Within the past two weeks, two friends of mine have recommended the same book, Superforecasting by Philip Tetlock, and one of them sent along a link to a Freakonomics interview with the author. I haven’t bought the book yet, but after reading through the transcript of the Freakonomics interview, I’m convinced it will be an interesting read.
The bit that hit home for me the hardest was Tetlock’s comments about the process involved in becoming a superforecaster:
It’s not really who they are, it is what they do. Foresight isn’t a mysterious gift bestowed at birth. It is the product of particular ways of thinking, of gathering information, of updating beliefs. These habits of thought can be learned and cultivated by any intelligent, thoughtful, determined person.
In fact, after spending nearly 20 years in the investing business, this is precisely the same conclusion I have reached as well, and it is the reason why I think the IOI 101 and IOI 102 courses are so important.
The “particular ways of thinking” to which Tetlock refers is something we work on in the IOI 102 classes that cover behavioral biases and structural factors in investing. My own investing work took a quantum leap forward when I realized the degree to which a combination of hard-wired reactions to stimuli (behavioral biases) and the way market agents are rewarded professionally (structural factors) affect myself and all other principal owners of capital.
The system of “gathering information [and] updating beliefs” sounds remarkably like the process which I wrote about in The Framework Investing and which we investigate and practice during the valuation sessions of the IOI 101 course. My contention is that by focusing on the operational performance of key valuation drivers, an investor is able to scientifically approach the task of investment decision-making rather than getting pulled this way and that as market prices fluctuate.
This focus on a scientific approach is something that Tetlock mentions as a defining quality of a superforecaster:
They tend to be more actively open-minded. They tend to treat their beliefs not as sacred possessions to be guarded but rather as testable hypotheses to be discarded when the evidence mounts against them. That’s another way in which they differ from many people. They try not to have too many ideological sacred cows. They’re willing to move fairly quickly in response to changing circumstances.
As you can see in this article detailing an assessment of IOI’s valuation of Oracle, a big part of the IOI investing process is going back periodically to test original hypotheses about key valuation drivers and see how well these assumptions hold up against actual results.
I’d like to think that IOI is training you to be superforecasters in the Tetlock mold by 1) showing you a process of organizing your decision-making processes, and 2) of allowing you to easily tell whether the market is wrong on its assessment of a company or you are.
Interested in becoming a superforecaster? Contact us today!