'Facts' and why the whiney kid at school was right

By Simon Danaher - July 23, 2015

Listen to the whiney voice when investing

Everybody knows that bats are blind. It’s just one of those facts which is common knowledge, like the fact the only man-made object you can see from space is the Great Wall of China.

Facts like these have fallen so far into common parlance that, even with Google now at our fingertips, we often barely bother to check whether they are true or not.

This can be a bit like the investment funds we choose to put into our portfolios. When offered an opportunity to invest in an “amazing” new venture with high, uncorrelated returns, people want to believe.

Rather than looking with a critical eye, humans seem to be hardwired to take the mental shortcut. They would rather believe what the person in front of them is saying because it sounds good and, if it is true, it will make them lots of money.

The critical eye on the other hand is more complex and boring – you could even say a bit whiney, like the sensible kid at school.

The trouble is, much like the whiney kid who thought you shouldn’t make the bike ramp “just a couple of bricks higher”, you know they’re right. Why is it that this “amazing” investment opportunity is only coming your way? If it were that great an idea, why isn’t everyone doing it?

When it comes to investing, you need to always listen to the voice of the whiney kid. We all know that he’s grown up to be a NASA scientist or similar because he made good choices and listened to his own voice of reason.

If you spoke to him now, he’d probably tell you not to go for that “amazing investment opportunity investing in a teak plantation in Guinea” but to take the more sensible option. Being a scientist, he could probably also tell you that all bats can in fact see and many have fantastic night vision.

He could also tell you that the Great Wall of China is actually barely visible from space but that you can see the Greenhouses of Almería, the Palace of the Parliament, Romania, the Kennecott Copper Mine, a lot of roads, cities and night pollution…

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