Humans are gifted with imagination, but wondering has its downsides.
Investors are better off behaving like pigeons...perceptive, and predictable.
But also painstakingly unremarkable and unimaginative.
In some critical areas, evolution has favored decision-makers who only develop basic, generalist skills...like say, great vision and the ability to differentiate between two things — rather than, say, great vision, the ability to differentiate things, and the ability to wonder WHY.
Wondering WHY is distinctly human. WHY you have great vision, WHY eyes see, WHY brains think, WHY two things might be different, and WHY the implications of them being different matters.
Imagination is the beauty and hell of being human.
If you're a child sketching dragons, a professional marketer building a brand, Albert Einstein, Virginia Woolf, or Jean-Michel Basquiat — imagination is key.
But consider a radiologist needing to detect cancer tissue from an X-ray, so that a patient might undergo a potentially life-saving procedure. What do we care if the radiologist knows why it's cancer? Legally required medical credentials aside, and other roles that radiologists perform notwithstanding, specifically detecting cancer tissue is just one specific task: detecting cancer tissue.
From an evolutionary perspective, it does not really matter whether the animal reasons, associates, or expresses innate behavior, as long as it gets the job done.
Christopher Schloegl & Julia Fischer (Casual Reasoning in Nonhuman Animals)
We must define the task before we know if being human is required, or even helpful.
And so it may not startle you that researchers found pigeons, who indeed have great vision and the ability to differentiate between two things, are in fact often better at detecting cancer tissue than radiologists. Their vision is superior to humans, and they can be taught to delineate between cancerous and non-cancerous tissue.
They just don't speak or have imaginations. They don't know what tissue and cancer are. Strike me pink, they eat garbage for sustenance!
Yet since they can be taught to discriminate between tissues, and communicate via pecking at a screen, researchers at the University of Iowa found that they're rather remarkable (albeit unaccredited) physician assistants...because knowing WHY, as it pertains to this task, is irrelevant.
And one implication from the radiological study is that human brains work toward causal inferencing...trying to figure out WHY things are the way they are, if this...then maybe/probably/potentially that. And because radiologists can start to thread stories, connect hypothetical connections, doubt themselves, imagine, extrapolate, etc. — because they are human — it introduces noise into their determinations. They know too much, they think too much, and can get in their own way. As humans, their brains wonder, which is great for living a colorful and purposeful life, but not for detecting cancer tissue.
Justin Gregg, author of the informative book, If Nietzsche Were a Narwhal, describes it well:
Humans like to be WHY specialists, instead of unimaginative generalists.
If you're an artist or creator, great.
But when it comes to you as an investor, it's much like reading X-rays. Better to be a pigeon.
Stop making causal inferences, and playing things out in your head. Just identify your options, design an effective roadmap, and peck uninspiringly. Like pigeons identifying cancer, you can unlock remarkable wealth by being an inhuman, boring investor.
It's supposed to be boring (that's why it's hard).
Here are the monthly returns of the S&P 500 for the last 96 years. Organized this way, chronologically, it looks pretty random.
Ignore the allure of trying to find a pattern (there isn't one). Stop imagining you can guess what comes next.
Instead, just reorder.
Same data, but use magnitude:
With enough time, the actual timing is not that important.
Credit to my friend Christian Newton who pointed out to me that the belly of this picture is the majority of our time as investors. Boring, small moves, mostly upward.
Then some months, big moves. Again, mostly up, though sometimes dramatically down. Try not to think too much about it when it happens. It's just part of the expected outcome from unimaginative pecking. There's nothing for you to do except keep executing the roadmap.
I can't imagine what will happen next. So I just don't.
Nothing about being a great investor requires imagination. Because now, if you go back to looking at it chronologically, but instead of a bar chart of monthly returns, you show the actual experience of an investor, everything changes — now you have included the effect of compounding returns.
Look how $1 grows over time:
Same data, but not so random.
Mostly upward matters a great deal, because it's the foundation of your investment building on itself. It defines the direction, and more months and years will handle the trajectory.
When the probability of a good outcome is positive, you just need time.
So invest like a pigeon.