Investor, Know Thyself

Edward Johnson, the legendary founder of Fidelity Investments, once said the following:

“The market is like a beautiful woman – endlessly complex, always changing, always mystifying. I have been absorbed and immersed since 1924 and I know this is no science. It is an art. Now, we have computers and all sorts of statistics, but the market is still the same and understanding the market is still no easier. It is personal intuition, sensing patterns of behaviour. There is always something unknown, undiscerned.”

George Goodman, writing pseudonymously as “Adam Smith”, begins the second chapter of his 1968 masterpiece The Money Game with that quote. This sets up his response:

“Personal intuition does not mean that you can translate last night’s exotic dream into some brilliant choice in the market. Professional money managers often seem to make up their minds in a split second, but what pushes them over the line of decision is usually an incremental bit of information, which, added to all the slumbering pieces of information filed in their minds, suddenly makes the picture whole.

Goodman, who once ran the Harvard Crimson and literally changed the very course of financial writing, goes on to explain how managers can use their self-awareness – or at least not be fooled by it:

“What is it that good managers have? It’s kind of locked-in concentration, an intuition, a feel, nothing that can be schooled. The first thing you have to know is yourself…if you are going to operate with intuition – or judgement- then it follows that the first thing you have to know is yourself. You are – face it – a bunch of emotions, prejudices, and twitches, and this is all very well as long as you know it.”

And finally – this is important – he reminds us that you are how you invest, or at least you’d better be:

“A series of market decisions does add up, believe it or not, to a kind of a personality portrait. It is, in one small way, a method of finding out who you are, but can be very expensive. That is one of the cryptograms which are my own, and this is the first Irregular Rule:  If you don’t know who you are, this is an expensive place to find out“.

Does your current investing style align well with your “emotions, prejudices and twitches”? Where are the discrepancies between who you are and how you behave? What can be done to better align your strategy with your own individual essence?