The Motley Fool

Why You Need To Be Your Own Devil’s Advocate

We have all encountered situations where someone disagrees with our point of view or way of looking at things, and a spirited argument ensued. This usually occurs when it comes to sensitive and contentious topics. Investing also falls into this category as there are so many styles and behaviours out there that everyone ends up having a different view, even on the same company.

The idea is to keep such discussions constructive and avoid personal attacks so that both parties gain a better understanding of each other’s perspective and end up with mutual respect.

If there is no one to exchange ideas with, the next best person is then yourself. This article is about how and why we need to be our own worst enemy sometimes.

Being A Devil’s Advocate

It’s not easy being your own devil’s advocate, admittedly. The way to go about this is to think of various ways to destroy your own arguments and render your investment theses invalid. In essence, this means poking holes into your logic and making an active effort to look for information or data which goes against your original reasoning. Many great value investors can do this successfully, and therefore avoid being blinded to the fact that they might be wrong on an investment idea.

Avoiding Confirmation Bias

The most important reason for criticising your own ideas is to avoid confirmation bias, which I talked about in an earlier article. When coming up with an investment thesis, there is a strong tendency for investors to look for information or data which conform to their beliefs.

This is natural for humans as they avoid ideas or opinions which contradict theirs to avoid confrontations. Differing opinions can be jarring for the brain and make an investor overly defensive, when in reality, he should be embracing such opinions as it would broaden his mindset and point out possible flaws in his thinking.

Constructive Learning

The benefits of being able to act as your own critic are plentiful. Firstly, it can allow one to learn and improve as an investor as you gain more insights and perspectives other than what you may be used to or fond of.

Secondly, it promotes constructive learning and allows the investor to hold different viewpoints on the same investment thesis, such that he is not unduly surprised when an event plays out which he did not initially anticipate.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.