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The stronger the ego, the less likely we are to be overwhelmed by emotions of the moment and therefore make decisions based on fear or greed. This is what disciplined investing is all about. And anyone who tells you differently about ego being the enemy simply doesn't have the psychological sophistication to know what this term really means. |
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Here is one example of how the confusion over the meaning of the term "ego" is evident. You will hear psychologically untrained market pundits talk about how "overconfidence" leads to making poor decisions, and how it is the "big ego" that causes this feeling of overconfidence. |
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Let's be very clear: Feeling overconfident is not a matter of having too strong of an ego. It arises from a laziness and complacency that sneaks into our thinking and behavior. We stop questioning or taking in new information that might challenge our established view. |
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We stay firm and unyielding in our present positions and may proclaim how sure we are of our own beliefs and actions. This looks deceptively like "overconfidence." But it is not a matter of confidence or of having too big of an ego. It is much more a matter of the "hardening of the mental arteries," of refusing to let fresh information flow into the mind. And, if anything, it is the insecure ego that needs to be always rightnot the strong egothat blocks the mental arteries from taking in the new information. |
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The natural mental inclination is not to question our judgments that have already been made and acted on. We tend to look for information which confirms what we already believe to be true. This mental habit is called a confirmation bias. In regard to our stock positions, the confirmation bias works such that we look for all data which allows us to confirm our present beliefs and the associated actions we have already taken. At the same time, we tend to ignore or discount data which does not confirm our present thinking and behavior. |
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For example, the difficulty I had in realizing that the stock story of Pfizer had changed when Viagra revenues could no longer be counted on was partly conditioned by the confirmation bias I held. This bias oriented me to only seeing the positives of the stock and made it tough to swiftly shift gears when new information needed to be grasped and acted on. |
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