesn’t mean that every time we buy a stock that starts out the wrong way that we should just give up, but rather we should enter into any purchase with the assumption that we might be wrong and will have an open mind. So then we are able to stop the loss if the situation proves that we are wrong. By taking our ego out of the equation we are then able to better look at all the evidence the future reveals to us. After all, some aspect of investing is about predicting the future and despite anyone’s, psychic abilities or simply good business sense, the better part of valor here is to admit the uncertainty of looking forward.

Ironically, one of the most successful traders on the Chicago Board of Trade once said that he was wrong about 90% of the time. How is that possible? Well his losses were very small as he sold quickly when he was wrong. On the other hand when he was right and the asset was moving his direction he was willing to hold a long time and maximize his return. He even was willing to give away his trading secrets as he jokingly said “I don’t have to worry about too many people copying me because most people can’t be wrong 90% of the time and keep their sanity.”

Besides good investing sense, this willingness to be wrong can help in our daily lives. It seems to me so many of the arguments and disputes we have with other people stems from our nature of needing to be right. And with most things in life there are so many right answers that all we have to do most of the time is open up our minds and see the other party is simply looking at things differently. I have heard a Native American expression; “Don’t judge a man until we walk a mile their moccasins.” Perhaps if we spent more effort listening than trying to prove our rightness we could have more understanding.

As I think about it, being right is really overrated. What most of us want in life is to be happy, healthy and productive. Whether we have the genius to have all the answers seems less empowering than simply be able to be a good listener and learner and go with the flow and I would add from my experience, certainly less profitable.

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