Think Less, Not More
December 31st 2007 12:42
After you have read the title to this article you would be surprised by the fact that I actually think you should think more, not less. So, what do I mean?
When you have to take an investment decision, as I suppose any decision, you want to have the widest range of information for you to consider. The more possibilities you think of, the better you will prepare yourself for the predictable and the unpredictable. So, you should think more, not less.
But when you narrow down to one piece of investment you should base your decision in the smallest number of items of thought possible. If your investment decision depends, say, in analysing many economics variables rather than few, your decision incurs a greater decisional risk. So, you should think less, not more.
I know two great investors who are opposites in this matter: Warren Buffett and George Soros.
Buffett thinks less: he narrows his analysis to a few facts he wants to consider heavily and moves ahead. An example of his think less, as I put it, is his disregard for the state of the economy. Buffett believes that excellent companies do well in good as well as bad times.
Through the many decades of his investment career his company, Berkshire Halthaway, has compounded at 33 per cent per year, a remarkable achievement, while his personal fortune stands at around US$52 billion.
Soros thinks more: he considers all the economic variables in question, also uses his imagination, and interprets the situation with the use of his theory of reflexivity. Soros theory of reflexivity makes use of three concepts: the prevailing bias, the underlying trend and the market price, concepts that then interact between themselves. The amount of thinking he does is immense and, it should be said, sometimes tentative and sometimes tortuous.
The Quantum fund, Soros fund, has vindicated him, though: during the 1980s it compounded at 50 per cent annually, an unmatched fete, while his personal fortune is US$8.5 billion.
So, now you know that, though you should think more, not less, you should also think less, not more. Got it?
When you have to take an investment decision, as I suppose any decision, you want to have the widest range of information for you to consider. The more possibilities you think of, the better you will prepare yourself for the predictable and the unpredictable. So, you should think more, not less.
But when you narrow down to one piece of investment you should base your decision in the smallest number of items of thought possible. If your investment decision depends, say, in analysing many economics variables rather than few, your decision incurs a greater decisional risk. So, you should think less, not more.
I know two great investors who are opposites in this matter: Warren Buffett and George Soros.
Buffett thinks less: he narrows his analysis to a few facts he wants to consider heavily and moves ahead. An example of his think less, as I put it, is his disregard for the state of the economy. Buffett believes that excellent companies do well in good as well as bad times.
Through the many decades of his investment career his company, Berkshire Halthaway, has compounded at 33 per cent per year, a remarkable achievement, while his personal fortune stands at around US$52 billion.
Soros thinks more: he considers all the economic variables in question, also uses his imagination, and interprets the situation with the use of his theory of reflexivity. Soros theory of reflexivity makes use of three concepts: the prevailing bias, the underlying trend and the market price, concepts that then interact between themselves. The amount of thinking he does is immense and, it should be said, sometimes tentative and sometimes tortuous.
The Quantum fund, Soros fund, has vindicated him, though: during the 1980s it compounded at 50 per cent annually, an unmatched fete, while his personal fortune is US$8.5 billion.
So, now you know that, though you should think more, not less, you should also think less, not more. Got it?
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