Count on One Hoof

We have a guest post by Jordan Thibodeau, founder of Silicon Valley Investors Club, a global community for STEM (science, technology, engineering, and mathematics) professionals to learn about investing. He shows us why we should…

• Be cautious with advice and recommendations provided by others
• Focus on the things we can control in investing

Hans, the magical horse

In the 19th century, there was a special horse called Hans, who seemed to have the ability to do math. When asked a simple math question, Hans would answer correctly by clopping his hoof against the ground. 2+2? He’ll clop 4 times. Hans instantly became the talk of the town.

Over time, it became evident that Hans was only reading and imitating the body language of his trainer. His real superpower was the ability to recognize subtle changes in body language. Hans successfully fooled hundreds of people into thinking he was a mathematically gifted horse.

The modern-day Hans

While we laugh at folks who thought a horse could do math, we’ve instead blindly placed our trust in economists, financial analysts and professional fund managers. They provide advice and recommendations with little consequences. If they’re right, they’ll be propelled into the spotlight. If they’re wrong, their prediction will be buried beneath other failed predictions. In short, they have nothing to lose.

Yes, it’s normal to seek advice from others. It gives us a sense of comfort but don’t let that ruin your own superpower of thinking independently.

The only thing we can control

No economist can predict the future or control a world that is constantly changing. However, here is what you can control:

• Don’t take more risk than you can afford… If an investment goes to zero, it should not financially ruin you.
• Don’t blindly follow advice…Educate yourself on what could go wrong and how much risk you’re taking. You owe it to yourself to understand your investment.

Read the full article on Investors Therapy, a newsletter written by Jordan, that helps individuals understand the psychology to make smarter investment decisions.