In the 1946 movie, The Big Sleep, the Sternwood family butler says to Philip Marlowe (played by Humphrey Bogart) "I make many mistakes." This is true of me too: I make many mistakes. I make them constantly. Big ones, small ones, ones I remember, ones I forget, and a large number that I am not even aware of.
I have adopted this saying as a useful truth about my life: I make many mistakes. I think there are good reasons why I tell you this, or else I wouldn't, but I could be wrong.
I realize that I am writing in a public forum. Sooner or later, no doubt sooner, I am going to write something foolish, contradictory, or in error, something misspelled, or with distorted grammar, or with an idea so ridiculous that I will be amazed that I could have expressed it. Not being all-knowing, I will make errors of omission or mis-emphasis. I will express misleading ideas and not even know it. Weeks, months and years from now, I will look back and wonder who wrote that and what he could have been thinking. If there is an error that can be made, then with probability 1, I will commit it.
You already know at some level of consciousness that what I communicate can easily be mistaken. A great deal of communication, often argument and discussion, is a give and take about what to do, what's the right way, the wrong way, the good way, the bad. We seem always to be searching to eliminate error. I don't really have to tell you that I make many mistakes, but I'm doing it for my own good, to get off the psychological hook of hanging on to mistakes, defending them, and painting myself into a corner.
No matter what I write, I am bound to use some hidden premises, some deep philosophical assumptions about life, reality, good and evil, monism vs. dualism, materialism vs. idealism, and I am reasonably sure that my premises are not in good order. I do not know what they are, for one thing. Every so often I try to find out, but after awhile I give up. Even so, with high probability, I simultaneously hold contradictory theories about life and reality, and this is bound to lead to confusion and error in my thought. As the man said: "I make many mistakes."
Having read a good many books many years ago, but not in a good many years, I am bound to express some idea that seems original to me that is actually the repetition of another's thought. While the idea may not be in error, my thinking that it originated with me will be. The only credit I can take is that the rusty mechanism of memory served up a deeply-buried thought, and I cannot even take credit for that, not having created myself. I did eat my blueberries though to stave off the inevitable.
Finance, which is my field, is a branch of economics, in which I have some training. A professor often does research. This involves creating new knowledge. There is a community of finance scholars and we have a culture, and from what I know, the cultures of other disciplines are somewhat similar. We expose our ideas to our colleagues and they criticize them mercilessly. After we publish these ideas, supposedly vetted of mistakes, they are open to further examination by anyone who cares to do more research. We constantly have to be deciding, using our own judgment, what is right and what is wrong. This mirrors life, mine and yours. We decide, we act, and we make many mistakes. It pays to acknowledge that up front. As you are aware, everything I say is my opinion and could be wrong in some degree. But what you may be less aware of is that everything you are saying could be wrong too. Admit it to yourself, you make many mistakes. Of course, you do a few things right too. No need to get depressed over this.
After you admit your mistakes to yourself a few times, you will feel better. You'll be able to get on with your life and not hold on to the past. Your regrets will come and go more quickly. There will be less psychological pain. Admitting your mistakes is like confessing. When you're right, you're right, but don't gloat about it. You will find that harms. And when you're wrong, you're wrong. Best to admit it, get over it, and get on with things. Forgive and forget. Forgive yourself and forget. If you admit your error, you can keep the guilt down. Those of you strong individuals who have no idea what I am talking about, you do not need my advice. This is for the weak, like me. I could be wrong, maybe the strong ones need it too. Well, that is another subject, namely, how little I know.
Now, another side of me is that I occasionally speculate. This is very difficult and humbling for me. If you buy a stock at $20 and it declines, your purchase may be a mistake. Should you admit it right away and sell out, or should you hold on? It depends. Usually you are wrong if the stock falls. You need rules. For example, if it goes down by 10%, I made a mistake in when I began my purchases, although maybe the stock still should be bought at some point. The rule is to sell. Or if it goes down three days in a row after I bought it, then I began wrong and it is best to sell out, let the nerves settle, and think this through again. Occasionally, the correct thing to do is realize that the mistake is not yours, but Mr. Market's. Then you may wish to buy more. You are always asking: Am I right? Am I wrong? Did I mis-evaluate this situation? Is there some news I am unaware of? This questioning can go on endlessly, but it cannot. No speculator is ever 100% correct. The percentage of errors is often very large. In speculation it pays to discover one's errors fast and cut them. Cut your losses and let your profits run is the old adage. Successful speculators admit their mistakes and admit them quickly, before the losses mount up to unmanageable proportions. So both my scientific training and my speculation hobby have taught me to admit my mistakes.
If you admit that you make mistakes, then you are more likely to recognize that you make them in the first place. You may discover that it pays to hedge your bets, to insure against your possible mistakes. If you think a stock is so terrific, you could be wrong. Instead of buying your 1,000-share position all at once, buy 200 shares. If the stock goes up and it looks as if your judgment is correct, then buy some more. Buying as a stock rises, which few non-professionals can bring themselves to do, is an admission at the outset that your speculation can be in error. It's a form of insurance.
I will offer you the comfort of the idea that our mistakes are helpful. Propounding a wrong, false or mistaken hypothesis is useful in the social order of things. Doing nothing is not much use. I really like to hear a clearly made statement or hypothesis, even if I think that it is wrong. If acting is reacting, then thinking is often counterthinking. If I say that buying a stock as it rises is a good way to speculate, you can now react to that idea, positively or negatively. You can perhaps show me to be wrong, or find a better rule, or a more refined or careful rule. If I hypothesize nothing, where does that get us? It is said that we learn from our mistakes. But before we can learn, we have to see the mistake, admit that we made it, acknowledge that it is there.
All of this business about mistakes and error is easier to handle if you tone down your pride in yourself, but not your confidence. Pride goeth before a fall. In other words, too much pride is a mistake. Maybe Aristotle says that too little pride is also a mistake. I just can't remember.
July 12, 2005
