Reading my posts you might reasonably assume my opinions are to avoid:

- US stocks
- Large companies
- Anything to do with AI

And to buy:

- Anywhere in the world ex-US
- Small companies
- Ordinary businesses that benefit from AI

And you would be right – about my *opinions*.

However, you’d miss a much more important belief that sits above all of that opinion: neither I, nor anyone else, knows for sure how markets are going to unfold.

Which means that my sincere views, based on research, deep thinking and experience, are *passionately* expressed in print – but only *lightly* expressed in portfolios. They will show up more like leanings than certainties. More like shades than primary colours.

Why?

Because I have a job to do: to give my clients the best chance of meeting their financial goals, the returns they need over a given period of time, with fluctuations year-to-year within a range that they can comfortably tolerate.

Those clients are real people with real lives. And they only get one shot. If my calls are wrong – and keep in mind, nobody knows for sure how things are going to turn out – we can’t respawn and try again as if life were a computer game.

Therefore a crucial element in assembling portfolios for clients is to weigh up, for each decision, “What if I’m wrong?”

This approach has many benefits, not least the impact on my decision-making.

Essential reading for anyone in my job is Thinking, Fast and Slow, by Daniel Kahneman. One of the many insights he shares is our tendency, once we have formed an opinion, to look for reinforcing evidence – and to suppress data contradicting our view. By asking “What if I’m wrong?” I’m fighting that tendency, by forcing myself to seek out the evidence that might undermine my view.

Another book well worth reading if you are an investment professional is The Signal and The Noise, by Nate Silver. He sketches out two types of forecasters – hedgehogs (form a view and force all data to fit it) and foxes (know their knowledge is limited and keep looking to adjust based on new data).

Big, bold, macro bets by hedge funds are often lauded – people talk admiringly of a manager’s conviction. Yet the work of Kahneman, Silver and others shows that this is just a cognitive illusion – overconfidence, reinforcement of prior beliefs, suppression of alternative views – at work. The reason these funds and rock star managers persist is probably because a) we all love and are drawn to these high conviction, bold stories and b) the funds that get it wrong and fail disappear from view – something called survivorship bias in the data we have available to assess investment funds.

At school, being a “hedgehog” was prized – I learned to make bold calls and then defend them fiercely. But in adult life and in my work, I’ve tried hard to train myself into being a fox, because that’s what clients need from me to avoid disastrous outcomes.

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