Get Rid of Your Most Loved Ideas

Do you have a view you once held closely but now disagree with? When was the last time you changed your mind publicly?

Inconsistency is not a desirable trait and so it makes sense that we try to reflect consistency and keep our promises.

Have you ever been in an argument where someone used something you said three years ago as proof you were contradicting yourself? It’s the weakest form of defence. Changing your mind is fair game.

I’ve worked for two of the world’s largest investment banks. Both at one time produced ‘high conviction’ lists, which were a collection of the firm’s very best ideas. The list was determined by gathering the top picks from each of the research analysts.

In theory, this sounds amazing. In reality, neither of the concepts worked. It turns out that the best ideas aren’t necessarily the best investments.

This is also true of Capital Group, a US-based investment manager with $1.5 trillion in assets. They’ve twice formalised a fund around the firm’s best ideas from each of their top analysts. Even with their collective resources, both funds failed.

This isn’t just true for specific investment ideas. Philosophies, strategies and mental models should all be challenged regularly and replaced if necessary. Finding new ones is the easy part — there are hundreds of books and podcasts to help us. It’s getting rid of the old ones that’s difficult.

“It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones”
— John Maynard Keynes

So why is it that our best ideas often turn out to not be so great? Mohnish Pabrai discussed this in a recent talk at Google. His views are described below.

What​ ​we​ ​think​ ​are​ ​our​ ​best​ ​ideas​ ​are​ ​often​ ​simply​ ​the​ ​ideas​ ​we​ ​have​ ​spent​ ​the​ ​most​ ​time​ ​on. The more effort you put into something, the more you think it’s real. Churches have been onto this for years — the more you shout something out, the more you pound it in.

Mohnish also referenced actor Sir Cedric Hardwicke, who said he’d spent so long acting in character that he could no longer remember how he himself felt about different topics.

This phenomenon is known as the commitment bias, and Warren Buffett summed it up best when he said, ‘What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact’.

It’s a dilemma that all investors face — they can’t make investments unless they spend time researching companies, but the more time they spend carrying out research, the more biased they become.

“By [using] self-criticism [you become] good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift”

— Charlie Munger

So how do we try to overcome this bias? Mohnish Pabrai provided four useful tools which i have implemented recently to good effect.

• Awareness: I remind myself regularly that we all have this potential problem and that rational trumps emotional. I try to consider the other side of the argument and play devil’s advocate for all of our key ideas.

• Don’t jump on the bandwagon: I try to carry a healthy amount of suspicion for commonly held ideas. Take nothing for granted.

• Say no more quickly: More recently Ive said no to people and investment proposals much faster. This has forced us to broaden our horizons while refining our investment criteria to be more certain about what it is we are looking for.

• Be picky: Because were saying no more often, we are now viewing more opportunities before taking the plunge. With an increased investment universe we can increase our threshold for what makes a quality investment.

It’s as simple (and as difficult!) as that.

Credits: Mohnish Pabrai, Charlie Munger