The Practice of Thinking
There is an important distinction between thinking as accumulation and reciting of knowledge and thinking as an active appropriation and practice. I argue for the importance of the practice of thinking, using examples from my own studies in philosophy and ‘borrowed conviction’ in stock-picking. Finally: an excursion into how this point might be a source of hope in the discourse on AI.
After having studied philosophy for around a year or so, I was shocked to realize that it is possible to simply read a few textbooks and confidently state in a seminar what, say, Kant’s philosophy of time is all about. I gave these books a try myself and found most of them to be boring – quite the opposite to the tedious, yet exciting readings of the original texts. It seemed unfair that people who were willing to take a shortcut could quickly paraphrase and summarize a huge philosophical debate while I was stuck in the weeds, trying to understand a tiny bit of it. Over the next years, however, it daunted on me that these shortcuts led to relatively bland statements only. More importantly, they never allowed for the agility to fully participate in a good, heated debate that would focus in on some very specific, concrete aspect. It is necessary to think with philosophers you want to understand, to do the thinking yourself. This is much more a practice than some kind of knowledge. Fittingly, I am obviously still able to read my Bachelor’s thesis about some pretty concrete (and slightly arcane) question in the philosophy of time, but I am not fully able to think my way fully through it. I would first have to practice this exact kind of thinking again, to get back into it. Nothing about this statement would be surprising if I talked about playing tennis. Thinking, to my experience, is too often mistaken for knowledge in the sense of knowing, say, the capital cities of a given continent. Instead, thinking is a practice much like any other practice – and we would often benefit from treating it like that.
I remembered this insight about having to read and think through philosophy by myself when realizing how trying to borrow conviction for stocks led to bad investment results. Actually, to catastrophic ones when mixed with some FOMO. It is a common saying for stock-pickers that borrowing conviction does not work, that you have to ‘do your own diligence’ before making investment decisions. As an unexperienced investor, I would always agree with these sayings – just to then jump into buying some stock after having read a few enthusiastic blog posts. And why not? These blog posts were obviously written by people who knew much more about investing than I did, who had more experience and put a lot of work into writing these posts. And boy, were they excited about all these unique investment opportunities! It makes fully sense to try to follow more seasoned and often actually successful investors in their decisions. Alas, this never worked out for me. In fact, I never made any substantial gain from such a decision. Maybe I should say luckily, though. At least in my experience, in investing there seems to be some kind of karma at work: First, positions you enter by blindly following others typically see their share prices fall fast. In fact, there is a good chance that this observation is not only due to a biased perception (that certainly is at play here!) but also because you might have bought just at the same time as many other know-nothing investors. Unknowingly, you might be part of the herd that carries the stock’s price upwards into unhealthy heights.
Then comes the actual crucial part: What do you do after your stock took a massive hit? (Even if you are lucky and it takes a large upward swing, you face the same problem.) If your blogger keeps silent or moves on to the next stock, you are suddenly left alone with a difficult decision to make: Realize your losses to at least make sure they don’t grow further? Buy more as it is now cheaper? Do nothing? In some kind of panic, I seldomly chose the last option. And even if your blogger continues to write about the stock and remains bullish – a borrowed conviction usually does not withstand the pressures of a quickly deteriorating stock price. Hence, you might just unconsciously follow the herd once again and sell to almost the worst moment. Who says, timing doesn’t work?!
The funny thing is: Whenever I read passages like the one above in my first few years of investing, I was dead-sure this would only happen to others. I knew about the danger of this behavior, and I would certainly not just follow the herd, not just borrow conviction, not just follow my own FOMO. I was aware of these traps, so I would not fall into them. I knew what not to do. Here again we encounter the crucial distinction between knowledge and practical application. Nobody thinks they could replicate the performance of a professional athlete by simply copying her. Yet, in investing where seemingly only a few decisions have to be made, this seems totally doable. And of course, theoretically this is true: If Buffett called me every time before making an investment decision on the stock market, I could completely mimic these decisions and achieve his same results. (Of course I could also simply buy Berkshire stock and participate in both his public and private market decisions – one of the strikingly simple and great options the stock market has to offer.) So why does borrowed conviction not work in investing, if this is only about making a few decisions? Because this approach mistakes knowledge that one can quickly gain by reading a few blog posts with practice. An investment decision that includes practice – at least for me – includes reading much more broadly, jotting down some rough calculations of, say, the earnings potential of a new product (I am aware that these calculations will most probably turn out to be completely off the mark, but this is not the point here), talk to the investment relations team of the respective company, maybe chat with somebody who wrote a good piece about the investment case to ask some follow-up questions, take a few weeks to think it over. And then a good investment decision most often is rather a continuous chain of practice: Initiating a small position after careful consideration, following the company closely and only then increasing the position. At least I would not be able to reach that level of conviction in a short period of time – no matter how intense my research. This very probably leads to more knowledge about the investment case. But that is not the point. Many good write-ups still manage to distill more and often better knowledge into one post than I am able to scramble together over a few months. However, this knowledge alone won’t serve me well. Just as I had to think with the philosophers I wanted to understand, I have to sort of think with the companies I want to successfully invest in. This analogy makes even more sense when remembering that investing in the stock-market always means becoming a co-owner – no matter how small the position. It takes practice to be a good co-owner, not just knowledge.
There is yet another dimension where I think this distinction might be crucial: AI. There is the huge open question whether AI will rather become some kind of mighty companion and enabler for our own thinking or a radical substitute. I guess at least currently nobody can actually predict which of the futures will be realized. Nevertheless, AI obviously already allows us to substitute our own thinking to a degree that was completely unthinkable only a few years ago. As somebody who invested a lot of time and energy into trying to become a better writer and thinker, this does gnaw at me. Anybody can write a well-crafted email now, without even giving much time or effort to it. I guess it is only a matter of time until this holds completely true for blog posts as well. I do not want to get into speculating about the future of AI and what it means for us or me – but these developments and their speed definitely scare me. A world in which to think for yourself is some kind of a hobby because an AI will always achieve much better results than you do sounds gruesome to me. However, as long as there is still something left to do for us human beings that involves thinking, there is a good chance that the analogy I just talked about in the contexts of philosophy and investing applies more broadly as well. I recently often heard the argument that you should not outsource your writing fully to an AI because writing always facilitates thinking. I see this argument to be similar to the one I am making.
In my experience, active practice versus passive knowledge does not only make a difference, but all the difference between parroting and creating. Only by practice can you adopt something new, become a different person, and eventually add something meaningfully new and innovative to the existent body of expertise and knowledge. At least at present, this holds true for any serious endeavor, no matter how knowledge-focused it might be – whether writing a novel, managing a business, making investment decisions, or philosophizing: no matter how knowledge-focused, you always end up with a practice that knowledge alone cannot drive forward. Only putting in actual and honest effort can. I think there is some chance that this will never change – and this gives me hope.