Script(ish)
Today we’re going to talk about something a little different from what we usually do. Typically on this channel, I talk about price action and I talk about the psychology of the markets and I tend to focus more on whatever the sheep are doing … the plankton … the bandwagoners … whatever you want to call them… The people who don’t have their own opinions, because those are the people that you can make money off of.
It’s an important group to talk about because in a lot of ways, they are responsible for the overhyping we see in the space. They’re the ones who get their friends hooked, who get excited when they make a lot of money and tend to be fairly gullible when it comes to some of the claims that people make about what blockchain technology can do.
However, in this video, we’re going to talk about the other side of the spectrum. We’re going to talk about the individuals who do their own research, who have their own opinions and who aren’t afraid to disagree with key opinion leaders, even some of the most well respected ones like Andreas Antonopoulos for example.
This is a much smaller group of course and I have much more respect for these individuals. However, there are some serious dangers associated with this group from an investing perspective. There is a such thing as being too smart for your own good, and while it may seem counter-intuitive, I hope to illustrate this rather critical flaw typically associated with more intelligent people.
Let me start off by saying that intelligence is overrated and this was actually a lesson passed onto me by the father who … by all standards, most would consider a genius. And this isn’t just me hyping up my father or anything because he’s family – it’s from watching him time and time again do things an ordinary person wouldn’t even be capable of thinking of in the first place, no less actually doing it. And while this description may not convince you (given it’s pretty vague), the goal of this video isn’t to convince who or what my father is, rather to demonstrate that the notion of intelligence being overrated, was a lesson I learned from a genius.
One of the more interesting phenomenon that occurs for financial advisors is how doctors and lawyers tend to be a royal pain in the ass when it comes to investing. I don’t know if there is a paradox of intelligence where the more intelligent you are, the more inclined you are to make high-impact foolish decisions, but there really should be.
What typically happens with these doctors and lawyers … or whatever equivalent profession you want to insert here … is they are more likely to believe that with enough hard work and research, you can generate excess returns… and that sounds perfectly fine, right? I mean, that’s exactly what we’re trying to do here on this channel in a number of ways.
But just as with anything else, there’s always a fine line. What often happens in reality is intelligence turns into confidence which then turns into either greed or arrogance. When I said earlier that intelligent individuals tend to make higher impact foolish decisions than the plankton, it isn’t because of actual stupidity.
It’s because they commit more to their decisions as they have higher levels of confidence in themselves which can often result in arrogance and close-mindedness when it comes to their investments. The absolute worst trait you can have when it comes to investing is arrogance and typically arrogance occurs more frequently in the intelligent people because they have a reason to be, even though they frequently don’t see themselves as arrogant.
Again, it’s a very thin-line – There is a difference between confidence and arrogance in investing just as there is in love or in friendships or anything else. The important question you should always ask yourself is how open minded am I really? Is there any feasible, realistic event that could change my mind? Would I ever consider that I have gravely misunderstood the probabilities of success vs. failure? Would I ever consider that I gravely over or underestimated the timeline it would take to achieve peak market penetration? Would I ever consider that I was wrong at understanding the psyche of the greater investor economy?
Unfortunately, most people can’t answer these questions honestly because they don’t know how to find balance between having confidence in their own opinion and being open-minded. I know this is a deep level topic – but this is at the very root of all personal investing. I believe that the reason passive investing is empirically far superior to active investing is not necessarily because it is objectively better, but because it removes almost all elements of human behavioral tendencies.
The point is, if you are someone who is very intelligent and who does their own research and has their own opinion, you are unique and part of a much smaller group of individuals. However, you are also more prone to make serious mistakes as although you might be more skeptical than others at first, you’re also likely to commit more (money, time, emotion, energy) if your own research validates an investment.
If you ever take a look at around some of the groups centered on a particular cryptocurrency, you’ll notice that it can become very cult-like, especially on the dedicated subreddits. There are some people within these communities that are exceptionally knowledgable, but are close-minded and are the most likely to get hosed whenever the hype in this space dies down.
If you’re one of these individuals, all I am going to say is be cautious of yourself. Most people refer to this close-minded, cultlike behavior as mental gymnastics, but that’s usually with the implication that the person involved justifies something that outsiders view as crazy.
I’m calling this phenomenon in investing mental Olympics – because everybody competes to find the most compelling data and research to support their investment and then shuns everyone else who hasn’t come to the same conclusion or (and this is an important one) doesn’t extend the same level of effort to reach a different conclusion. What do I mean by this?
I’ve seen situations where intelligent individuals dismiss another person’s opinion in the cryptocurrency space simply on the basis that the other person didn’t put in as much research as they themselves did. In other words, if you don’t know every single miscellaneous fact about a cryptoasset or the industry as a whole, there is a group of folks that will never validate your opinion even if that opinion is perfectly valid.
If you’re a part of that group, you’re likely a danger to yourself – even more than the plankton are danger to themselves. Don’t be a smart fool. Perhaps a more apt name for Benjamin Graham’s classic book “The Intelligent Investor” would be “The Wise Investor.” Know your limitations and invest wisely.
This topic reminds me a lot of something Dan Rutter used to talk about every now and then.
He observed experts in a field achieve great success in their field and even add new things to that field. They become very specific and specialised, earn a lot of money and get a lot of praise within that field and especially that specialised corner of it.
Then they retire or pick up a hobby and they assume that because they were quite brilliant at something after a decade of study and decades of work in that field that they're just generally brilliant and can pick up high level concepts outside their field easily. Instead they hit the Dunning-Kruger effect, hard, and end up with manifesto conspiracy level theories about things that read like absolute nonsense built on bad assumptions and conjecture to experts in that field.
Yep, that's exactly what I came here to say. I was hearing him describe the Dunning-Kruger effect. It's like we have three classes of investors: As, Bs, and Cs.
Investor A thinks he's a B. B thinks he's a C. And the C think's he's an A.
You might think this is only a problem for the C. But it's actually a problem for all three of them. They're all failing to estimate their own ability and it negatively affects the outcome.
I like to think I am less susceptible to the Dunning-Kruger effect because I am not hyper-intelligent or extremely unintelligent. Maybe that is just a manifestation of the effect! Maybe it is not? Damn. See what I mean?
Also, it seems reasonable that certain people (perhaps myself included, although that is not altogether self-evident) may be technically capable of "mastering" a domain, but also understand their own limitations and therefore choose not to spend their limited mental capital on that domain while still participating in it at a lower level simply to increase the list of trades they are a jack of in order to be able to come closer to mastering another trade, or at least being a better jack at a particular trade. Wow, what a sentence.
Finally, as relates to almost completely off topic, that this post could be rewritten replacing investing with philosophy, theology, politics, etc., and that it would be prudent for those that agree with the assumptions of the article to apply them to these parts of their lives as well.
I have for quite some time been part of the sheep mentality to crypto (being new to this space), but finally have found the benefit of doing my own research. In fact for the first time this has shown in the (slow) growth of the value of my portfolio.
However I have certainly found that in forums certainly individuals match precisely the definition you provide. To someone like me, this is perceived as arrogance and I have to resist the urge to go back to old posts and point this out when their decisions/advice has been shown to be flawed or totally wrong.
This certainly is even more true in the crypto world where in the short term, peoples emotions seem to dictate price as opposed to well thought out technical analysis (this of course is a generalization).
I've been trying to google up one of his articles that includes it but am having no luck. He had a snappy name for it like Engineer's Dementia.
Great listen! To expand on what you said I would like to point out one argument that you made which is probably only partially correct. It is not strictly true that highly intelligent (or even knowledgeable) people are more confident about their decisions than the people on the lower levels of the spectrum.
There is a saying that goes somewhat along the lines of "The more you know the more you realize you know little." This saying is a bit misleading because there certainly is a point where gaining expertise in an area makes you significantly more confident about what you know and the decisions you subsequently make. But the inversion of the saying holds fairly true: "The less you know the more you think you know".
This phenomenon has been observed in psychology and is fairly well documented. It's called the Dunning-Kruger effect and is related to illusory superiority. The idea is simple: people of low skill or merit have a cognitive bias of being superior. Similarly, highly-skilled people suffer from the biases you have mentioned: they underestimate the difficulty of tasks etc.
The original study that examined this phenomenon gave the participants tasks (e.g. logic problems and grammar analysis) in order to measure their performance and compare it to how they perceive themselves. So while this effect is closely related expertise in a field it also holds fairly true in the area of intelligence/IQ.
For this reason I would argue that (interestingly enough) these two groups are both dangerous for the same reason. While, as you said, one of them is certainly more respectable, they both suffer from similar biases.
I had never heard about the Dunning-Kruger Effect before. Thanks for explaining it.
I think the saying (The more you know the more you realize you know little) holds true when speaking about the sum of all knowledge, but as you point out, not necessarily with specific fields of interest.
Good video! There is such a lack of self-awareness these days, and very few people are ever willing to entertain the possibility that they are wrong. There needs to be a spirit of self criticism, much more than we see today. You are certainly some when I frequently disagree with, LOL, but very intelligent, and I always am quick to watch your videos and hear you out.... just because someone disagrees with me about something, doesn’t mean that they are a threat. I wish more people thought this way!
I think that you hit the nail on the head here. I think some "intelligent" people, maybe at a subconscious level, prefer to be right right rather than profitable when it comes to investing. The hardest things to master when it comes to investing are to think in probabilities, admit your investment case no longer holds & cut your losses quickly.
Crypto is in the wild west stage, a lot of the coins in the market are from brand new companies, with teams that have never delivered a product and realistically should never have gotten this level of 'success' in such an early stage in their development.
What we often forget sometimes is that part of our research and decision making has to take into account the actions and feelings of other people.
"The market can stay irrational longer than you can stay solvent." And finding a middle ground is difficult.
Great video as always. Nice job on the VeChain trade. Was the Ardor play purely technical or something else that you liked about it?
Rationality is definitely not the key to investment.
Very interesting topic. Just yesterday I read about an ICO that seeks to provide crypto investors with "non-fake news" and real-time, accurate information. I was actually thinking: "Wonder if that's always helpful".
It is, obviously, nice to be well informed, but if everyone else thinks the earth is flat, it'll do you little good to know that it is in fact round. So to speak.
Great video. I'm pretty new to crypto, so I'll comment on my experience from stocks. My worst investment was in a stock that I had the most confidence in. I overexposed myself, because of that confidence, which came from doing a lot of research. And one of my best investments was in a stock that I was very cautious about, because of its high PE ratio. It turned out that paying a high premium for growth prospects was the smart move.
Doctors and lawyers are taught to be critical thinkers. That’s why they tend to be a royal pain in the ass for advisors when it comes to investing. There is a very thin line, being skeptical is good but arrogance is almost always bad. Keep an open mind, no matter how intelligent you think you are!
Indeed - tough path for some people though, impossible for a number I've found.
This is a lesson for all people who invested in this market, never forget the limits
First not everyone can know everything about crypto currency or the blockchain. It is what you do with the knowledge that is also given to you that will make you successful. Thanks for the get post keep up the good work. 👍👏👏👏👏👏👏👏👏🎉🎉🎉🎉🎉
So basically what you're saying is... Don't be so smart, that you're dum?
Basically saying don't be foolish, which is independent of being smart or dumb.
could you share your opinion on something like this perspective of BNB (video would be great, but might be long shot) https://steemit.com/binance/@gradwohl/quiz-what-the-true-value-of-the-binance-token
video has no sound for me, is anyone else getting this?
Still experiencing that?
Behavioral Finance has such an enormous impact on our individual actions that the market sometimes trades irrationally against what the textbooks says. If markets are efficient as hypothesized, we cannot create alpha or excess returns. However, given that this is a relative new asset class where these traditional rules or guidelines do not apply, attractive returns are possible. However, they come with huge risks and volatility as well. Over the last 3-6 months we have seen this play out. Unfortunately, I do not think it will get easier as uncertainty continues and participants drive continued volatility lead by technicals due to the lack of clear/established fundamentals.
@cryptovestor, a lot of this video resonated. It reminded me of this Joe Rogan routine: "I KNOW I'm stupid, but I'm smarter than almost anyone I meet"
I mean to truly predict or comprehend financial markets the amount of information you have to know and understand...and crypto takes that to an entirely different level, because it's not just a financial market barrier to entry, it's one of the steeper technological barriers of understanding anyone could venture down. Crypto really is a deep well and we're all Alice trying to figure out what the hell just happened, and where the hell we all are.
I think the key is that everyone has his/her strength and weakness. Even if you are a doctor or lawyer, it does not mean that you are good at trading. Crypto is a completely new area. We should not simply assume that we know everything. The most important thing for us in this new world is:
Keep Learning!
I would have actually phrased this video a little bit differently and that would be that even smart people can be susceptible to dumb decisions. The way you talk makes it seem like this category of people are still making the right decisions but not the best ones as they are having strict tunnel vision. In the extreme as you are talking and warning about, this is an exaggerated understatement. These decisions are dumb, no matter who it comes from. A little bit of a poor delivery but content is fantastic.
"Other people are trying to be smart, All I'm trying to be is non idiotic." - Charlie Munger
Hi, is it possible to have business cooperation with you? Please let me know how can I contact you, thank you.
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It recently went as low as 100% down from where I bought it a month ago. Glad to finally see ADA now getting some sustained upward movement.
At which price you think that btc is not a bubble , I hope it is not 1$ ? and why that price exactely?
$12k and then we are in a bull market again and it is not a bubble. At $5999 it is overpriced an we are going down.
it sure have a bubbely behaviour
More of what makes this channel great.
Thank you.
CI, could you please comment on your how you develop your channel art? Its tops.
At the very least crypto space has made me evaluate point of views such as yours and for that I am thankful, keep the good work. For the topic at hand I must confess that I have met very few people in life who have a good balance of Intelligence vs arrogance in professional or personal setting. Unfortunately, I'm not one of those people.
Great point of view, thanks. To me it reminded more of Taleb's Antifragile and thinkers vs doers.
Investing is crypto is tricky, buy here, sell there based on S/R, MA or some combination of indicators fueled by tweets is extremely dangerous sport. Having said that, I am an investor with limited investment in two XRP and ETH if they both go to zero I’ll be okay with the conclusion. Otherwise see what happens in couple of years. Cheers.
one of your best videos!
The title is not the best though, I did not expect that, there is a better title :).
An interesting one from cryptovestor, I must say you are a genius just like your father, your write-up is perfectly OK dear. I love your last two paragraphs .kudos! 👍
Crypto is in the wild west stage, a lot of the coins in the market are from brand new companies, with teams that have never delivered a product and realistically should never have gotten this level of 'success' in such an early stage in their development.
What we often forget sometimes is that part of our research and decision making has to take into account the actions and feelings of other people.
"The market can stay irrational longer than you can stay solvent." And finding a middle ground is difficult.
MUST SEE:
Totally unrelated, if you have time check out https://uetoken.com/. I think you might get an inspiration for another Proof of Stupidity video. Cheers and keep on producing more quality content. Not enough realism in the cryptospace.
nice video, your thoughts are actually inline with what i found in "beyond greed and fear" Hersh Shefrin. even nobel economics laureates can go bankrupt because of their genius-related fallacies. look up LTCM if youre not familiar with the story. it is both terrifying and mesmerizing how logical and devastating their investment decisions were.
This post is remind me one of mg book reading today the book tittle poor dad rich dad the author is ROBERT KAYUSAKE, he is a good investor. He started with a small assets, start with small investment and now he is a successful investor.
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