Updated: Aug 25, 2021
"Keep your identity small." - Paul Graham, famous investor.
I was an average high school basketball player. Good enough to get on the court, but nothing extraordinary. That wasn't the case for several of my teammates. My senior year we had seven guys that ended up playing major college basketball or football. Our practices were often more intense than games.
One particular athlete, we will call him Bam, had an offer from every Pac-12 (it was Pac-10 at the time) school to play basketball. It wasn't uncommon for college scouts to be at practice, lingering in the locker room, and attending games. Local media would follow Bam's every move. He was popular with the co-eds. The guy was living a mini-celebrity life in high school.
Everywhere Bam went, people fawned over him. He was going to play major college basketball. He would be on TV every week. Bam's ultimate goal was to play in the NBA.
Bam identified as a basketball player.
After a successful career in college, record holder for 3-pt percentage, starter on an elite 8 team, double digit scoring average, etc., the NBA didn't come calling. Bam was very skilled, but didn't have the required size or strength to guard the modern NBA player.
Everything he had worked towards, all of the accolades and attention, were suddenly gone. There was no plan B. Bam only knew how to be a basketball player. He was crushed.
The book Atomic Habits by James Clear discusses the perils of anchoring to one identity...
"The more you let a single belief define you, the less capable you are of adapting when life challenges you. When you cling too tightly to one identity, you become brittle. Lose that one thing and you lose yourself."
We see people getting their personal identities caught up in their investment strategy. This is a very slippery slope.
I'm a Bitcoiner.
I'm a value investor.
I'm a growth investor.
I'm a dividend investor.
I'm a real estate investor.
I'm convinced the market is in a bubble.
I'm a market bear.
Identifying as a particular type of investor can leave one stuck, rigid, and inflexible to change.
Let's say you identify as a market bear. You're certain the market is in a bubble and will pop soon. The market screams higher. You are wrecked. Everything you were certain of is wrong, challenging your identity. Do you dig in or are you capable of changing your mind?
If I were tasked with building the ultimate human investor, being able to change one's mind would be the number one skill on the list.
There are public examples of this happening which seem insignificant, but speak to volumes about self-awareness and being able to admit things have changed...
Value investor Ted Aronson, closes AJO Partners, a $10 billion dollar fund after 35 years to pursue other opportunities.
Warren Buffett, often said he didn't invest in technology stocks because he didn't understand them. Since then, Buffett has cited this was a mistake and has bought sizable positions in Apple and Amazon.
It's not an accident that these folks are regarded as some of the best investors in the world.
When the underlying conditions changed, they were able to pivot. Imagine doing one thing your entire life and it's no longer viable or working. Changing course requires a certain level of self-awareness, humility, and leadership.
Don't get your identity caught up with your investment strategy. Take time to reflect and review. Be able to change your mind. In other words, keep your identity small.