Fear, Conviction, and Understanding
Fear
an unpleasant, often strong emotion caused by anticipation or awareness of danger.
You aren’t aware that fire burns; you put your hand in, and you learn. While it seems crazy, the thought alone makes you think, how?
Why?
There is this story I heard: a couple of parents were looking for their children. It happened that behind the house was a savanna forest, and there were wild animals. After searching inside the house, they decided to check outside.
The children were playing outside, a small distance away from the house. The problem was it appeared that the kids were playing with a lion and a lioness.
The lioness asked the lion, why are you playing with them when you can eat them?
The lion said, well, they don’t know who I am, but wait until you see the reaction of those who know me.
The parents were scared, screaming for their children to come. They couldn’t move closer to the lions.
The lion said, now those are the ones that know who I am.
Knowing of a danger is what makes you fear. On the other hand, when you know of a threat and do something to mitigate it, you no longer fear. You become confident.
Problems arise when you think you’ve mitigated that danger only for the threat to rear its ugly head, only this time in another form you’ve never thought about or worse, in the same form, showing the weakness of your mitigation.
Let’s assume you mitigate it, it works well, and you are happy. You do this a few more times, and then you become confident that when you want to do X, you mitigate for danger Y, and you get your result Z.
From that confidence, you begin to be convinced that that’s how it works. “It has worked this way for all my life”. Therefore, that’s how it works. This conviction becomes so strong that it is incomprehensible to you that it could work another way.
Conviction
to bring an argument to belief.
You’ve lived a different life than I have; our beliefs, values and what we hold dear are different. The same word would evoke different emotions in us based on our experiences. But our experiences are merely 0.00000001% of what happened in the world. I can read up on history, but second-hand learning differs significantly from experiencing it in real-time.
When someone is convinced that X works this way, it is probably because that’s what the person has experienced. And when you argue that X works the other way, it is perhaps because that’s how you experienced it.
Beliefs help you navigate the world; they are a map of the world. Your beliefs are your map.
However, the map and the territory aren’t the same. The map is a guide, a representation or simulation of the territory. An incorrect belief, inaccurate map. The more accurate your map is, the better it represents.
There aren’t accurate maps, only more accurate and less accurate maps.
When the rubber meets the road, that is when you know what’s correct and what’s not. When you interact with the world, you see how accurate your map is. When it isn’t right, you commit errors, and you (supposedly) self-correct and update your map.
What does this have to do with investing?
So you have something like this: you don’t know a thing about investing, then you learn. Take courses, read articles, attend seminars, etc. You feel confident to a certain level, and you believe you’ve got what it takes. Then you enter the market.
The market, a complex and exciting entity, does what it does, and you end up experiencing either of these:
You are battered from your first entry. Maybe a black swan, an event that wasn’t priced in, struck just in time to make your results not what you wanted.
You enter the market and make the right moves, either through your skills or a stroke of luck, and everything aligns, and you are on top of the world.
Now, these are extremes, yes, and it is possible to have a result that isn’t here nor there, reasonable but not exception, bad but could have been worse.
So, how do people react?
Some go oh, this is interesting; more learning to do. They keep their heads down and grind. Learn and continue doing the best they can for the long term.
Others get disinterested and sometimes go on to do the opposite of what they set out to do in the first place.
This doesn’t happen in investing alone; it happens in most if not all, complex, sufficiently- ambiguous domains such as health, relationships, etc.
Understanding
interpret or view (something) in a particular way.
The best explainer on understanding that I’ve read is Understanding by
Thank you for reading. See you soon.