I am really enjoying the new car I bought six months ago. It’s a lot of fun and pretty much delivering on everything I expected. But as with anything, it’s not perfect.
The one noticeable difference between this and the old, much simpler vehicle is that, despite its sophistication, there are definitely more blind spots because the windows are a little smaller. Also, some of the really great features — like the fact it is a convertible — means I have to be so much more careful when turning or parking.
Everyone has strengths and weaknesses – including investors. But if you push your strength too far, it can become a weakness. Someone who is a good conversationalist could be seen as talking too much, while someone with many interests could become easily distracted.
When it comes to money, strength can convert to weaknesses very quickly and result in losses or underperformance. It is very difficult to control a strength, especially when it appears to be at its peak because, in effect, the strength creates a blind spot.
Portfolio managers who produce great returns as a result of stock selection have to be very careful that a flood of new money and a history of good selections doesn’t result in underperformance because the fund becomes too big, and the manager believes they have some unique ability.
Private individuals dealing with their own money are potentially more susceptible. For example:
- The strength of being easy-going can create the blind spot of being too complacent, and therefore making mistakes
- The strength of being open to share could create a blind spot of being naïve
- The strength of being decisive could result in the blind spot of overextending
- The strength of being able to deal with change would create a blind spot of being impatient
- The strength of being a good implementer could create a blind spot of being too fixed
- The strength of being good at taking the initiative could create a blind spot of being too focused and narrow
- The strength of openness could result in a blind spot that causes overspending
- The strength of having a great deal of consideration could result in a blind spot of being too private
- The strength of being good at analysis could result a blind spot in a fear of mistakes
- The strength of being able to identify potential dangers could result in a blind spot of being overcautious and missing opportunities
- The strength of being diplomatic in communications could result in a blind spot of being too hesitant
- The strength of being instinctive could result in a blind spot of being too impulsive.
The greater the strength, the greater the blind spot
When Bernie Madoff, the notorious creator of one of the world’s biggest Ponzi schemes before the GFC, was at his peak, he created such scarcity that some of the biggest names — including very successful investors — became grateful to be allowed to invest in his fund. His fund was producing returns that nobody else could get, so he was seen as a guru and it was very difficult to become an investor in his fund.
The scarcity he created was his strength and it was legendary, but it created a blind spot for his investors.
My car has various camera angles and mirrors, designed to assist the driver to be able to see all angles and avoid danger. It needs time to get used to it, and while I have been in my learning phase, my approach is to slow everything down. These same techniques are very useful to manage blind spots in life, and investing.
First, be aware of your blind spots, then look at the problem from different angles, and finally slow down the decision-making until you are sufficiently practised at the techniques required.
The most difficult aspect of this process is the awareness of your blind spots, because they are so closely linked to the strengths – it’s almost like the blind spots hide beneath your strengths. Various tools exist to provide the insights needed, but it can also be done in a fairly simple way. Identify the strength, (for example, “I know I’m analytical/easy-going/untrusting,”) and then assume you push it too far and identify the likely outcome (for example, “If I am too analytical, I will never make a decision”).
Nobody, and nothing, is perfect – we all know that, and we don’t expect perfection anywhere in life. However, being unaware of your strengths is the same as being unaware of your blind spots — and it is most often the blind spots that result in significant losses.