Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 21

Tell me why (randomness)

One of the reasons for learning more about how the great investors think is so that we can improve our own thinking. What we will be trying to do is to bring our ideas into closer alignment with reality. The extent to which we succeed as investors will depend in large part on whether what we are trying to do, and the results we seek, are realistic. The problem is that reality is very elusive. We all see the world through the prism of who we are: our knowledge, our life experiences, our beliefs, our personality and our attitudes from our upbringing.

We have all had the experience of seeing different people interpret the same facts in totally opposite ways. Since every one of us sees the world differently to everyone else, we can rarely be certain whether it us, or them, or neither, who are seeing things properly.

Over a long time, mankind has developed rational ways of thinking and of proving what is true and what is not; this is known as the scientific method. The facts are examined and a hypothesis developed. Then the hypothesis is tested on data other than that on which it was developed. Another person should be able to repeat our tests and get the same result. A useful way to think about this is that a hypothesis is simply a belief about how the world is. It remains a belief until it is proven by independent testing.

In investing, as in ...