Ask ten different investment professionals “what is evidence-based investing?” and you’ll get ten different answers. Not different variations, but completely different responses. One person’s evidence is another person’s nonsense.
This is not unique to finance, it’s actually quite common that those closest to the source material will see things differently. In Life 3.0, Max Tegmark wrote about AI researchers who couldn’t even agree on the meaning of intelligence.
My wife and I recently had the good fortune to attend a symposium on artificial intelligence organized by the Swedish Nobel Foundation, and when a panel of leading AI researchers were asked to define intelligence, they argued at length without reaching consensus. We found this quite funny: there’s no agreement on what intelligence is even among intelligence researchers!
I consider myself an evidence-based investor not because I’ve discovered the secret formula, but because I’ve found what works for me and eliminated what doesn’t. Stock picking, reading the tea leaves, jumping in and out of the market, I’ve tried each of these things more times than I care to admit.
It’s not easy to come up with a list of evidence, of iron laws that govern markets for a few reasons:
1) We don’t have hundreds of years of clean data.
2) Things are always changing.
3) Markets are not governed by the laws of physics. They’re driven by serotonin and adrenaline.
If I had to point to one thing and proclaim, “here is what the evidence says,” it’s that investors need to figure out how to control their behavior, and past behavior is a pretty good indicator for future behavior. So, if you have figured out how to combat your inner saboteur, you are an evidence based investor.
On November 2nd at our second annual evidence-based investor conference, you can hear from Vanguard’s incoming CEO Tim Buckley, Cliff Asness, Jason Zweig and others about what evidence based investing means to them. There are CFP® and CFA®CE credits for attending. New registrants can use RWM25 for a 25% discount. I look forward to seeing you there!
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.
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