This summer, I’ve made it a goal as much as I can, and of the books I’ve read/listened to so far, Michael Lewis and particularly chapter three: “What the Heck is My Brain Doing to Blindside Me Now?” of Enterprising Investor discusses how one’s belief system drives behavior. It offers some beliefs that are important to active investors:
-How efficient is the market you trade in?
-What is your competitive edge?
-Is collaboration with teammates important to success?
-Is investment skill learned or innate? Can you teach it?
-Is superior performance achieved with dedicated teams or centralized research?
-What is the maximum number of companies an analyst can follow?
-Are decisions best made by one person or a group?
-Will diversity on your team improve performance?
Some of these are general and can be applied to most areas of finance, but some that I’ve come up with that are more specific:
-The best way for X company to raise capital is to issue debt/equity
-XYZ truly helps a business and is not just financial engineering
-Inorganic/organic growth is the best choice for Y company
How aware are you of your beliefs’ & thought processes’ effect on your behavior? What are some questions or beliefs that you think drives your behavior?
