Who needs nuance?

We are not perfect. Nor is anyone else.

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I have a pretty good working knowledge of behavioural psychology.

No, not in a clinical or academic sense, but as a practitioner, of sorts, as an investor and investment advisor.

In fact, I'm convinced that, once you know the investing basics, the vast bulk of most people's returns are influenced more by behavioural psychology than their ability to analyse businesses.

Exhibit A: Study after study shows that most managed funds fail to beat the index. But they keep trying.

Exhibit B: The average managed fund investor underperforms those very managed funds! Generally, because they can't leave well enough alone, switching funds and trying to time the market.

But that's not all.

Our biology, and our pack instinct, lead us to generally eschew nuance and uncertainty, in favour of black-and-white answers and 'taking sides'.

And then, once we've done that, we tend to stop listening to counter arguments or, perhaps worse, we stop looking for flaws in our own thinking.

We've chosen a side, and we're sticking with it, goddamnit!

There have been a lot of examples in this area in recent times.

Take the recent electric vehicle subsidy legislation. So sure are EVs' proponents that EVs are the answer, that any policy – no matter how ineffectual or suboptimal – must be good.

Giving new EV buyers a $2,000 taxpayer subsidy to buy a $75,000 car is hailed as 'progress'. Which it undoubtedly is.

A bit.

See, if you're spending $75,000 on a new car, you have a choice of dozens of cars in that price bracket, including Teslas, but also BMWs, Audis, Mercedes' and more.

Let's say the BMW is $75,000 but the Audi is $73,000. Which do you choose?

The vast bulk of people will say the price is essentially the same, and just go with the one they like most.


So, the vast, vast bulk of people won't buy the Tesla (or any other manufacturer's EV) just because it's $2,000 cheaper.

Worse, most those people who end up buying the EV would have bought one anyway!

Meaning the $2,000 is changing almost no-one's behaviour. And costing the taxpayer a small fortune.

But you can't say that – or, if you do, no-one listens.

"But EVs are good!" they say.

And they're dead right. Lowering transport emissions is really important.

But that doesn't mean every EV policy is smart, effective or efficient.

Worse, the money being wasted here could have been used on a more effective program, elsewhere, instead.

Have I offended everyone yet?

No? Okay, let's see who else I can annoy.

I think we should decarbonise the world economy as quickly as possible. The science is clear.

(There goes some of my readers.)

But I also think there's zero reason to ban Australian coal exports, if some other country is simply going to pick up that trade.

(There goes another chunk.)

Let's work hard to stop all coal-burning around the world. But, while we do it, giving up economic opportunities for no net climate change gain is… silly.

But – and here's the key point – you can think both of those things (that we should decarbonise and we should sell coal while there's a market) at the same time.


We don't have to be in one intransigent camp. We can hold two thoughts in our minds at once.

Next, let's get rid of whatever readers remain.

Let's talk RBA Governor Lowe's apology for getting his interest rate forecasts wrong.

Here, three things can be true.

1. Governor Lowe didn't say 'rates won't go up until 2024'. He was misreported; but

2. He should have corrected that misreporting, and he didn't; but

3. There's no reason, other than bloodlust, that the 'Governor Lowe should resign' campaign should succeed.

Let's break that down.

In case you didn't know, the RBA essentially said 'we don't think rates will go up until wages and prices do, and we don't think that'll happen until 2024'.

Which was reported as 'Lowe says rates won't rise until 2024'.

Now, I wrote at the time about that misreporting.

But, as much as I'd like to believe everyone hangs on my every word, apparently they don't!

So, Lowe and the RBA had an opportunity – and an obligation – to correct the record, but they didn't.

And so?

So, the pitchforks are out for Governor Lowe, because he, and the RBA, got it wrong.

A decent chunk of the media – a few mainstream and a lot of social – are demanding Lowe resign.

But I think that's an unfortunate view.

Lowe made a mistake. He, and the RBA board, got it wrong.

But why should he resign?

To make us feel better?

To satisfy a little bloodlust?


Either he's the best person for the job, or he's not.

If he is, mistake or not, he should keep the job. If anything, he'll now be doubly careful not to make another one.

If he's not, he should go, whether or not he made a blue.

Literally that's it.

Anything else is just action for its own sake. And for bloodlust.

To bring it back to investing, should Warren Buffett have resigned from Berkshire Hathaway because he bought a business that subsequently went broke?

Because his company's share price lagged the S&P 500 in 1999? Or almost halved in 1974?

Of course not.

We love a 'heads should roll' outcome. It makes us feel like justice has been done.

Turns out, we're not that evolved, after all.

As the old saw has it: "There's always an easy solution to every human problem—neat, plausible and wrong."

It's a bad idea, for public policy.

And it's a bad idea for your investing.

No company is above criticism.

No CEO is perfect.

No investment thesis is bulletproof.

No investing strategy is going to outperform in all markets.

We must leave room for doubt. We must expect the occasional SNAFU.

We are not perfect. Nor is anyone else.

My suggestion?

Get comfortable with nuance.

Make your peace with ambiguity.

Quieten down the parts of your brain that want easy answers. And revenge.

Realise that your tendency – and mine – will be to want to ignore facts that could prove us wrong.

Embrace that, instead.

Oh, and give yourself a break when you try, but still make mistakes.

At the end of the day, we're all human.

Fool on!

Motley Fool contributor Scott Phillips has positions in Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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