Conviction (Or How To Lose A Lot Of Money In Investing)

Conviction (kan-vik-shan): noun, a strong persuasion or belief; the state of being convinced.

In life, there are things that we should be convicted and committed to. For example, the love for our families, spouses, and religious beliefs. We can also be convicted about other things, such as political ideologies, social issues, and environmental causes. With the rise of social media, individuals’ conviction is easy to see and the source of the “great divide” in today’s society (and I would argue not for the better.)

However, when investing, having an absolute conviction in any ideology or thesis can lead to lost opportunity or lost capital over time. Friederik Gieschen wrote an interesting post about great investors and the risk of conviction to capital.

“This presents an obvious challenge. Not only do you have to be right, but you also have to survive until reality and the market catch up with your view. Otherwise, you won’t get paid. Just ask van Gogh. Or Michael Burry, almost. And in the interim, the market can throw all kinds of antics. Short seller John Hempton: ‘We found the Wirecard fraud in 2009. It went from 9 to 191 euros and then to zero. It was our biggest ever loser.'”

So, what are your convictions regarding investing and your portfolio? Here is a short list of some of the most current:

  1. The dollar is “fiat” and is going to zero.
  2. The dollar will lose its reserve currency status.
  3. There is too much debt, and the U.S. will eventually default.
  4. A recession or depression is coming because (fill-in-the-blank) said so.
  5. There is going to be a worldwide shortage of food and oil.
  6. Interest rates can only go higher.
  7. The Government is going to confiscate everything.
  8. Society is on the edge of collapse.
  9. Add your personal conviction here.

There are obviously many more.

Importantly, all of these things could indeed happen. I am surely not prescient enough to see that far into the future.