To invest is to bet with beliefs

April 17, 2023
by Noriyuki Morimoto

Investment management is a professional business. The selection of stocks for investment is the exclusive responsibility of the individual professional in charge of the investment; while the organization may approve the selection, it is by no means capable of selecting the stocks. Stock-picking is ultimately a personal decision and a personal bet.

What the organization does is merely to set the various constraints of the bet. For example, this is to adjust the amount of investment, establish criteria for sale, etc. Only an organization can adjust the bias in the composition of the many stocks suggested by multiple professionals. The industry refers to these organizational controls as risk management.

Since the risk, or danger, is in the individual professional’s betting, this seems like a reasonable name for organizational control. However, autonomous discipline is essential at the level of the individual professional before the systematic control of betting. This is the formation of beliefs through constant self-discipline.

Planes can crash. It is only possible to fly in an airplane in the belief that the plane will not crash. Losses are inevitable in investment. Only with the belief that losses can be avoided will asset management be possible. The formation of this belief requires a thorough research and analysis of the investment. Beliefs must be formed continuously, not as conjectures, but as the result of constant empirical induction and logical deduction, always renewed.

Living professionally is with the formation of new beliefs. When beliefs become so deep and hardened that they are not even thought of as beliefs, they turn into dogmatism, and the awareness of the stakes is lost. The bet in asset management must be based on an awareness of the stakes, and therefore beliefs must be renewed every day.

 

[Category /Investment Professional]