Staying Dynamic

 

PARADIGM SHIFT

Staying Dynamic

In his book The Hero With a Thousand Faces, author Joseph Campbell breaks down the common metanarrative that emerges in every story that has stood the test of time.

He discusses one recurring theme, which is the constant struggle of the old ways against the new. In story, this is often characterized by the traditions of the father figure at odds with the idealism of the visionary son. There is a trap of falling into routine because it’s the way things have always been done.

But even if the new ways win over the old, those new ways run the risk of becoming old, stale and systematized in a way that stifles their effectiveness (just like the old ways).

 

“The hero of yesterday [if not careful] becomes the tyrant of tomorrow,” he says.

 

If we’re not vigilant and dynamic, we will elevate the new ways above the old ways until we fall right back into the same trap of mindless adherence to the new tradition.

While much could be said about the depth of this insight, I want to compare it to something more toward the surface of things.

 

With investing, there are two things we must watch out for.

1. 1. Relying on commonly accepted “wisdom” simply because it “makes sense.”
   2. Chasing new fads or the latest hot stock trend because it’s going to change everything.

 

Question traditional thinking but be cautious of new hype.

 

How do you do that?

1. When faced with a new hypothesis (X causes Y), never assume its truth just because the logic intrinsically makes sense to you.
2. Where you can, test the hypothesis from similar periods of past history. How often do X and Y occur together compared with how often they do not?
3. Where you don’t have access, time or the knowledge to test, research third parties that have tested the hypothesis and read at least two conflicting viewpoints.
4. When you hear about an investment opportunity that’s going ballistic, don’t immediately go all in just because it makes sense to you. Ask, “What if I’m wrong and the high returns go the opposite direction?” and “Is this strategy becoming more and more popular?” Past returns have very little correlation with future returns, as much as it can appear that they do at first glance.

 

The biggest defense against clinging to wrong traditions or getting caught up in new failing gambles is to arm yourself with financial literacy and education.

No matter how comfortable you become with investing theory, always be ready to slay the old ideas when they are no longer proven to work.

And embrace only those new ideas which have a solid foundation that make intrinsic sense and align with provable historical precedence.