How Finding Your Added Value Makes You a Better (and Happier) Investor

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In 'The Psychology of Money', Morgan Housel shares a story of when he met Robert Shiller. He asked a question that I wish I would have the clarity to ask when meeting a Nobel Prize laureate: “What do you want to know about investing that we cannot know?”

Shiller’s answer? “The exact role of luck in successful outcomes.”

Housel goes on to write: "Since it’s hard to quantify luck and rude to suggest people’s success is owed to it, the default stance is often to implicitly ignore luck as a factor of success.”

In other words, we don’t understand luck, so we rather not talk about it. Instead, we make up all kinds of stories to make sense of our successes and failures. And according to today’s guest on the show, these narratives might be clouding your judgment and slowing down your development as an investor.

Clare Flynn Levy is the founder and CEO of Essentia Analytics, a data analytics service that helps professional investors understand their behavior and improve their decision making. In this episode, she explains the concept of feedback loops, how they work, why you need them and how they can help you become a better – but also a happier investor. Because if you don’t understand the role of luck and skill in your investment outcomes, it’s easy to lose motivation. Clare herself discovered this early on in her career, which eventually made her give up what used to be her biggest dream in life: being a fund manager.

If you prefer reading, a transcript is available upon request:

Links to people, resources and concepts mentioned:
  • The LinkedIn profile of Clare and the website of Essentia Analytics
  • A September 2022 Institutional Investor article about Essentia's research into the quality of investment decision-making. "One of the most surprising findings is that managers get their decisions wrong most of the time," according to the article.
  • A few months after my conversation with Clare, I was mulling over her remarks and how it reminded me of Daniel Pink's study into what motivates people. In his book 'Drive', he writes that modern-day employees basically need three things to be engaged at work: autonomy, mastery and purpose. Coming back to my conversation with Clare: if you don't have a way to measure and purposely develop your mastery as an investor, you might risk losing your drive. Here's more info about 'Drive' via Pink's own website.
  • The Psychology of Money by Morgan Housel via Amazon
  • More on Michael Mauboussin and his work on untangling luck and skill via his website
  • Robert Shiller's Wikipedia page