Skepticism in Investing - How Much is Enough ?
This may seem a minor topic in investing; but it's something which has had me thinking some nights while lying in bed. Skepticism is a daily part of our lives when we encounter salespeople, financial planners and fund managers who try to sell us something we may or may not want. It's something inherent in human beings which help us to protect ourselves from getting fooled or swindled in this dog-eat-dog world. It has often been reported that the opposite of skepticism is called blind faith - trusting in something too much such that we are hoodwinked or blinded to its flaws.
How does this apply to investing ? I think skepticism should be a part of every investor, due to the fact that we have to read and digest mounds of information every day which may be coming at us from all angles. This makes it imperative to sieve out the important from the trivial, and to apply selective retention to ensure we do not get "flooded" by information which we may not need. Sometimes, articles and commentaries are written by certain celebrated people (also termed "gurus") which may comment on a specific trend, cycle, economic aspect or asset class. The prudent investor should exercise a certain degree of caution and a healthy dose of skepticism when reading such articles. This is because the writer may have been influenced by views culminated from other sources which he may have then incorporated into his own philosophy; or worse, there may be a hidden agenda behind what he says.
When I use the word "healthy dose", I am implying that one should, at the minimum, question certain facts and assumptions made by the writer and not blindly accept everything as the gospel truth. One can argue that one may not have the knowledge, experience or expertise of the writer but if one reads extensively enough, sooner or later one would be able to form opinions which may lend credence to what was read, or to counteract it. Skepticism is necessary in order for us to question the seemingly obvious; which in a way also contributes to our learning process and helps us to grow as individuals and as investors.
However, one must be wary of extreme skepticism, which is known as "cynicism". A cynic is a person who disbelieves or distrusts almost everything he reads as he thinks he either knows better or that everyone has a hidden agenda. This is skepticism taken to an extreme and is not healthy because cynicism causes one to reject ideas which may help to enhance knowledge, on the pretext that it cannot be true or there must be something more to it than meets the eye. Hence, I must advise all to have a healthy balance of skepticism and belief when reading and analyzing news reports or financials. This is especially applicable also to CEOs giving forecasts of radiant growth or commentators trying to determine if the market has topped or bottomed.
Add in a pinch of skepticism to your cup of knowledge, stir well and you will get a good mix of wisdom !