As Edward O. Thorp aptly put it, “In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them”. Investing is no different. It’s a game where uncertainty is a given and information is not always complete.
You can research a company thoroughly, but you’ll never know everything. There will be times when your investments take a hit—maybe even by 50% or more.
In these moments, you’re faced with a critical decision: do you stay the course or do you sell under pressure, knowing that you might just be temporarily wrong?
This is why Warren Buffett once stressed, “The most important quality for an investor is temperament, not intellect.” The ability to remain calm and make probabilistic decisions with incomplete information is what sets successful investors apart.
As the saying goes, “Perfect is the thief of joy.” Human nature craves perfection, yet in reality, it often doesn’t exist.
Jeff Bezos the founder of Amazon wisely noted, “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognising and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
Investing in an uncertain future is never easy but decisions must be made. Aim for that 70% information and remain open to new information, just like a scientist who updates their findings when new data emerges.
As Benjamin Disraeli once said, “Action may not always bring happiness but there is no happiness without action. In investing and in life, taking decisive action is the key to overcoming uncertainty and achieving success.
This does not mean action for the sake of action. No selling and waiting patiently for your investment compound is also an action.
We tend to trust confident people, as those who are smarter are often more skilled at crafting compelling narratives and supporting them with data but confidence and intelligence do not guarantee truth.
Even false narratives can become real when repeated enough times. We can see that with social media already.
I’ve reminded myself to be cautious of charismatic people—those who can weave stories with their charm. It’s a note I’ve written to myself more than once.
Our minds are wired for survival and that wiring craves certainty. Yet life and by extension, investing, is full of uncertainties. Great decisions don’t always lead to great outcomes and the role of luck is often overlooked.
Annie Duke in her book, ”Thinking in Bets” wrote, “The secret is to make peace with walking around in a world where we recognise that we are not sure and that’s okay. As we learn more about how our brains operate, we recognise that we don’t perceive the world objectively. But our goal should be to try.”
In the stock market, wealth creation largely comes from the top 4% of high-quality stocks. Our goal is simple: identify these winners and let go of the rest.
Igor Kurchatov, the Soviet physicist pivotal in developing the atomic bomb, once remarked, “I used to think the most powerful weapon in the world is the nuclear weapon. I no longer think that; the most powerful weapon is the truth, not the bomb.”
The truth should be more important to set us free from our biases and guide us toward new possibilities—that’s what ultimately matters.
Awet Ghirmay, Head of Investment Research
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
