The 3 Keys To Successful Investing

I love finding new ways to explain old topics. The world is constantly changing but the basic principles are almost always the same so whenever I read or hear a novel explanation of an age-old topic I’m always pleasantly surprised. Adam Robinson, a former chess prodigy who played regularly with Bobby Fisher and is currently an advisor to some of the world’s largest hedge funds and family offices, explains his investing process below.

Written by Ben Carlson

I really like the way he explained his investing process:

I start to write down what I expect to happen. I think the key to investing is to have expectations and then wait to be surprised, and one of the key things with investing is to be aware when you hear a voice in your head that says, “It doesn’t make sense.”  That’s always a sign of something really powerful...

If a stock goes up and there’s no rational reason, it means that there’s some x-factor that you haven’t considered because now, in retrospect, it makes total sense...People stumble on these ideas and they dismiss them because they go, “Ah, that doesn’t make any sense” - and that’s where the gold mine is — things that don’t make sense.

2016 perfectly encapsulates this idea. How many times did you say to yourself, or hear from an expert or pundit, that something didn’t make sense this past year? It was a regular occurrence.

Robinson continued with some thoughts on what he focuses on:

...If it’s obvious, no one bothers to examine it. In global markets, I start from the premise that understanding is an illusion, that explanation is impossible. The world is simply too complex to understand, so I don’t bother trying.

The world (and the market specifically) is an unbelievably complex place. No one will ever understand everything that’s going on with all of the moving pieces and different goals and agendas out there. This is one of the reasons I think it makes sense for investors to let go of the why and instead focus on what have control over.

Robinson does this by paying attention to what other investors are doing:

All I do is I watch investors attempt to make sense of the world...They form views. They look at the world, trying to predict what’s going to happen and all I’m doing is studying them, because they’re the ones who are going to make buy and sell decisions and affect asset prices. It’s like playing poker. I see the hands that global investors are playing so I don’t try to understand the world, I just try to get into their heads.

This idea reminds me of the old John Maynard Keynes analogy about the beauty contest:

Professional investment may be likened to those newspaper contests in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view.

 It is not a case of choosing those which, to the best of one’s judgment, are the really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects average opinion to be.

A few simple takeaways:

• Don’t always assume that you’re right and everyone else is wrong. It may be that you’re looking at an old version or model of the world that’s no longer applicable.
• Understanding where and when you’re wrong is more important than understanding where and when you’re right.
• Successful investing is not just about understanding yourself, but also understanding the actions of other market participants.