Michael: I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex.

Sam: Ah, come on. Nothing’s more important than sex.

Michael: Oh yeah? Ever gone a week without a rationalization?

-The Big Chill



One of the things we all do as investors — indeed, as human beings — is to tell ourselves lies. Indeed, lots and lots of them. Some are little, some are giant, but they all have the same thing in common: We spend a lot of time and energy rationalizing our behavior, beliefs and decision making.

We fool ourselves.

It is part of our nature, we cannot help ourselves. But when it comes to investing, constantly lying to ourselves can be especially costly.

Here is a short list of the lies we collectively tell ourselves:

We can avoid allowing our emotions impact our thinking and behavior
We don’t have many biases that affect the way we perceive the world around us
We can evaluate fund managers (mutual or hedge funds)
We can predict the future
We are saving enough for retirement
We can pick stocks better than owning a broad index
Even if we have biases, we are smart enough to be aware of them
We are process, not outcome, focused
The Media hasn’t affected our thinking about a investment
We know how well we are doing with our investments
We are making good choices based on empirical evidence, not myths
We don’t allow hype to get us excited and drive us to making bad decisions
We are not easily influenced by experts
We understand the fees, costs, expenses and taxes impacting our portfolio
We do not chase performance
We have a good plan, we understand it intellectually
We have the discipline to follow our plan, and not get distracted
I won’t make the same mistakes this time
We can actively trade in and out and show a profit
We are smarter than most of the people we know, therefore we are smarter than the market

That is a short list, and probably reflects some of the things I am lying to myself about.

What are you lying to yourself about?


Category: Apprenticed Investor, Psychology, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Reality Check: What Are You Lying to Yourself About?”

  1. BennyProfane says:

    That I look OK with this extra twenty pounds.

  2. PeterR says:

    The Big Chill — great movie!

    Lie? That the fear-mongers are right, that we have seen the market top.

    SPX 1500-1550 IMO.


  3. constantnormal says:

    … so long as you can doubt yourself, there is hope … that is probably the biggest lie I tell myself …

  4. Only 20 pounds? Thats a lie right there!

  5. Dima says:

    “We can pick stocks better than owning a broad index” – agree with this lie. Problem for me is that after MF Global I don’t trust any fund company and would rather hold the certificates of stocks I own. Can’t do that with a broad index. Can’t control return but can control the risk. Can you say rehypothecation?

    May be dumb and a fear based reaction – but then again “possession is 9/10th’s of the law” in America – as so aptly demonstrated by the MF Global case. Can you say rehypothecation?

  6. Dima,

    I thought long and hard before setting up shop with a 3rd party custodian.

    I picked TD for a variety of reasons — no dalliances with Derivatives or SubPrime, excellent Canadian banking regulators (this TD is an American version), strong corporate culture, etc.

    Other folks I know looked at this, and for their own specific reasons reached a different conclusion favoring either Fidelity or Schwab

    Between these 3 — and my order was TD, Fidelity or Schwab — there are no gunslingers, just a good service business as custodians.

    Do your own homework, but I am confidence that none of these are an MF Global.

    (Now I have to hope I didnt just have my Jim Cramer Bear Stearns moment )

  7. Julia Chestnut says:

    Personally, mine tend to involve “I’m juggling these flaming torches, eggs, plates, and chainsaws just fine.” Perhaps “I’m ok – when I just get this one thing finished I’ll take a break.” Perhaps “It’s not bitchy when I do it.”

  8. Expat says:

    “I agree with the article and will act on it.”

  9. tenaciousd says:

    Hey, don’t knock rationalization. It’s lying to someone you love.

  10. BennyProfane says:

    “Only 20 pounds? Thats a lie right there!”

    Oh, snap!

  11. Robert M says:

    Now that I am no longer a floor trader I am relevant to the financial world. After all I post at a blog where these are the watch words: “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse “

  12. faulkner says:

    The lie over them all is, “I am special. I can beat the market.”

  13. ShakyShot says:

    I can listen to the views of those that I know have regularly given bad advice without letting that advice negatively influence my actions.

    Bloomberg radio is honest and open about the performance of their guests. (Note that Dennis Gartman is a regular entertaining guest on their programs, giving loads of “insightful advice” but I have never heard them mention that he runs a fund (HAG based in Canada), which happens to have horrifying performance, losing more than 20% of its value since (the BULL market began) March, 2009. http://www.horizonsetfs.com/pub/en/etfs/?etf=HAG&tab=overview )

  14. ashpelham2 says:

    “That I’m becoming a good actor and sure to have a breakout role in 2013.” Need to go back to accounting for a living.

  15. JC in Va says:

    I think we all suffer from “Ambition Inflation” to one degree or another.

  16. JohnathanStein says:

    Barry — Did you look at Interactive Brokers? Any opinion?


    BR: No, I only looked at the biggest firms.

  17. peacock says:

    We are investing in corporations that obey laws.

    We are investing in companies that care about their customers.

  18. ToNYC says:

    Fiction always arrives before Truth which walks sometimes through the woods but most everyone takes the bus to Ignorant Bliss, and strong-arm their neighbors to get a seat up front.

  19. interesting, QOTD..

    “For it is a habit of mankind to entrust to careless hope what they long for,
    and to use sovereign reason to thrust aside what they do not fancy.”
    – Thucydides
    [Thoukudídês] (c.455-c.400 BC) Greek historian, author of the History of the Peloponnesian War
    Source: History of the Peloponnesian War p. 276 Book 4

    from..Date:Thu Jan 3 03:02:45 AST 2013

    might be a new meme..

    won’t hurt.

  20. jb.mcmunn says:

    “If I put my money in the hands of professional asset managers I will do better than the Couch Potato Portfolio”.

  21. [...] the tireless market forecaster and researcher who writes the insightful blog The Big Picture, is calling today for a “reality check.” He’s publishing a shortlist of the lies that he thinks investors (amateur and professional, [...]

  22. TrailingStop says:

    Barry, how do you rationalize TD after security breaches like this:


    I’m just an individual investor considering TD for a retail account and this doesn’t sit well with me. I guess I need to spend more time rationalizing that this could happen to any broker?


    BR: I don’t rationalize it, I am not happy about it — nor about the one at Schwab, Fidelity, BNY Mellon, Verisign, Barnes & Noble, Visa, Bank of America, Pfizer, Apple, Netflix, pretty much everyone.

    Are you in the Security business? It appears the entire corporate world has been repeatedly hacked

  23. TrailingStop says:

    Barry, yes, I have worked in the security business. I haven’t read about similar breaches at the companies you listed (link?) — but that could just be my own Availability Bias talking.

    I think in the security business, it is probably believed that a breach could happen to any company, but what matters most is having a good process in place to attempt to reduce the probability and limit damage. So I guess the security business takes the same Mauboussin-ian “process over outcome” approach that investing does to some degree.

    So perhaps what makes the Computerworld article galling is that it alleges that TD didn’t seem to do industry standard “routine practices”. So, yes, it could happen to any company, but the take-away is that TD has the behaviors of amateurs as shown by the pre-incident practices and post-incident remedies.

    But maybe I’m not thinking about things right? I still haven’t ruled out TD as one of my brokers.


    BR: I pulled everyone of those off of Google, and none ar emore than a year or tow old. Its an endemic problem, I don’t know of any that are better or worse.

  24. bucknerv says:

    Great post, as always.
    Wanted to ask, do you have any thoughts about using Interactive Brokers as a custodian manged accounts ? They have a market-making division, sure — but all exchange-traded stuff with clearing organizations to answer to. I remain confident in custody-ing client assets with them, but would appreciate any color.


    BR: I have no experience with them . . .

  25. [...] The Big Picture asks what are you lying to yourself about? [...]