I want to share one of my favourite TED talks ever. “Wrongologist” Kathryn Schulz talks about that moment when Wile E. Coyote runs off the edge of the cliff, but somehow just keeps running… that is until he looks down. It’s only then that he falls, and fast. Schulz is talking about what it’s like to be wrong. She says that being wrong feels the same as being right – and it’s not until you realize that you’re wrong that you feel the pain. We’ve all experienced these Wile E Coyote moments in life. Investing takes them to a whole new level.
Over time some of us get better at recognizing when we’re wrong, while some of us get better at being more right. The lucky ones get better at both.
No matter what we choose to invest in, it’s always easy to find justification for our views. There are millions of people that will agree with us, and millions that will disagree. Some of us will be right, and some of us will be wrong. But the key is that if you can’t clearly state what would make you change your mind and admit when you’re wrong, then you’re not investing at all. Instead, you have blind faith. And like Wile E. Coyote, faith will only get you so far.
That’s where the importance of rules-based investing comes in to play. With a clear set of rules that define what right and wrong look like, investors have a better understanding of where they stand, a better chance of avoiding errors, and a clearer path towards reaching their goals.
And if your goal happens to be creating a great cartoon franchise, there’s rules for that too:
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.