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Investors Therapy #8: Your Narrative...friend or foe? Political tribes, VC valuation boom, and much more!

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Hey Tribe, During your college days you might be lucky enough to come across an idea that is worth t
 

Investors Therapy

July 22 · Issue #8 · View online
The best investors focus on improving their thinking habits before investing in the market. Investors Therapy is a monthly newsletter that covers all forms of investing and helps investors understand their psychology to make better investment decisions. If you're ready to take the next step in your investment journey, subscribe!

Hey Tribe,
During your college days you might be lucky enough to come across an idea that is worth the price of admission. This happened to me during my international relations class taught by professor William Stover
In one of his classes, he asked us a simple question, “Why did the US invade Iraq?” Each student had valid reasons why the US invaded Iraq. Such as Oil, Military Industrial Complex, heighten political fear since 9/11, terrorism, support for Israel, the risk of Saddam getting a nuke, and etc.
Each student argued to death why their single reason was the primary driver for the invasion and they had plenty of evidence to back up their claims. Eventually, Stover drew a circle on the whiteboard and said, “After the fact it’s easy to see why we invaded because there are no more moving pieces, no more uncertainty, things are static, so you can drain the complexity out of the situation to create a simple narrative. But when we simplify the situation, we forget all of the factors at play that lead us there.”

He then filled the circle with a litany of reasons why we invaded, and soon it became evident that our own biases prevented us from seeing the other factors at play that lead to the Iraq war. 

We don’t intentionally do this because we want to make bad decisions. Our brains create narratives to make the world manageable. For example, if the next time you made a decision you had to take in all possible data points, analyze them, and try to come up with a objectively verifiable solid decision. Nothing would ever get done in your life.

We have to limit the data we upload into our brains in order to function in this world. We need to create narratives so our world becomes more manageable and stable. It’s when these narratives turn out to be incorrect when our lives and the markets get thrown into chaos.

But in order for us to make better investing decisions, we have to do the reverse. We have to challenge our assumptions by seeking data  or people we disagree with in order to test the validity of our narratives. It’s a hard exercise because most people don’t do this, but if you have the ability to stop, think, and challenge your narratives, your investing decisions will be based on a firmer foundation.

However, the problem with that is, when do you stop taking in data? How do you know if the data is credible? And how do you decide to weigh certain opinions over others? Who knows. I guess that’s where risk comes into play when we make investments.
Cheers,
Jordan
PS - A few weeks ago I had a conversation with Annie Duke about decision making and other cognitive traps that can hurt our lives, check it out!


Sound financial planning advice from the oracle of omaha
Investor Psychology
Interview with Annie Duke of World Series of Poker Tournament of Champions winner and author of Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts - JBT's Blog
Stocks
51 Peter Lynch Quotes to Empower Your Investing | InvestingAnswers
Startups/VCs
Valuation Inflation – AVC
Economy
China think tank warns of potential ‘financial panic’ in leaked note | South China Morning Post
Real Estate
More than half of US housing markets were overvalued in April
How Australia’s Banks Became the World’s Biggest Property Addicts
California's median home price tops $600,000 for the first time - INSIDER
Careers, Society, and Personal Development
For elites, politics is driven by ideology. For voters, it’s not. - Vox
Listen to the Power of Quiet People – Personal Growth – Medium
Biosphere 2: Photos show the 1990s Mars colony test as it looks today - INSIDER
How to Succeed in Business? Do Less - WSJ
Watch/Listen
Interview with Annie Duke of World Series of Poker Tournament of Champions winner and author of Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts - JBT's Blog
Why Capitalism Needs Socialism to Survive | Big Think
World After Capital, with Albert Wenger – [Invest Like the Best, EP.80]
Thanks for reading this month's reading list
If you like what you read and you want it delivered to your inbox subscribe to my newsletter or share it with your friends.  If you have any articles I should check out, please email me at jt@jbtblog.com.
The fall of mental hospitals and the rise of incarcerations.
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