Monday, October 15, 2018

On Being Wrong... and Profiting Anyway (Quotes and Wisdom)

While revisiting the 1996 documentary Triumph of the Nerds this week, I came upon this fantastic segment on Apple co-founder, Steve Jobs.

Finding it eminently quotable (and useful), I just had to share some of Jobs' thoughts from this special clip.

"I don't really care about being right. I just care about success." - Steve Jobs



While Jobs was an entrepreneur in the emerging computer industry, and not an outright share investor or speculator, his quote about the relative unimportance of being right hit me right in the trader's gut.

Here is a game changing company founder saying, "you know what... I don't need to have the best forecasts or even the most original insights and innovations (hence the looting of Xerox's PARC). I don't need to always be right. I just want to ship the best products and win. That is what will ultimately make Apple the most successful company in our industry."

Now anyone who has studied modern business and the art of the "pivot" will understand that success may not come through your original idea or business plan. It may be the second or third business model you pivot to that leads you to find your true purpose and success.
Traders and investors in the capital markets must also realize that the need to be "right" while proving the markets wrong can lead to significant losses of capital or financial disaster. I'm sure we can all think of some high profile cases (ruined hedge funds and bailed out banks), or our own experiences in the market, where such a scenario has unfolded.

We can doggedly insist that we are "right" while we continue to lose money (as investors) or market share (as businesses), or we can learn from what real world conditions are telling us and align ourselves correctly to learn and profit from a new course of action.

So with that in mind, let's soak in some wisdom and see if we can change our attitudes and long held beliefs about being wrong. After all, no one is right all the time. How can we shift our focus from a need to be right to embracing ambiguity or being wrong, while learning from the situation?

Quotes: On Being Wrong and Learning or Profiting Anyway

"It is better to be roughly right than precisely wrong." - John Maynard Keynes

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” - John Kenneth Galbraith

"It's not about whether you're wrong or right in this business, it's about how much you make when you're right and how much you lose when you're wrong." - Stan Druckenmiller, citing lessons from George Soros

"Really good traders are capable of changing their minds in an instant. They can be dogmatic in their opinion and then immediately change it." - Steve Clark, via Hedge Fund Market Wizards. 
 
"The only thing to do when a person is wrong is to be right by ceasing to be wrong. Cut your losses quickly, without hesitation." - Jesse Livermore

"I became a winning trader when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before, admitting I was wrong was more upsetting than losing money." - Marty Schwartz

"My stop loss method had two effects. It got me out of the wrong stock and into the right one." - Nicolas Darvas

"Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown." - Paul Tudor Jones

"I think there's a certain amount of humility with top traders. You have to make enough mistakes and learn to overcome them." - William O'Neil

"It is very important to know the edge of your own competency. You're a disaster if you don't know it." - Charlie Munger

"Being wrong isn't a bad thing like they teach you in school. It is an opportunity to learn something." - Richard Feynman
 
"The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school... Mistakes are a good thing. They provide an opportunity for learning." - Ray Dalio, via Hedge Fund Market Wizards

"A prudent speculator never argues with the tape. Markets are never wrong, opinions often are." - Jesse Livermore

"Speculation requires and teaches you to accept reality as it is, rather than reality as you would like to have it." - Rakesh Jhunjhunwala

"The best thing you can do as a trader or investor is learn to recognize and cut your losses. Due to our schooling system, we equate being wrong with losing points and esteem... In the markets, losing or making money is not about being right or wrong. We need to manage risk and stick with our process." - Brendan Moynihan, What I Learned Losing a Million Dollars
 
"You can't use analysis to overcome fear of being wrong. More analysis will not produce better trading results." - Mark Douglas

"No problem can be solved from the same level of consciousness that created it." - Albert Einstein

"The best training ever for rigor and critical reasoning is trading. You can only survive long term by going against the wrong consensus by "experts"." - Nassim Taleb

"If you act in sync with the market, trading can make you rich. If you argue with the market it will surely make you poor." - Mark Minervini

"Minimizing mistakes is incompatible with maximizing learning." - Kent Beck

"If you want to improve, be content to be thought foolish and stupid with regard to external things." - Epictetus

Can you think of an instance where you realized you were wrong, or changed your mind and then benefited or learned from the situation? Tell us about it!

Keep these quotes handy, or print them out, and share them with your friends and family.

Maybe you will help someone change their outlook (or your own) and profit by doing so!

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