Monday, April 02, 2007

The Netherworld of Investing

On the one hand, investors, who want to be successful, are entreated to do their homework, act on their convictions and have the courage to stay the course. On the other hand, investors are also admonished to take their losses quickly. In between those two places is a netherworld of self doubt(you could call it "no hand land"). I'm embarrassed to admit it, but I find myself in that Netherworld more often than not. At what point in time are you being patient and courageous v. being stupid and undisciplined? I think that is why it is important to define your risk/reward prior to entering into a position--meaning that you clearly state how much you are willing to let your courage and conviction cost you in terms of loss of capital and sleepless nights.

When I beat myself up about not being any better at mastering these things, I'm reminded of Albert Einstein. As you know, he developed a number of different theories, the Theory of Relativity being the most well-known. (He was also a womanizer, but I do forgive that in men who make great contributions otherwise). So radical, so unthinkable was this concept of relativity that there was a movement among several classical physicists to have his idea censured. Einstein was was not deterred by this dissent against his work. That is conviction and courage in action.

However, when quantum physics emerged, Einstein was not an early adopter, but rather a critic. Now this is what I find the grand paradox of conviction. At what point are your mired in the comfort of your old though previously brilliant, innovative ideas to the extent that you FAIL to embrace a newer, more brilliant, innovative idea such as quantum physics.

My conclusion is that if someone such as Albert Einstein had trouble with this, then it is okay for me to struggle with it as well--but quantify what I'm willing to pay or not for that conviction so that my capital does not evaporate and become dark matter of the universe.

Perhaps someone will invent "Quantum Investing"!

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