The DANGEROUS ASSUMPTIONS You're Making In Your Investing | SDITalk.com/310

What are the big assumptions you’re making in your investment decisions? Can you list them? Is there any chance they’re WRONG? I’m Bryan Ellis. We’ll look at this serious but nearly never-discussed issue right now in Episode #310 of Self-Directed Investor Talk.

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Hello, Self-Directed Investors, all across the fruited plane! Welcome to the SHOW OF RECORD for savvy self-directed investors like you.

This is episode #310 of Self-Directed Investor Talk, and should you be so inclined, you’re welcomed to visit today’s show page to get a transcript and links and resources that are relevant to today’s discussion. The address for the episode #310 show page is https://SDITalk.com/310

So the big question today: What are the big assumptions you’re using as a basis for your investment decisions? More importantly, is there a chance any of them are wrong?

That’s a big, important question. Here’s some context for why I ask it:

I’m something of a science geek. I routinely and very happily spend a relatively large amount of time learning what’s going on in the world of scientific research. One of the geekiest things that I do – and that I really love to do – is to watch formal debates that feature scientists and philosophers duking it out intellectually to see where everyone’s ideas fit in the grand scheme of things.

And do you know what kind of evidence I’m seeing a LOT in the last 3 years… I mean, a LOT of it? And as I answer that question, remember that the topic of today’s show is a look at the big assumptions you’re making in your portfolio, and whether they could possibly be WRONG.

So here’s what I’m seeing a lot of: I’m seeing a LOT of scientists who are absolutely the very top people in their respective fields offering very, very serious scientific resistance to the famous theory of evolution posited by Charles Darwin in the mid 1800’s. I mean, legitimate, top-tier people like the famed synthetic organic chemist Dr. James Tour at Rice University. There’s also Dr. Marcos Eberlin, the internationally renowned mass spectrometry expert at the University of Campinas in Brazil. And Michael Behe, the respected biochemist at Lehigh University. Now some people try to disregard the opinions of those guys because all of them have religious beliefs which would predispose them to resist the theory of evolution. But then you’d have to explain away highly-regarded atheistic and/or agnostic scientists and professors who also openly criticize and question Darwinian evolution like famed philosopher and mathematician Dr. David Berlinski, biologist Dr. Denis Noble at the University of Oxford, and professor Thomas Nagle at NYU. And frankly, this is only scratching the surface of dissent among serious academics and scientists of today. If you knew the extent of it all, you’d be utterly blown away.

Now look, this isn’t a discussion about Darwinian evolution. Unless I have the pleasure of meeting you in person and you’d like to discuss this, then right now I don’t care what you think about that question and you need not care what I think, either.

But the question is this: Can you think of any assumption that has been pounded into all of as being any more fundamental than the theory of evolution? I can’t either… and yet, whatever your position on the matter, any objective look at that theory suggests there’s a real chance that, after all of this time, the entire theory is just a crumbling house of cards. We don’t know that yet, of course, but it surely looks that way.

So let’s shift that line of thinking over to our investments. Ask yourself: What are the core, operating assumptions you’re making each and every time you make an investment decision? The assumptions that are so deep that you don’t even think about them consciously?

I’m thinking about this for myself, and some of them are:

·       Paying less tax is better than paying more tax

·       Making more profit is better than making less profit

·       Only take calculated risks

·       Physical assets are more secure than paper assets

·       Etc…

Now having thought about this for a bit of time, I’m coming up with a lot of fundamental assumptions that I’m making, far more than the few I’ve mentioned here. And here’s how this becomes interesting:

If considering each and every one of my fundamental assumptions, I then ask myself these questions:

·       Is this absolutely true?

·       Is this absolutely false?

·       Is this relatively true or relatively false, depending on the circumstances?

·       Is there a better assumption that I could adopt?

This has been enlightening for me, my friends, for this reason: I’ve again shown myself that having extremely dogmatic rules about anything can be a very dangerous thing UNLESS you take the time to clarify not just the rule or the assumption, but also clarify what I call the two C’s: context and caveats.

For example: Physical assets are, I think, more secure as an investment than paper assets. But a relevant context might be that that’s true only in an environment where it’s legal and practical to sell that asset when I need to do so, since physical items are usually not highly liquid. And a caveat to that rule might be that if owning the physical asset entails more direct, physical involvement in the asset than I am willing or able to provide, then in that case, it might make sense for me to do something like own shares in a real estate investment trust rather than owning real estate directly myself.

These are simple examples, but I’ve learned a lot about myself and my assumptions I preparing for this episode… and where those assumptions may not be serving me well. Let’s you and I do our best to see to it that the only things that are crumbling are faltering scientific theories rather than our life’s savings.

My friends, invest wisely today, and live well forever.

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