Unfortunately many times human nature works against wise investing.
One particularly stubborn trait that people show is not being flexible in their opinions, according to Forager Funds chief investment officer Steve Johnson.
After all, this very human characteristic is the whole basis of politics and prejudice.
"Whatever the topic, humans form their opinion early on. And the vast majority of them refuse to budge," he said in a letter to clients.
"No matter how much contradictory evidence they receive, especially if their reputation is closely intertwined with a prior view."
But this rigidity is antithetical to success.
"Philip Tetlock and Dan Gardner's book Superforecasting: The Art and Science of Prediction devotes chapters to showing how the world's best forecasters constantly adapt their predictions as new information arises, sometimes dramatically," Johnson said.
"When it comes to investing, our inability to recognise that our prior opinion was wrong can prove extremely expensive."
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Johnson still struggles with this human trait
The last 18 months is a prime example of people around the globe struggling with their innate desire to stick to their guns.
"Do masks work? Do lockdowns work? Are lockdowns worth the economic impact? Do vaccines work? Will it be a V-shaped recovery or a U-shaped recovery? Are stock markets overvalued or undervalued?"
Even as an expert professional investor, Johnson still struggles with this basic human nature.
"It was psychologically painful to change my view when writing for The Intelligent Investor. It isn't much easier as a relatively transparent fund manager," he said.
"And all of my prognostications and presentations about the importance of understanding human psychology hasn't always stopped me succumbing to the pitfalls."
Share market glorifies those who predict the future
Despite knowing that rationally no one knows what will happen in the future, the investing world still pays much attention to fortune tellers.
"It is incredibly hard in a society and an industry that glorifies people who claim to know the future. But recognising that we are often wrong is one of our greatest competitive advantages," said Johnson.
"A big part of my job as Forager CIO is creating an environment where people are encouraged to change their mind — and where I help them recognise when that needs to happen. Psychological bias is much easier to see in other people than it is to notice in yourself."
The share price for Forager Australian Shares Fund (ASX: FOR) has rocketed up more than 90% over the past year. The unlisted Forager International Shares Fund returned 69% for the year ending 31 July.
The conscious effort to be open to changing one's opinion was a major contributor to Forager Funds' recent success in wild times, according to Johnson.
"It helped us recognise when our own assumptions were wrong and, in many cases, allowed us to take advantage of others' unwillingness to accept mounting evidence that didn't align with their prior view," he said.
"It is an attribute that is only becoming rarer in a world of armchair experts."
