Overview – Twice the Pride, Double the Fall
Are you the type of person who takes any sort of criticism very personally, even if the one criticizing you genuinely wants to see you improve?
Nobody is perfect, and sometimes we tend to overestimate our own abilities. Sometimes, the fastest way to improve is to simply stop and listen to the constructive critiques of others.
Or perhaps you’re the type of person who doesn’t like to ask for help, even if it’s very clear that you’re in need of assistance.
I’m sure most of us enjoy that sense of pride we feel when completing a task on our own, knowing that our success is the result of our own effort, determination, and sacrifice.
As you may know from your own life, there are times when we come across tasks that are too big for us to handle, and the successful completion of these tasks requires us to seek the help of others.
Sometimes, we refuse to listen to others or seek assistance because of a sense of hubris, that is, excessive pride. To some people, nothing is more insulting than needing to admit that they aren’t perfect after all.
Hubris is a trait that almost always leads to more harm than good. Those who possess this trait will do whatever it takes to maintain their inflated sense of pride, even if it ultimately proves to be detrimental.
Unfortunately, the same can be said for hubris when it comes to investing.
There is no “secret formula” to achieving investment success, but there are many ways to destroy your chances of succeeding. One of those ways is to maintain the false belief that you’re perfect.
The Dunning-Kruger Effect and Hubris
Arguably one of the most popular cognitive biases is the Dunning-Kruger effect: people with limited knowledge or experience in a certain domain tend to greatly overestimate their level of skill. These individuals overestimate their abilities because they haven’t had enough time to truly understand the scope of their deficiencies.
A classic example of this is young drivers, specifically teenagers. After having driven for a relatively short time, some teenagers start to believe that they’re invincible behind the wheel, despite having only a couple of years of on-and-off driving experience.
There’s a reason why insurance premiums for teenagers are so high – their overconfidence and lack of experience make them more prone to accidents.
Formula One drivers are some of the most skilled, experienced, and knowledgeable drivers in the world, yet they spend so much time refining their driving skills because they know that they aren’t perfect and that there’s always room to improve. This is a stark contrast to the average teenage driver who thinks they’re the next Michael Schumacher.
One of the ironic things about the Dunning-Kruger effect is that the more experience a person gains, the more they realize that there’s so much they don’t actually know.
It takes a certain level of maturity to admit that there are still so many holes in your knowledge and experience.
Naturally, the Dunning-Kruger effect and its subsequent hubris can also be observed in investing.
As a new investor, nothing is more intoxicating than seeing your investments increase in value. After all, this affirms that your investment decisions were correct, and as a result, you were rewarded for your sagacity and hard work.
With a small win under your belt, it’s very easy to think that you’re unstoppable. Your path to investment riches seems to be laid before you, and all you need to do is to take this path to your inevitable success.
However, as an investor gains more experience and starts to understand the investment landscape better, they soon realize that they aren’t invincible after all. Eventually, every new investor realizes how steep the learning curve truly is, and how inexperienced they truly are.
It takes a certain level of emotional maturity and humility for an investor to be aware of and admit their own ignorance.
A mature, intelligent investor understands that they aren’t invincible, so they cast aside their hubris and understand that they need to constantly work on themselves and to seek help when they need it.
Investors who are devoid of hubris aren’t afraid to listen to constructive criticism, nor are they afraid to ask for help when they truly need it.
Ignoring Valid, Constructive Criticism Because of Your Hubris Is a Fool’s Gambit
Whenever someone gives you a constructive critique, how do you react? Do you graciously accept the critiques and try your best to improve, or do you throw a hissy fit because someone had the audacity to criticize you?
I’ve talked about the importance of learning to accept criticism and bad news before, but the focus here will be on investors who refuse to listen because of their hubris.
One of the fastest ways to improve in any endeavour is to listen to the constructive criticisms of other people. This is part of the reason why coaching is so effective: by having someone evaluate us, they can pick up on deficiencies that we otherwise would’ve missed on our own, and help provide specific ways on how to improve.
As an investor, refusing to listen to any sort of critique simply because it will hurt your delicate sense of pride is by far one of the dumbest things an investor can possibly do.
If one of the fastest ways to improve is to listen to constructive criticism, then one of the fastest ways to fail is to ignore constructive criticism. This is because you’re willingly ignoring deficiencies that directly impact your future success.
Unless the person giving you constructive criticism is extremely nitpicky, chances are the critiques they’re giving are ones they understand will help you considerably if you take the time to address them.
Imagine you are planning to buy some junk bonds, even though you have no prior experience with them and they will make up the bulk of your portfolio.
Your investing peers repeatedly warn you of the dangers of junk bonds, and how the benefits aren’t usually worth the immense risk. Not only that but you’re also repeatedly advised to gain some more experience with bonds before venturing into the realm of junk bonds.
The people giving you their critiques aren’t calling you a bad investor, they simply don’t want you to pursue an action that has a very high probability of jeopardizing your money.
In the end, you choose to ignore these critiques because you’re extremely confident in your skills, despite your lack of experience. After all, in your mind’s eye, you’re a perfect investor who doesn’t need to listen to the ramblings of other people.
Now, imagine that a few months later your junk bonds (unsurprisingly) default and your portfolio is decimated. You have no one to blame but yourself – after all, you were the one who decided to ignore all the critiques. What good is your sense of hubris now?
Choosing to ignore constructive criticism simply because it will hurt your sense of pride is akin to shooting both of your feet, then scratching your head as to why you’re unable to move.
Every investor has room to grow, and the people who bother to give you constructive criticism do so because they genuinely want to see you become better. Why would someone go out of their way to give you constructive critiques if they didn’t want you to benefit?
Learn to let go of your hubris and develop the emotional maturity needed to graciously accept criticism.
Asking for Help Doesn’t Mean You’re an Unskilled Investor
There are some people who believe that nothing is more humiliating than asking for help. To these people, asking for help is akin to admitting that they’re not as skilled as they thought they were, thus shattering their sense of pride.
One of the most profound observations I’ve made in my life is that even the most skilled, knowledgeable, and talented individuals aren’t afraid to seek help when they need it.
In university, I had the opportunity to meet many intelligent people, and what surprised me was that they would sometimes come to me for help, even though they had a superior grasp of the material. In those instances, I guess I was the person who had the missing piece they were looking for.
Again, this is the Dunning-Kruger effect in action: a skilled individual with lots of knowledge and experience understands that they don’t know everything. So, when they need to fill in a gap in their knowledge or need help completing a task they can’t complete on their own, they go and seek the help they require.
Being a skilled individual and asking for help aren’t mutually exclusive. Asking for help doesn’t diminish or discredit your pre-existing level of skill.
This same logic applies to investing. Seeking help as an investor shouldn’t be interpreted as an attack on your investment skills – it simply means that you’ve come across a gap in your knowledge/skillset, and you understand that there are people who can help you fill that gap.
Warren Buffett is regarded as one of the greatest investors of all time, but he frequently seeks the advice and assistance of his business partner and second-in-command at Berkshire Hathaway, Charlie Munger.
If one of the greatest investors of all time isn’t afraid to seek help, then there’s no excuse for any other investor not to seek help either.
Refusing to ask for help because of your hubris will only impede your own progress as an investor. A problem that could’ve been solved by asking the right people now becomes a problem you need to solve on your own with your incomplete knowledge and skillset.
Sure, you can gain the necessary skills and knowledge needed to solve any problem that comes your way, but there’s no need to exert so much effort every time you want to solve a problem if you simply accept that you aren’t perfect – other people may provide that one missing piece you need.
The sooner you learn to let go of your false image that you know and can do everything, the sooner you can find the assistance you need to help advance your investment goals and interests.
Hubris Is Not the Same as Confidence
It’s very important to remember that hubris and confidence are not the same things. Attempting to conflate these two ideas is pointless because they are very different.
In the context of investing, to be a confident investor means you firmly trust in your investing abilities. In the article The Myth of Being Right or Wrong, we looked at the importance of forming your own conclusions and remembering that an investor isn’t correct simply because others agree with them, but rather because their facts and analysis are correct.
For an investor to form their own conclusions, they must first believe that their level of investment skill and knowledge are sufficient to perform such a task. If an investor doesn’t believe that they’re competent enough to perform their own work, how can they possibly expect to make their own investment decisions and to think for themselves?
Although confident investors have faith in their abilities, this doesn’t mean they believe they’re perfect. A confident investor can have faith in their investment abilities yet still seek to improve – self-confidence and improvement aren’t mutually exclusive.
If an investor truly has faith in their abilities, then they should have no problem listening to constructive criticism nor will they have trouble asking for help because they know that doing these things doesn’t diminish their investing abilities.
They understand that by seeking to improve, they can place even greater faith in their abilities.
On the other hand, an investor high on hubris believes that they’re the undisputed best investor in the world. In their mind, they know everything about investing, and no task is too big for them.
Anytime they need help, they refuse to acknowledge this reality and, instead of getting assistance, try to save face by taking on every problem they face all by themselves.
When others give them authentic constructive criticism, they choose to ignore it in order to maintain their inflated ego in an attempt to not look “weak”.
Whenever this sort of investor’s work is challenged or disputed, they simply resort to attacks to try and diminish those who dare speak against them, even if the points being made are valid.
Every investor needs some degree of confidence in themselves. After all, what’s the point of all that hard work trying to hone your investment skills if you don’t have faith in your abilities?
However, faith in your abilities should never devolve into the false belief that you’re flawless. The moment confidence transforms into hubris is the day an investor sets themselves upon a very dangerous path.
Wrapping Up
One of the fastest ways to fail as an investor is to falsely believe that you’re invincible. Eventually, these investors learn that they aren’t invincible after all, but by the time they learn it’s already too late.
Having a sense of hubris as an investor will bring no benefits whatsoever. Not only will you refuse to listen to constructive criticism that may set you up for future success, but you’ll also never ask for help, even if it’s abundantly clear that you can’t solve every problem on your own.
The first step toward any sort of long-term success is to admit that you aren’t perfect and that no matter how skilled or successful you become there’s always room to grow. Successful investors aren’t afraid to ask for help and listen to criticisms, because they know it will ultimately lead to more success.
Learning to let go of your hubris and instead adopting a sense of humility will take you a very long way in your investing journey.
