What the Heck is My Brain Doing to Blindside Me Now? | The Only Three Questions That Still Count

Transcript

Ken Fisher:

So, this video is the third of a series of three that I'm doing to describe the core three questions in my just updated book that's just out now, the update of The Only Three Questions That Still Count, which was an update once upon a time of my original book, The Only Three Questions That Count. The third question, separate from the first two that I'll come back to, is what the heck is my brain doing to blindside me right now? Now, most people don't really think about that very much and why it's important. If you think about other questions, first one being what do I believe that's actually false, which in our culture is much more common than anyone thinks. Most of stock market mythology, most of so-called conventional wisdom, most so-called stock market rules of thumb are just nonsense. And that's provable. And that's what the first chapter of my Only Three Questions book was about. What is, what do I believe that's actually false?

What most people commonly believe is a risk to them. The other second one is what can I fathom other people can't fathom. With some simple tricks, it's much easier to fathom things that other people can't see than most people think it is. Most people don't even try because they don't think it's possible if somebody else hadn't figured it out. How's the dummy like me going to figure it out? Well, there's tools to do that. But the third one, what is my brain doing to blindside me? Well, when your brain's doing this stuff, it's not really set up to do it. We, let me say that a different way, genetically and every other way other than contemporary stuff, we're just a lot like our grandparents were. We're a lot like our grandparents. They're a lot like their grandparents, and an awful lot about the way our brain works was derived from people so long ago that our brains are set up still not having adapted to the world we're in today, but being focused on things that were important to get us through that earlier world. And let me talk about that a little bit.

You know, going back to the point of grandfather, my grandfather was born in San Francisco in 1875. By the time he died in 1958, his generation had seen more relative change than any generation before by a mile. American Industrial Revolution, introduction of widespread electricity, telephony, automobiles, airplanes, radio, television and the very beginnings of computers. But they also saw more relative change than my father's generation. He was born in 1907 and died in 2004. He saw more absolute change than my grandfather, but less relative change. I've seen more absolute change than my father or my grandfather, but less relative change. And things are moving faster, but our brains are still anchored in the far distant past. We come from people that suffered problems like overconfidence.

Why did we suffer overconfidence? Just think about what Stone Age people had to do. If you think about the hunter that had to run up next to a wildebeest with a stone pointed spear, and hoped to stab it to death without being injured himself, that takes a lot of overconfidence, if you follow that. And the one that pulled it off the hero, if you think about that, that overconfidence, it paid off because a little bit of protein went a really long way. And that leads us to be overconfident. And in investing, there's this tremendous tendency to think if you succeeded, you're smart as opposed to thinking of I probably was lucky. There's a tendency for people, and you understand why this is for smart people, to think they're smart and to be overconfident. You might think if you're the smartest guy in the room, or you think you're the smartest guy in the room, to think you can do better in investing, and there are some really, really, really, really smart people that have done that. I think the most impressive one that I've ever heard of is Jim Simon, who passed away recently. One of the most successful investors of all time and a super, super smart guy. So smart it's hard to envision. But mostly, smart people aren't because they're not the smartest guy in the room no matter what they're up against.

Not the other people in the room in the market. They're up against what I call The Great Humiliator, which is a near living, near spiritual entity, the stock market, whose goal is to humiliate you for as much money as possible for as long a time as possible, and in the most embarrassing ways as possible. And The Great Humiliator is really good at its job and is smarter than you are, smarter than I am, pretty much smarter than anybody is. And so somebody who thinks they're going to get ahead because they're just smart, they don't get that they're up against a Great Humiliator. Overconfidence is a killer And the book takes you through that. There's a tendency in parallel to that to do what's called accumulating pride and shunning regret. People do this all the time. Again, it goes back to things like Stone Age days.

The hunter that came back with the wildebeest, or a gazelle flung over his shoulder, was cheered back into camp, revered around the campfire at night, asked to tell stories about the success of the hunt. The tribal chief thinking maybe this guy is the guy that I should have my daughter marry. Maybe he will become a future tribal chief. And the guy that came back with nothing, he's thought of as no good. Now, it may just be that the guy that got the gazelle was lucky. Maybe the guy that got didn't get the gazelle was unlucky. Was unlucky? Maybe the guy that didn't get the gazelle tomorrow when he goes out will get lucky. Or maybe he'll just come across a gazelle that had just been killed by some animals, scare the other animals away, and haul the gazelle home. It's worth it to that culture to let the hunters hunt, whether they succeeded that day or not. But the guy that came back with the gazelle tends to soon believe his own story. He tends to believe I did it. I'm smart. In the market, I bought it, it went up, I'm smart. You want to see me do it again? I bought it, it went down. If my wife hadn't been complaining at me this morning and I was in a bad mood, I wouldn't have done it. Or I bought it, it went up. I'm smart. I bought it, it went down, the broker sold it to me. I only bought it because my next door neighbor told me it was good. It's his fault. These are all shunning regret. When we accumulate pride and shun regret, it builds our overconfidence and motivates us to keep trying. And that's really good for so many human endeavors. In capital markets, it works against us because it makes us do stupid things. In just the same way, there's hindsight bias, which is this part that the longer it's been since you had a success, you tend to ever more believe that it was skill, not luck. And it's really important to take that accumulating pride, shunning regret, and reversing it. The correct modality when your success is to think you were probably pretty lucky.

And when you fail to see it as a learning opportunity, what did I do that's wrong? It's my fault. It's not somebody else's fault. And how do I learn from that, other than blaming my next door neighbor or my spouse? Now, all of this and more is in that third chapter, what is my brain doing to blindside me now, and how to overcome each one of them and turn them to your advantage. Just like I just said on taking the accumulating pride and shunning regret and flipping it and turning it into a learning experience. So you build your human capital and become a better investor from every failure that you make.

Now, in this realm, I don't care how good you are, doesn't matter. You will have lots of failures, so you'll have lots of opportunity to confront this. The reality is, nobody's right all the time. The most legendary investors ever are right about 70% of history. And that for you got to be pretty comfortable being wrong the other 30% of history when you're wrong. And that part of being comfortable when you're wrong, which is a really important skill to build, to learn how to do that and use it. In some ways I've analogized it to being a boxer. You're going to get hit if you're a boxer, and you have to know how to take the punch and to be able to not be overly emotionally or physically disturbed by it. And then how to come back from it?

This is all stuff that the focus in only three questions on what is my brain doing to blindside me now, lead you to make you a better investor. I hope you'll enjoy it. I hope you'll learn from it. I hope my video here today is useful for you as a starter and motivator to go down the path of learning what your brain is doing to blindside you now. Thank you very much for listening. I hope you found this useful and beneficial.