Overconfidence is the Disease of the Expert
“If incompetence is the disease of the novice, overconfidence is the disease of the expert.”
– Malcolm Gladwell
In our discussions with potential investors, we are often asked what our current best ideas are. This question is, of course, not unique to us. It has to be the most often asked question of money managers. Accordingly, managers spend a lot of time talking and evangelizing about why their positions are such great ideas. This line of questioning and the typical response leads to commitment bias where the process of defending and promoting investments obscures their potential weaknesses (or, at the very least, our willingness and ability to appropriately recognize and analyze these shortcomings is compromised). As we have written about before, we prefer to flip this on its head and instead think about all of the ways we are wrong in our assessment of a business and its future cash flows. We find that our best ideas are often those that continue to survive this ongoing, never-ending, pessimistic process.
Check out the 11:30 -13:50 mark in particular: