Would you rather Be Right or Make Money?

How painful is it for you to admit a mistake? (Cue your personal relationships if you’re having a hard time remembering) How hard do you work at creating and building an identity, and then defending it? I recommend slowing down here, and actually reflecting on this question.

Pause. Reflect. This is a crucial step. The rest of this article will be worthless if you skip it.

So:

How much energy do you put into being right? How active, therefore, is your rationality toolkit, full of proofs, numbers, syllogisms and arguments to defend what you believed to be true yesterday?

Your identity is your castle. You build it up brick by brick, alligator by alligator in the moat over the days, weeks, months, years and decades of your life. You know who the correct sports teams, religions, and political parties are. You keep everyone else outside for safety reasons.

Your approach to investing is probably the same. You have your favorites, and you’re right about them. And if there’s a chance of choosing a company about which you might be wrong, you don’t make the choice. It would hurt too much to see red on your scorecard, the scarlet, indelible red of being wrong.

Same with selling. You’re down on a position because the business prospects have shifted. You should sell. Except to sell would be to admit you were wrong. So you look at your dollar cost average instead. “I bought it at 25.37, so I’ll wait until it’s above that price, and then I’ll sell. That way I won’t have been wrong. Because to be wrong would chip away at the bricks of my castle.”

You know you do this. Or at least you think like this. You conjure forth facts that don’t matter in order to protect your identity castle as someone who isn’t wrong.

This framework has cost you money and will continue to cost you more money than you can imagine. But you’d rather be right than rich. It’s so so mighty, your castle.

When investing in equities, being right often does not mean being profitable because of built-in expectations in terms of the market price at which you can buy. Rather, it’s the magnitude by which you’re right that your wealth will be built on. And for there to be oversized returns, most people have to be betting the other way, usually—that’s how gaps between perceived value and actual value are made. You need to be willing to be wrong to bet on a stock-horse that few think can win. It’s when you get those 100-1 odds with below-average risk that being right really pays off.

Follow the crowd and you’ll be right most of the time. But you won’t be richer for it. Protecting the castle of your identity-rightness sucks up more energy than you realize. It also sucks up more investing profit than you care to admit.

Try being wrong more quickly, more often, without the added angst of measuring your personality in terms of being right and the need to be perceived as inviolable and smart. Be wrong more often, with less attachment to how your results look, and your absolute level investing results will improve.

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