GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

On Criticizing Yourself

October 08, 2012 | About:
Chandan Dubey

Chandan Dubey

97 followers
Kabir was a mystic poet and a saint, claimed to be a Hindu raised by Muslim weavers. He offered some of his philosophies in the form of rhyming couplets called “dohas.” Our discussion today will revolve around one of these, which goes as follows.

निंदक नियरे राखीये, आंगन कुटी छवाय

बिन पानी साबुन बिना, निरमल करे सुभाये

My translation: "Kabir asks you to keep your critics and detractors close; by building a cottage for them in your courtyard because they cleanse your habits without soap or water."

I use Google Reader to keep track of investment related articles published around the globe. Among the most prolific subscriptions are GuruFocus, Seeking Alpha editor’s picks, Motley Fool and Wall Street Journal.

Between these four, I have to get through more than 100 articles each day. This is not an easy task, given that I also hold a full-time job and like to read a few books in parallel to aid my intellectual development. Missing a day or two exacerbates the problem.

Most articles put forth a positive case for a particular stock. A very few talk about the negative aspects of a stock. The positive picks outweighs the negative ones by a significant margin. I find myself increasingly skipping the positive ones and zeroing on the negative ones. By only concentrating on the articles that are critical of a company, I have significantly reduced my workload.

***

Sir Karl Popper was an Austro-British philosopher who taught at London School of Economics. He is generally regarded as one of the greatest philosophers of science of the 20th century.

Science, in broad terms, makes an attempt to explain the universe. The scientists observe a phenomenon and proffer an explanation by proposing a hypothesis or a theory. A theory is falsifiable if one can imagine an experiment in which it can be verified as false. A falsifiable theory is not false, only “falsify”-able. For example, “all swans are white” is a falsifiable hypothesis. If we observe a non-white swan then the hypothesis is false.

Being falsifiable is considered a positive for a theory because it can then be tested by experiments.

Falsifiability has an asymmetry associated with it. Day in and day out we see swans that are white. Our confidence in the "truthiness" of “all swans are white” increases. This increase in the confidence is more or less linear. It gradually increases and reaffirmed whenever we see a new white swan.

But consider the effect on the confidence after an encounter with a single black swan. It goes to zero. A single event of seeing a black swan has more information than seeing thousands of white swans!

***

An ardent critic is a valuable resource. A single chink is all it takes for an armor to be useless. Likewise, for an investment to be successful a lot of things need to go according to the plan. On the other hand, a single misstep can prove to be quite costly for the shareholders.

So I propose that when you are considering your next new investment idea, don’t look for why it is so great. Look for why it is bad. Criticize yourself!

Find out why you should not buy this particular company instead.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 3.7/5 (22 votes)

Comments

marcolanaro
Marcolanaro - 1 year ago
Sort of what Bruce Berkowitz does, he tries to kill any of his investment ideas, if he is not able to do it then he thinks that there is something interesting.

Great article. By the way do you have some "system" to filter for negative articles about a stock?
cdubey
Cdubey premium member - 1 year ago
Sadly no, I have to read the title of every article. But this is significantly less time consuming.
marcolanaro
Marcolanaro - 1 year ago
Would you say that RIM and Nokia are worth considering since there is so much pessimism about anything one find about them?
roke6362
Roke6362 - 1 year ago
This is why you should focus on capital loss rather than potential earnings. Most of the articles you refer to are ways for the author to seek comfort in a stock idea they aren't completely sold on. He/she seeks comfort in the agreement of others because of a lack of confidence in their own conviction.

Remember what Graham said, and what Buffett does: You're right because your facts and research are right, not because everyone agrees with you. And, have the courage of your convictions and bet big when the time is right.

In fact, if everyone thinks you're wrong, then you're probably right. There's a reason why very few people are self-made wealthy, and that's because most people would rather win small or lose big in a crowd than go out alone and take a risk by themselves.

Most of the "one-percenters" are not greedy crooks, they're willing to make large calculated risks all alone.
cdubey
Cdubey premium member - 1 year ago
@Marco: I agree with Roke632.

I have not looked into RIMM and Nokia. I don't think that this article lets you make any conclusion about RIMM or Nokia or any company for which there is a lot of bad press.

The point is that when a theory is false, you only need to falsify it once. Any numbers of positive confirmation will never have the same effect. In a similar way, it is easier to break an idea than to make a case for it (although a lot of articles try to do it everyday on these websites). There is more information in a criticism (if the criticism is not unfounded) than in an adulation. You can easily say that a person is "nice" by default; but a similar opinion in the opposite direction is not socially acceptable.

So always be on a lookout for what you are doing wrong.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK