Kobe Bryant and the Human Nature Side of Investing

Kobe Bryant, one of the greatest basketball players of all time, recently announced he will be retiring at the end of the season. Since then, he has been much more candid than he has been in the past. In an interview with Ernie Johnson, Kobe had this to say on what advice he would give his younger self:

I would say “focus on human nature. You have to balance out understanding human nature with the obsession to understand the exact tactics of basketball.” And as I’ve gotten older I understood that you could execute until the cows come home but if you don’t understand human nature, if you don’t understand how to relate to others, if you don’t understand what makes them tick, you’re never going to win a championship.

Replace the word “basketball” with “investing” and I think you have some really wise advice on how to be successful financially. Essentially what Kobe is saying is that emotional intelligence, or EQ, is just as important as IQ. For advisors, as my coauthors and I have written before, understanding the technical side of investing doesn’t matter if one cannot communicate effectively. Empathy is a prerequisite for any relationship.

Furthermore, as we have written and demonstrated previously (see this and this), it is important to be eclectic in one’s learing. Kobe Bryant will go down as one of the greatest ever in his field, and it would be wise to heed his advice. 

Avoiding the Big Mistakes

Ben Carlson was spot on this week when he wrote “there are many different ways to make money in the markets. But I think that there are a few universal ways to lose money.” Here are some ways to ensure you are unsuccessful managing your finances:

• Spend more than you earn.
• Refuse to budget.
• Track your investments daily.
• Do what the “experts” on CNBC recommend.
• Frequently change strategies.
• Purchase products with high fees.
• Avoid having a plan at all.

So much of being successful, financially and otherwise, simply consists of not making the big mistakes. You don’t have to hit homeruns - just don’t strike out. To paraphrase Shane Parrish, avoiding stupidity is easier than seeking brilliance. Charlie Munger said “It is remarkable how much long-term advantage people like  [Warren Buffett and myself] have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” Rather than focusing on perfection, look to minimize the errors.

First-Rate Intelligence

Confirmation bias is the tendency to search for or interpret information that confirms our beliefs while ignoring or discrediting information that contradicts our beliefs. This creates all sorts of errors in judgement. Jamie Whyte, author of Crimes Against Logic, says “if someone is interested in believing the truth, then she will not take the presentation of contrary evidence and argument as some kind of injury.” This is challenging. It is even more challenging to intentionally seek out those that think differently, but it is what we should do. As Charlie Munger says, “I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.” With that in mind...

• If you believe in the efficient market hypothesis you should talk to someone who believes markets are inefficient.
• If you believe in passive investing you should talk to someone who believes in active investing.
• If you believe in investing in gold you should talk to someone who avoids investing in gold.
• If you believe in robo advisors you should talk to someone who doesn’t believe they have a role to play.
• If you believe in serving millennials you should talk to someone who only serves baby boomers.
• If you believe in billing a percentage of assets under management you should talk to someone who charges a flat fee or monthly retainer fee.
• If you believe in fundamental analysis you should talk to someone who believes in technical analysis.

Challenge yourself by challenging your beliefs. For example, Charles Darwin would weigh evidence that contradicted his hypotheses greater than evidence that confirmed them. In the words of F. Scott Fitzgerald, “the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”