A lot of people are talking about this segment on CNBC yesterday in which Steve Liesman tells Rick Santelli that he couldn’t have possibly been more wrong about his predictions over the last 5 years (he’s been worried about inflation, “money printing”, rising interest rates, etc). I hate to pile on, but I do think there’s an important lesson in here and it’s one I’ve continually emphasized over the last few years – the importance of being wrong.
Now, most people hate being wrong. Yeah, it makes you look silly, but it doesn’t have to make you look permanently silly. After all, there’s a lot of truth in the saying that there are no mistakes, only lessons. I think that’s basically right. And in the world of finance you’re 100% guaranteed to make mistakes. 100% of us will make mistakes in this business. There’s no getting around it. But only a minority will really embrace those mistakes or fiercely attempt to learn from them in the proper way.
The last 5 years have been a gold mine of learning. I’ve done a pretty good job navigating the macro landscape, but I’ve learned so much because I’ve made lots of mistakes over the last 5 years. But they’ve turned into lessons because I forced myself to go back and learn why I had been wrong.
In this case, we need to really begin to examine why predictions about high inflation, hyperinflation, rising interest rates, collapsing equity prices, were wrong. In my opinion, it’s mostly about using a proper framework for understanding the macro monetary system, but it’s also about getting your politics out of your macro thinking and really learning to think in an unbiased and objective manner. That’s not easy to do. But if you can learn to do it I have no doubt it will make you a better investor.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.