“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain
A simple quote, but one that will make you think. A quote that will surface memories of when your overconfidence led to a mistake, embarrassment, or even financial loss.
As humans, we like to connect dots, we like to solve riddles of cause and effect. In the end, we often come to conclusions that just aren’t true.
When Lightning Strikes
A few weeks ago, I was all suited up and ready for work, but my car door would not unlock. I have an electric car, so my phone acts as the key, and the car just wouldn’t unlock. I spent about 20 minutes on the phone with customer service trying to troubleshoot the error with no success. An Uber ride later, a towed vehicle in tow, and I started to try to think what exactly could’ve happened.
For this next part of the story, I need to embarrassingly reveal to you the conclusion I came up with about why my car wasn’t working. The error message on the dashboard said that the car needed to be serviced ASAP, as there was an issue with the battery. So, I started trying to think about the variables of what could’ve happened between when I drove the car yesterday afternoon and it not working the next morning. I started trying to connect some dots.
It just happened to be that the night before was one of the worst lightning storms I have ever experienced – something rare in southern California. Now you can imagine the cartoon lightbulb above my head, as I googled “could a lightning storm destroy your electric battery if the car is on the charger?” Sure enough, there were a few tidbits and accounts of such a thing happening.
So, I was convinced. I had solved the riddle, and now I was moving on to thoughts about whether this would be covered under warranty. Again, I am embarrassed to admit that I convinced myself of such a tall tale, but I was confident that a lightning bolt had fried the battery on my new car.
Yes, this is a funny story, but it’s also important to recognize that this is a common story. So much anxiety and fear are wasted on unwarranted beliefs. Oh, and if you were wondering, the service department contacted me about an hour later and said a small cable wiggled loose, and they were able to quickly resolve the issue. It wasn’t the lightning after all 😊
Can you relate to this story? Have you ever self-diagnosed via WebMD some rare diseases that created undue stress? Have you been utterly convinced that this or that investment was going to financially change your life? Again, it ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
False Confidence
I often joke that the worst thing that can happen to a rookie investor is to experience a big win on their first stock investment. A big loss is a humbling experience and causes an investor to seek guidance and lean into prudence. A big win, on the other hand, leads folks to want to double down, to take greater risk, and build a false confidence that it was skill versus luck that produced the previous outcome.
The picture that comes to mind for me is an inexperienced adventurer setting out on a white-water rafting excursion. The mere current will lead the raft in the right direction, perhaps the equipment will overcome some of the mild rapids, but eventually the lack of expertise will reveal itself when the real rapids surface. Sure, maybe you and I know better when it comes to white-water rafting or bungee jumping, but it seems that many of us come to the investing world with a dangerous amount of false confidence.
Disagreeing With Yourself
So, how do you fight false confidence?
For me, it has been helpful to think about how much I might disagree with my former self. What would Trevor today and Trevor five years ago not agree on? Surely there are a handful of things that would make this list. Education and experience have changed or matured my viewpoints on a handful of different topics.
Now, this doesn’t mean I abandon my convictions. On the core things – whether that be about faith or finances – former Trevor and current Trevor would agree on most. It is at the margin, the items outside of the “core things” that I want to encourage you to hold loosely and be humble about.
The inner workings of an electric vehicle are one of those things I shouldn’t be confident in troubleshooting.
A Real-Life Example
I ran into a familiar face outside the office recently. It took me a minute to recall where I knew this person from. It was an old co-worker. A senior advisor from where I started my career as a financial advisor.
I started to recount some interactions and just remembered how aggressive his sales tactics were, and I remembered it leaving me wondering how anyone could trust their finances with this individual. Even as a new-to-the-industry advisor, I could see that this wasn’t someone I wanted to model myself after. He had a façade of confidence about himself and a hubris that was off-putting.
As usual, curiosity got the best of me, so I Googled his name, and the search was littered with notes about a termination from his former employer and multiple litigations with former clients. In the public disclosures, the quotes from clients all had a theme. The advisor had built their portfolio with concentrated positions in some high-flying funds that eventually gave in to gravity and saw their values get decimated.
I looked up one of the funds referenced by the clients, and it was a niche ETF (Exchange Traded Fund) from a well-known provider. The fund tripled in value from its COVID low only to be followed by a drop that left the fund at a value just 20% of its former self. In 4.5 years, 80% of the value just disappeared.
I don’t refer to all of this to be disparaging to this anonymous former co-worker, but rather to act as a warning to investors that you not only need to be on the lookout for your own false confidence but perhaps that of the individual giving you advice, as well.
Pride Comes Before the Fall
In the Christian world, there is a common adage borrowed from the proverbs, “pride comes before the fall.” The King James Version reads, “Pride goeth before destruction, and a haughty spirit before a fall.”
For thousands of years, people have struggled with the consequences of being overly confident when they should not have been. Each one of us has a story of when we’ve experienced this very thing. Again, the outcome is often injury, embarrassment, financial loss, or all of the above.
So, slow down and think through your own financial life. Are there areas where you’ve ventured outside your own expertise with an inappropriate amount of confidence? If so, right the ship and be humble enough to admit to mistakes, ask for advice, and protect yourself from potential consequences in the future.
Because pride always comes before the fall.
