There is often a positive correlation between the size of one’s ego and the amount of assets one manages. Find out more.
“Decision making is everything. In fact, someone who makes decisions right 80 per cent of the time instead of 70 per cent of the time will be valued and compensated in the market hundreds of times more. If I manage $1 billion and I’m right 10 per cent more often than somebody else, my decision making creates $100-million worth of value on a judgment call.”
Understanding the fundamental nature of this is imperative for a money manager, especially considering the impact it can have as one grows and manages more capital. Unfortunately, there is often a positive correlation between the size of one’s ego and the amount of assets one manages. You routinely see this result in an inverse relationship between performance and the size of an asset manager as they eventually lose touch with what got them to where they are.
Being able to adapt and learn from your mistakes means putting your ego aside and trying to undertake an honest self-appraisal of your strengths and weaknesses. This is a great first step to invoke positive change and improve the odds of being right while minimizing the consequences of being wrong.“The more desire I have for something to work out a certain way, the less likely I am to see the truth.
Having an open or what Ravikant calls a “clear” mind can be a challenging thing to do, because we have years upon years of preconceived notions of the way things are and then we try to reshape the external reality to fit this internal view. This leads to poor decision making because we fail to see the situation clearly as our emotional desire for a certain outcome overrules logic, objectivity and the truth.
This often results in recency bias, or being overconfident that what has happened in the recent past will play out again in exactly the same way. Consequently, we willfully ignore structural shifts and fundamental changes in the market, which results in missed opportunities.
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