Hugh Hendry on Uncertainty and Procrastination
A discussion between Hugh Hendry and Steven Drobny at the LSE - well worth watching in full, but this is a section I particularly enjoyed:
Rough Transcript (emphasis mine):
we spend so much time, resources and money trying to see the future. Really we're spending money trying to delude ourselves. You've no chance of seeing the future. It's better to recognise that......the worst thing that happened to western civilisation was the US government's program in the 1970s to try and reduce fatalities from road accidents and it led to the creation of the airbag and it cost billions to achieve. If they'd asked me, I would have invented a sharp object like a dagger and I'd have had it in the steering wheel and you would eliminate fatalities because by god you'd drive carefully now.....(a hedge fund manager) was running a statistical merger arbitrage fund...I was reading, being deeply impressed by the intellectual rigour that he was applying to his ideas. He then goes on to record his experience in Dallas,Texas with an oil rig business...the degree of knowledge that he brought to bear on his subject matter. In fact, before he took the position on, he took an engineering course at university to get insight. And all he was doing was building this superior airbag. And in 2008, both of their funds disappeared. They were actually driving their cars too fast. So in some respects, I don't want to know. I had an analyst who left us last year. And he had some fantastic insights on this pharmaceutical business, he started telling me and I started getting excited to think I could see the future and suddenly rather than having a 50 basis point holding in my fund I had a 250 basis point holding. And of course it had a profit warning and fell forty percent. Again we had deluded ourselves, this notion that we have seen the future. So in some respects, I go around and I don't wanna know. I don't wanna do stock research. I want to have that itch, that trepidation that says I don't know the complete picture here. And therefore I watch things like a hawk and if the chart breaks down I trade, I sell. So 'plasticine man' is someone who, you can pull it apart very quickly and then put it back together. I used to say...I was the centipede. I had a hundred legs - hundred legs, I could let go of one or two, I ain't gonna procrastinate. Procrastination kills you in a business which is determined by risk.
Having less information is often better in an uncertain environment because it acts as a defense against overconfidence. If only the paranoid survive, then not having the complete picture is one way to stay paranoid. Once we feel like we have all the information, then we often struggle to cope with our overconfidence. As Daniel Kahneman puts it:
We're blind to our blindness. We have very little idea of how little we know. We're not designed to know how little we know. Most of the time, [trying to judge the validity of our own judgements] is not worth doing.