Broyhill Letter Highlights VIII: Humility

This is the eighth piece in our Broyhill Letter Highlight series, highlighting our thoughts on humility over the years.  You can access other posts in the series here.

For those who would like to revisit our letters in full, we will also be gradually sharing them to our Research Studio throughout the series.

VIII: Humility

In The Devil’s Financial Dictionary, Jason Zweig defines certainty as: “An imaginary state of clarity and predictability in economic and geopolitical affairs that all investors say is indispensable—even though it doesn’t exist, never has, and never will.”

In the real world, uncertainty is everywhere. We know that living in an imaginary world of certainty can create big problems managing money in the real world. We don’t have all the answers. We never do. The best we can do is gather evidence to judge the likelihood of various outcomes and place our bets accordingly.

We live in a constant state of doubt and have no problem admitting it. Doubt keeps us safe.  Successful investing is a delicate balancing act honed over years of training. It requires enough confidence to hold onto positions when every bone in your body suggests you are wrong. And it requires the humility to recognize when you are wrong.

The upside of mistakes is that they encourage humility while driving the team to remain open-minded, consider all potential outcomes (which is never possible), and, above all else, maintain a beginner’s mind and childlike curiosity.

Successful investing requires the confidence to trust your work when market prices are screaming that you are wrong. Yet, successful investors are still human. We still feel the turning in our stomach when prices are plummeting. But rather than succumb to the market, we reflect when positions move against us, balancing confidence and humility. Staying power is greater than intelligence.

The more we learn, the more questions we have. But the reverse is also true. The fewer questions we ask, the less we know. This is why poor students often feel more successful than the brightest in the bunch. They lack insight into their own limitations. In other words, without an appreciation for the vast body of knowledge out there, it’s impossible to know how little they know. The first principle is that you must not fool yourself – and you are the easiest person to fool. In the field of psychology, this cognitive bias is known as The Dunning-Kruger Effect. It comes from the inability of people to recognize their lack of ability. Without self-awareness, it can be challenging to evaluate competence or the lack thereof. Said differently, the more incompetent you are, the less you’re aware of your own incompetence.

Investors are an opinionated group. Despite repeated evidence that most of those opinions turn out to be wrong, being wrong has little impact on self-confidence. This can be a problem. Overconfidence can be beneficial to self-esteem but is likely to be disastrous to performance. 

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