I cannot stress enough how much emphasis Nick puts into thinking and his execution gives faith of this. The type of investments Nomad made are one of a kind. They realized that:
“Following what everyone else is doing may be hard to resist, but it is also unlikely to be associated with good investment results” June, 2005
“Good investing is a minority sport, which means that in order to earn returns better than everyone else we need to be doing things different from the crowd” Dec, 2006
Interestingly, we’ve been playing with the idea for a while in this newsletter. It is the common pattern that arises from his and Warren’s letters. Nick further addresses the topic by quoting Ayn Rand and, somewhat related, he refers to investing as a probabilistic field. The latter conforms a developable mental model that can help detaching from the crowd.
“No substitute can do your thinking” Ayn Rand
“What you are trying to do as an investor is exploit the fact that fewer things will happen than can happen” June, 2005
I’ve been lately listening to the audiobook ‘Thinking, Fast and Slow’ and I remember to have heard an explanation of why is thinking probabilistically so hard. Kahnemann distinguishes two forms the brain adopt when looking for answers, System 1 and System 2. The first one is the one that’s continuously active and, therefore, provides the fast answers, it is intuitive and instinctive. System 2 is slow and requires energy, but it is the one capable of methodical and rational thinking. Thinking probabilistically is not intuitive, for which, it is up to System 2. However, System 2 is lazy and, unless we willingly engage with the process of thinking, it will leave the job to System 1. Since humans hardly want to spend this type of energy, system 1 is always at the wheel.
On this regard, Nick also quotes Michael Mauboussin:
“Individuals who achieve the most satisfactory long term results across various probabilistic fields have more in common with one another than they do with participants in their own field”