When you disagree with someone about an investing issue, is it because you have distinct interpretations of a specific topic or because your starting beliefs and aims are entirely incompatible? It is almost certainly the latter. Most financial market debate and discussion amounts to people shouting at each other in different languages.

We can think about our investing language as being founded upon two things – our investment principles and our objectives. What we believe about how investing works and what we are trying to achieve. These two aspects shape how we think about a given subject and the position we will take on it.

Let’s take two investors – a short-term trader looking to realise day to day profits, and a fundamentally driven, long-term stock picker – they have significant disagreement on the impact of US tariff policy. Are they likely to have a productive conversation where they exchange views and potentially learn from each other’s perspective? Absolutely not, because they are not speaking the same language. It is doubtful that they will even understand what the other person is saying. 

What might sound like a disagreement between investors is often just a proxy war that is really about conflicting investment beliefs. A conflict that is unlikely to be resolved.  

One of the (many) unusual features of the investment world is that it brings people together who are engaged in entirely distinct endeavours and assumes that they are (pretty much) doing the same thing. Much of the heat and noise that comes from financial markets is caused by these fractious interactions.  

This dynamic is a critical one for individual investors to understand, otherwise we are at risk of having our head turned by every opinion that we hear. When someone voices an investment perspective, we should always ask ourselves what it is that this person believes and what are they trying to achieve? If the answer is wildly misaligned with our own principles and goals then we should treat it with caution.

That doesn’t mean that we should never challenge our own investment beliefs, but there is a big difference between taking the time to deliberately reflect on the merits of our own approach, and listening to the day to day cacophony of individuals whose activities – under the surface – bear very little relation to our own.

These language problems are also a major issue for investment teams. Although diversity within teams across expertise, experience, temperament and background can be highly beneficial, this does not stretch to investment beliefs and objectives. Teams with conflicting incentives and principles are inevitably beset by constant friction, frustration and disharmony.

If we are trying to build a successful football team, we want individuals with unique (complementary) skills, but shared goals and consistent, overarching principles about how to be effective. If, instead, we have a group of talented people all striving to achieve different things in different ways, the team is almost inevitably destined for failure, no matter how strong the component parts.

—

Having shared principles and goals does not mean just listening only to people who agree with us – individuals can share foundational beliefs and disagree a lot. This is an essential feature of a healthy decision-making dynamic. We must, however, be on guard against being overly distracted by the views and actions of people who exist in the same universe as us but are speaking an entirely different language.

–

My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).