Investing isn’t about mastering the markets; it’s about mastering yourself.

That was the central tenet of Benjamin Graham’s “The Intelligent Investor”—and, in large part, why Warren Buffett has called it “the best book about investing ever written.”

Graham’s emphasis on self-control is also why, although first published in 1949, the book is still relevant today. In fact, it’s more relevant than ever.

Graham wasn’t only one of the best investors of all time; he may have been the wisest. His intellectual brilliance, six decades of investing and study of history gave him a profound understanding of human nature.

As he wrote: “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

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This article was originally published in The Wall Street Journal.

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Index funds have made investing simple—but not easy.

These portfolios that seek to match, rather than beat, a market’s returns usually charge extremely low fees and generate low tax bills. If you buy a handful of index funds, sit on them for decades and never do another thing, you’re likely to outperform nearly everyone who tries to beat the market by trading—including most professionals.

But what’s the fun in that? Can you endure a lifetime of barbecues and cocktail parties where other people brag about their winning trades and all you can do is mutter, “Umm, I own index funds and I haven’t made a trade in a decade”?

No wonder index funds can become tempting to trade. 

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The Wall Street Journal, Aug. 23, 2024

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Stop trying to make it make sense.

Just about every volatility storm in the markets quickly morphs into a baloney blizzard, as Wall Street’s market strategists and a swarm of online pundits pretend to explain what just happened and concoct predictions of what will happen next.

It’s time to sharpen your critical-thinking skills. To stay the course as a long-term investor amid this short-term turbulence, you will need them.

On Monday, Aug. 5, the Japanese stock market had its worst day since 1987, crumbling 12.4%, and U.S. stocks slumped 3%. Wall Street’s fear gauge, the VIX index of volatility, shot up more than 50% to its highest level since the dark pandemic days of 2020. The next day, Japan bounced up 10%, while the S&P 500 gained 1% and the VIX fell 28%. By week’s end stocks stood not far below where they did before the wild ride.

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This article was originally published in The Wall Street Journal.

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The series was inspired partly by Benjamin Graham’s declaration, in The Intelligent Investor, that intelligence is “a trait more of the character than of the brain.” It also is rooted in Warren Buffett and Charlie Munger’s constant emphasis on “temperament” and their repeated observations that the investors with the highest IQs often don’t earn the highest returns. Finally, it’s based on my own decades of watching and interviewing the world’s leading investors.

As Ralph Waldo Emerson wrote in his essay “Experience“:
Temperament is the iron wire on which the beads are strung.

I keep getting requests from readers who’d like to have all these posts collected in the same place. Someday, I might turn the series into a book, but for now, I’ll post links to them all here, along with an extremely brief summary of each.

You’ll find a lot more detail, including practical suggestions on how to cultivate these virtues yourself, if you follow the links below. The seven virtues of great investors are:

Curiosity.

As I wrote in my newsletter on Jan. 19, 2022:

Curiosity is the first investing virtue. It’s what enables you to find and develop all the others…. Ordinary investors are afraid of what they don’t know, as if they are navigating the world with those antique maps that labeled uncharted waters with the warning “here be dragons.” Great investors are afraid of what they do know, because they realize it might be biased, incomplete or wrong. So they never deviate from their lifelong, relentless quest to learn more.

Skepticism.

I argued that…

…the main product of the financial industry isn’t portfolios; it’s propaganda. And propaganda with numbers, cloaked in jargon, can hit investors like general anesthesia: You just drift off to sleep while financial professionals surgically remove your money… Numbing investors with numbers is a standard marketing tactic in the financial industry. That’s why skepticism is one of the seven virtues of great investors.

I then listed my favorite techniques for sharpening your skepticism, which you can find here.

Independence.

As I wrote in February 2022:

…without independence, investors are doomed to mediocrity.
What’s your single most valuable asset as an investor? Your mind! If you let other people do your thinking for you, you’ve traded away your greatest asset — and made your results and your emotions hostage to the whims of millions of strangers. And those strangers can do the strangest things.

Humility.

I warned in my newsletter that humility is a…

…paradoxical blessing that you can possess if, and only if, you believe to the marrow of your bones you do not possess it. The harder you work at achieving and retaining humility, the more you will need to remind yourself that you still don’t have it, lest you puff up with pride at being humble. Then I suggested three mental exercises that might help you cultivate authentic humility.

Discipline.

In my newsletter for Jan. 11, 2022, I highlighted a couple of examples:

Warren Buffett moved from the buzz and bustle of New York City back to Omaha in 1956, where he began managing money in his house on a placid street. The late global investor Sir John Templeton relocated from New York to the Bahamas where, he told me decades ago, The Wall Street Journal arrived days late. By reading the news a week later, Templeton told me, he could put it in perspective and prevent himself from over-reacting.

Patience.

In March 2022 I wrote that patience is often measured not in months or years but in decades. Readers added their own keen suggestions for how to extend your time horizons and look past short-term disappointments.

Courage.

My column, “The Secret to Braving a Wild Market,” pointed out that none of these virtues will get you through the worst of markets unless you can muster courage:

Making a courageous investment “gives you that awful feeling you get in the pit of the stomach when you’re afraid you’re throwing good money after bad,” says investor and financial historian William Bernstein of Efficient Frontier Advisors in Eastford, Conn.

It isn’t often I see a story worth telling just by looking outside the window, but that’s exactly what happened to me this Sunday, on Easter afternoon. Across the street from me, a family was celebrating the holiday — wearing masks and gloves, half sitting in their car, half on the sidewalk, all at least six feet part and yet all fully present with each other.

This story has nothing to do with investing — at least not for those who believe that investing involves only financial assets.

It was, however, a perfect example of why the social psychologist Jamil Zaki says we should be practicing not “social distancing,” but “distant socializing.”

Read on to see what I saw. 

Mary and Arthur Schilling never expected to spend Easter with their family doing what they called “coronagating.”

On Easter Sunday, Mary, a 65-year-old corporate recruiter, and Arthur, 59, a contract manager for a construction company, drove their Ford Escape into Manhattan from their home in Fair Lawn, N.J. to spend the holiday with their daughter Colleen, 30. They brought lawn chairs and a three-pound slab of prime rib for Colleen and her boyfriend, Cory Minckler, a bartender, to eat later.

Arthur parked the car on a street off York Avenue in the 80s, a short distance east of the building Colleen lives in. Mary and Arthur and their other daughter, Allee, an insurance agent, stayed in the car.

Mary, Arthur, Allee and her boyfriend, Sean Santiago, 26, who works in pest control, ordered takeout hamburgers for themselves. After the deliveries arrived at their car, they scrubbed down with hand sanitizer and put on food-preparation gloves to eat the burgers.

Sean ventured out, unfolding one of the chairs as far back from the sidewalk as he could get, smack up against the wall of a brownstone. Colleen and Cory, wearing red bandannas for masks, opened chairs on the outside edge of the sidewalk, one each at the front and rear end of the car.

Not having seen Colleen in five weeks, “a couple of times I almost forgot myself and almost went to touch her,” said Mary, “and then I remembered I had to stay in the car.”

“My mom had a moment of, ‘We’d really love to pick you up and have you come home,'” said Colleen. “And I said, ‘But you can’t, Mom!’ And she said, ‘I know, I know.'”

Hard as the holiday social distancing was, the family found a lot to celebrate.

For most of the afternoon, the spring sun was glorious; across the street, a cherry tree was in full bloom.

Everyone but Colleen and Cory had gone on a weeklong cruise to the Bahamas in early March, but they had all returned safely and remained symptom-free.

The trip into the city, normally a 45-minute schlep, took just 16 minutes, Mary said gleefully from behind her surgical mask.

Cory is the only one in the group who has lost his job. But, he said, “I put my training to good use,” providing a beer for Sean, surprising Mary and Allee with his version of an espresso martini and whipping up an old-fashioned for Arthur — the designated driver — to have later after he got home.

Colleen, also a recruiter, planted a big jug of iced tea on the roof of the car.

Before her family arrived, she had sanitized all the disposable cups — “not the usual glassware Cory likes to serve in,” Colleen said. She and Cory handed the drinks through the car windows, each with its own Lysol wipe for scrubbing it down. “It’s very cumbersome, our new norm,” she said.

Mary, Arthur and Allee sat inside the car. With the windows up most of the way and masks and bandannas on, “we had to talk pretty loud to hear each other,” said Colleen.

“We’re grateful we’re all safe,” said Allee. “As long as we can just see and hear each other, it’s still very special.”

Passersby mostly approved. “Oh, you guys are doing this the right way,” said one, noting how far away from each other they sat. “That’s so cute, how you’re finding a way to make this work,” said another.

One pedestrian, having to thread the needle between the lawn chairs, cursed at the family for not taking the lockdown seriously enough. But tempers never really flared.

After about an hour-and-a-half, Colleen’s family called out their farewells, and she and Cory headed back inside their apartment building, lugging the prime rib. Everyone would finish the rest of the holiday meal back home.

“We’ll remember this Easter for many years to come,” said Mary. “It’s the only one we’ve ever celebrated half in the car and half in the street.”

By Justin Baer and Jason Zweig

Massachusetts said it adopted new rules requiring brokers to act in their clients’ best interests, staking its claim as the first U.S. state to raise the bar on investor protections since a federal measure was struck down.

Commonwealth officials will impose the new standard on brokers and agents who are licensed by Massachusetts. The new rule is intended primarily to protect in-state investors, said William Galvin, secretary of the commonwealth.

Massachusetts’ new measure will take effect nearly two years after a U.S. Circuit Court struck down the Labor Department’s fiduciary rule, arguing the government overreached by requiring brokers and others handling investors’ savings to act in their clients’ best interest….

Further reading

One of my New Year’s resolutions is to clean out my old filing cabinets. Yes, those hulking beige metal drawers, full of manila folders stuffed with musty, tattered, tea-colored photocopies.

I started the cleanup, but I didn’t get too far before I stumbled on something I thought I should show you.

These are the first two columns I ever wrote, back when I was 21 and a senior in college. I hadn’t read them in decades until this week; I’d forgotten they even existed. Much to my surprise, they strike me as not bad.

Mind you, writers are notoriously poor judges of the quality of their own work. That applies not just to hacks like me, but to the world’s greatest literary masters. If I remember correctly, William Faulkner regarded the unreadable Pylon as one of his best novels, while Tolstoy renounced War and Peace and Anna Karenina late in his life.

So I don’t know if these are any good. But I enjoyed finding and reading them. Maybe you will too.

I do know that my belief in the supreme importance of language and in the moral duty to treat it with respect hasn’t changed in all these decades. As I’ve written elsewhere:

Most people handle words as if they were pennies: light, cheap, dispensable. Instead, I want you to handle them as if they were manhole covers or 45-pound weights in the gym. Think before you pick them up. Look before you put them down. Make sure you choose the right one and put it in the right place. Words shouldn’t be cheap to you and interchangeable. They should be dear to you and fit-for-purpose.

I’d write these columns more calmly today — the word co-equal doesn’t set me off the way it used to, and the use of so as an intensifier no longer bugs me — but I’d still be motivated by the same spirit and take a similar approach nearly 40 years later. Language is like magic, music, medicine, or dynamite: It can amaze and inspire and heal and kill, and we all should handle it with great care and with the utmost respect for its powers. We should always write mindfully.

[Note: Evidently I wrote four of these columns. I have only the first two: one as published, the second as a typed final draft.]

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Dec. 4, 1980 • Columbia Sundial

Last year an Ivy League student began telling me a story. “This,” she said, “is so incredible you won’t believe it.” She was right, of course; I didn’t believe it. The story itself was credible enough, but that first sentence was indeed unbelievable.

The fact that the student was from Brown and not Columbia is hardly reassuring. That preposterous sentence still came from the mouth and mind of someone who certainly should have known better. Something is wrong with the English language when educated people abuse it so thoughtlessly.

Examples are everywhere; some of them are amazing. How can anyone use a word like “coequal” and retain faith in his sanity? I imagine a definition like this: “A, which is equal to itself, is equal to B, which is equal to itself and A. And vice versa.” Perhaps in a world where only the loudest shouts can be heard, no one can continue to believe in the vital force of words. People are afraid to let words speak for themselves; a new kind of grammar says everything twice, as if the innate meaning of a word is no longer enough. “Unique,” which once meant “the only one,” has become “very unique,” or the only, only one. “Excellent” has become “so excellent”; it once meant “extremely good” — now it must mean “so” extremely good. And so it’s a short climb to “so incredible you won’t believe it,” which of course means unbelievably unbelievable.

I am writing a column on words not from a position of superiority — since I have made worse errors than my friend from Brown — but because I think about words a great deal, even when I may be abusing them. Thinking about something means taking it seriously; and thinking about language is the first step on the long road toward coherence and creative expression.

My goal in writing this column will be to force you to think about language. I believe that using words thoughtlessly is dangerous: First, because stupid words and phrases impoverish the language and constrict our lives; second, because passive acceptance of words is politically dangerous as well. The Big Lie will be most readily accepted by those who never question the meaning, virtue, and usage of words.

Our lives are governed as much by words as by governments, and yet most people pay even less attention to language than they do to politics. I think that’s unfortunate, since we have more control over words than we do over Washington. If this column succeeds, it will simply make you more conscious of that control.

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Our language is retreating from emotion. In the Me Generation, words are reflecting the inward turning of our nerves, and I’m sure that the use of “into” has spread so fast because it expresses deep involvement in a shallow, almost primitive manner. “I’m into it” substitutes for “I like it” or “I love it,” phrases that convey sincere emotion. And we seldom say we love people anymore; we have “relationships” with them. Don’t relationships lose something from the knowledge that people also have a relationship to weeds, concrete, sulfur dioxide, and every other object in the universe? Love is a conscious act of human and humane volition; relationship is a quality of even the most inanimate things.

I think there is danger in this retreat. The expressiveness of words is vital to the expression of emotions; it is fully possible that, if the word love atrophies, the emotion of love may shrink with it. The day could come when we will “relate” to everything and love no one.

Anyone who thinks I’m exaggerating the link between words and reality should look back at Nazi Germany, where words played a central role in making genocide acceptable. Alex Bein’s study “The Jewish Parasite” shows how an endless repetition transformed mere words into a new “reality.” After endlessly hearing that Jews “were” bacteria, vermin, parasites, viruses, insects, and worms, the SS men and the German people in general, sincerely believed it. Nazi propaganda was able to transform murder into something that bothered no one’s conscience; what we now call genocide they called “sanitation.” More recently, Vietnamese villages were “mopped up,” as if cookie crumbs and dust balls were being removed from the jungle floor. When it is perverted, language rides the first horse of the Apocalypse.

Seen in this light, using language precisely — defending words from dehumanization — becomes a sacred duty. Words must be taken seriously; they have the power to kill and maim. Don’t say “it can’t happen here”; a hundred-million people have been slaughtered in the 20th century, and they said it too, even while the tyrants were stockpiling words next to missiles. Being “into” a “relationship” numbs people just a little bit more to the saving and the killing power of the word. We must never for a moment forget that Hitler was an orator long before he was Fuhrer.

Further reading

By Jason Zweig and Andrea Fuller

The Certified Financial Planner Board of Standards Inc. on Tuesday announced new measures to tighten its oversight of more than 85,000 stockbrokers, insurance agents and other financial advisers.

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This article was originally published on The Wall Street Journal.

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Further reading

The most dangerous of all people is the fool who thinks he is brilliant.

I should know: That describes me at age 18, arriving at Columbia University for my first week of college. And, I have no doubt, it describes me equally well on countless other occasions since.

I was raised in a rural village in northern New York State with a total population of 40 people, 300 cows, and four Jews, and I thought I was a literary genius. I had been valedictorian of my class and was one of only a handful of students from my tiny school anyone could remember ever being accepted to an Ivy League school since the Korean War.

Perhaps it should have occurred to me that those achievements were vitiated by the fact that around a fifth of my 35 classmates at the beginning of senior year didn’t end up graduating; several flunked, some were in jail, and even the salutatorian was a visibly unwed mother on the graduation dais. (I was not the father.)

But a realistic view of my qualifications would have required more objectivity and skepticism than I could muster at the age of 18.

I had spent close to two hours a day every day since I turned 13 straining to become a man of letters, writing hundreds of pages of poems, short stories, essays, a journal I believed to be profoundly introspective, and a novel about a Jewish boy growing up as a sensitive literary genius in a rural village in northern New York State with a total population of 40 people, 300 cows, and four Jews. I raced through my school’s perfunctory reading lists, appetite unsated. On my own, I read Poe and Plato, Melville and Chekhov, Emerson and Whitman and Thoreau, Dickens and Balzac, Hawthorne and Hardy and Hemingway, Doyle and Dreiser. My three favorite books, which I read so often that their pages had developed a fine velvety pile under my touch, were Crime and Punishment, The Adventures of Huckleberry Finn, and Look Homeward, Angel.

My senior year of high school, I had written to a half-dozen of the best novelists in America, including William Styron, Bernard Malamud and John Updike, notifying them that I intended to win the Nobel Prize in Literature before the age of 30 and asking them to read samples of my work. I was appalled that not a single one of them had the good judgment to write back — until, one day, a letter arrived from Norman Mailer. With uncharacteristic restraint, he politely declined the opportunity to read my work in progress, although he did say I sounded “awfully bright” and added that “if you prove to be very good I’ll read you then.”

When I arrived at college and found out that, like all first-year students, I was required to take Freshman Composition, I exploded in high dudgeon: “I’m not taking a class that teaches me how to write! I already know how to write! I’m a writer already!” (The class is, I’m told, now called “University Writing.”)

I grabbed a fat manila envelope from my desk and charged off to find the office of the head of the Freshman Comp department. I sat there for who knows how long, steaming mad, until he was finally free to see me. In I marched; I doubt I even sat down. I tossed over the giant manila envelope with a flip of my wrist calculated to elicit a resounding thump when it landed on his desk.

Prof. Cyril Knoblauch elevated an eyebrow, asked me my name, and shook my hand. “What can I do for you?”

“You can exempt me from Freshman Comp, sir,” I shot back.

“Why don’t you want to — “

” — I don’t want to take the class because I don’t need to take the class,” I said. “I’m already a writer. I’m already almost halfway through writing the Great American Novel.”

He cleared his throat. “I can’t just exempt you because you think you’re a good writer, young man.”

“I don’t think I’m a good writer, sir. I know I am.” I shoved the manila envelope toward him. It was the collected oeuvre of Jason Zweig: a book of short stories, dozens of poems, my novel-in-progress. “You can see for yourself,” I added brightly.

What he did next shocked me. He shoved the envelope back toward me — so hard it almost fell off his desk. “I’m not reading that,” he said without bothering to disguise his disgust, as if I had tried handing him a sheaf of papers that had been strewn on the floor of a public restroom.

“You’re — you’re — you’re not going to read my work?” I couldn’t believe my ears.

He ignored me. “What did you get on the AP test?”

I stared at him in fear.

I’d never heard of an AP test; I had no idea what he meant.

“Well?” he demanded. “What was your AP English score?”

I thought fast and came up with the only answer that could possibly make any sense: “I suppose they have a bureau in Albany, but I’m not interested in journalism. Why would I take an Associated Press test?”

Prof. Knoblauch stared at me. To this day, I don’t know how he restrained himself from bursting into laughter. Finally he said, “Young man, take your envelope, please, and go register for Freshman Comp.” He added drily, “I think you will find, when all is said and done, that there was something even you could learn from it.”

I stood there, too shocked to move. “You may go,” he said.

I grabbed my envelope and ran, on the verge of tears, back across campus to my dorm. My roommate was there. “Mark,” I wailed, “what’s an AP test?”

He looked at me with bland surprise. “You don’t know what an AP test is?”

I shook my head, trying not to cry.

“Advanced Placement. It’s a standardized test,” said Mark, who already knew I was a hick. “Let me guess. Your school didn’t offer them?”

I shook my head again.

“Your AP score shows whether you’ve already done enough coursework to place out of a college-level class. ‘Place out’ means to get exempted.”

“My school didn’t have AP tests,” I said. “I’ve never heard of them.”

“Well, too late now, I guess,” said Mark.

“I guess so,” I said. Haltingly, I told him what had happened. When I told him how I’d guessed that AP stood for Associated Press, Mark laughed. “Man, you are such an idiot,” he said in his gentle voice. “If you didn’t know what an AP test was, why didn’t you just say you didn’t know?”

“I don’t know,” I said.

Mark’s laughter was contagious, though. I felt a little better. Maybe I did need to learn a few things, after all.

The next day was the first day of classes.

The summer before college started, I had read Bulfinch’s Mythology and E.V. Rieu’s rendering of The Iliad. I also created a meticulously drawn and hand-painted map of the ancient Mediterranean to prepare myself for the beginning of Literature Humanities, Columbia’s notoriously challenging introduction to poetry, drama, and fiction.

I walked into LitHum class that day in September 1977 ready to take the intellectual world by storm.

The scarred mahogany or rosewood table seemed as long as a transcontinental highway. Around it sat 15 or 20 of the sorriest, most awkward, zit-infested, bespectacled slobs I had ever seen. We sat in edgy silence. The boys who had grown up in the city knew how to look at everyone else without seeming to be looking at anyone. I just stared brazenly at them one at a time, fighting my face to keep the smirk I felt inside from showing. The rustling of gum wrappers and a couple of suppressed coughs gave us all dispensation to flick a glance at the person who had made the noise. But no one said anything; we were all waiting for the professor.

And then Nathan Gross swept into the room. He looked like a toucan out of a cartoon: his face was all nose, and the weight of it seemed to tilt him forward, leaving his head and body looking as if they were always trying to catch up to it. The oddity of his appearance imparted an ironic momentum to whatever he said or did. He sailed to the head of the table, pulled out his copy of The Iliad, clomped it down onto the table, then asked each of us our names. I still remember the frisson of delight I felt when a pockmarked kid said his last name was Gyurgyu and Prof. Gross parroted his name back in such perfectly enunciated Romanian that we all were startled, Gyurgyu most of all.

Prof. Gross cracked open The Iliad, and we all turned to the beginning. He began reading from the first book. We all looked down at the first page and then up at him in astonishment: He was reciting the opening of The Iliad in ancient Greek even though all he had in front of him was the same Richmond Lattimore translation we all had. I could see his copy of the book; there was no Greek written on it. Prof. Gross, tenured in the French department, had memorized the Greek.

He stopped after a couple dozen lines and said, “I wanted you to hear what it sounded like in the original.”

Everyone knows that diluted, faintly copper-like taste of blood you get in your mouth after you accidentally bite your lip or cheek. That’s what the fear in the room was like at that moment.

Prof. Gross turned to one of my pathetic classmates and asked him to read a few lines — “in English, of course.” He got as far as the word Apollo, and Prof. Gross cut him off.

“Who,” he asked the room, “was Apollo?”

Silence.

I looked to my right and to my left. I looked, one face at a time, from one end of the table to the other. Every kid was examining his fingernails as if his life depended on figuring out whether they needed cleaning.

Slowly, with a dawning sense of triumph, it sank in: Here I am at Columbia. At Columbia! And I’m the only one in this roomful of Einsteins who knows who the hell Apollo was.

I summoned all my willpower to keep myself from jumping up and crying out “I know! I know!” Seconds more ticked by as I flicked my eyes back and forth at a roomful of losers who knew nothing except how to look at their own fingers. Finally I couldn’t stand it anymore.

I stuck up my hand. Prof. Gross looked at me in aquiline triumph and pronounced my name as if we were in fin-de-siecle Vienna. “Mr. Tzveigk, I believe. Tell us then, who was Apollo?”

“He was the Greek god of light!” I exclaimed.

The entire class tittered in unison. That was the only word for it, then and decades later: They tittered.

Prof. Gross’s eyes were sparkling. “And tell us, Mr. Tzveigk. What would you say a god was to the Greeks?”

The trap closed on me with a steely clang. What was a god to the Greeks? What was a god? How the hell did I know?

In that moment, I was reborn. The realization hit me, with the force of a donkey’s hoof kicking me in the forehead, that for all my vaunted precocity I knew next to nothing. I hadn’t even understood that I was about to make a fool of myself, and the only consolation in being such a fool was that at least I could suddenly see that I was one.

I stammered something incoherent; Prof. Gross gave me a baleful glance and moved on.

My stomach was churning, and my ears felt as if they were about to burst into flame. I felt every one of my classmates staring at me. To spare myself the humiliation of seeing the smirks that must have been on their faces, I stared at my fingernails.

I don’t think I heard a word the rest of that first class, but I’ve seldom learned more in a single morning.

To say that these episodes cured me of overconfidence would be an absurd lie. More than four decades later, I still regularly commit the same blunder of presuming I know more than I do, more than the people around me, more than the people who came before me, more than the people who have spent decades studying a topic or working in a field. I underestimate the difficulty of problems and overestimate the ease of solutions. I assume reality is simpler than a lifetime of encountering complications should already have taught me it must be. I impute single motives to people who must, I know perfectly well, be motivated by more factors than they themselves can count.

The mystery remains: Even knowing that I don’t know can’t cure me of acting as if I know. That intuitive Aha! is as irrepressible as my breathing or my heartbeat. Overconfidence is the feeling of knowing — even when part of me knows, or should know, that I don’t.

I love saying “I don’t know,” but I don’t love it nearly as much as I should; just as water is the universal solvent, “I don’t know” should be our universal first response to nearly every hard question.

What I learned, those first days of college so long ago, wasn’t how to stop being overconfident. (I’m old enough now to realize that I’m unlikely ever to learn that.) What I learned was the power of feedback, the importance of throwing yourself open to being corrected in public. That doesn’t eliminate error and misjudgment. It does teach you to do your homework, to consider the historical and social contexts of your evidence before you draw conclusions, to evaluate the quality of your information before you act on it, to go back and check your work again before you commit, and above all to think twice. Making your decisions as if you will be publicly judged on them can, perversely, lead to a different kind of overconfidence: the belief that you’ve now been so careful that you can’t possibly be wrong. But you will at least reduce the risks from the most common upstream sources of error, like making snap judgments, relying on faulty data, and overlooking relevant evidence.

The humiliation I went through in my first days of college seems to have had another effect: Looking back, I find the arrogance of my younger self as funny as it is alien and bizarre. That kid, preening over his imagined brilliance, seems so different from me, and so absurd. Yet he was me; in fact, much as I cringe at the thought, he is me. Laughing at him then frees me to laugh at myself now, whenever I act as if I know more than I do — which is, and probably always will be, all too often.

I try not to be sure of much, but I am sure of this: The only thing more ridiculous than a know-it-all is a know-it-all who doesn’t know how ridiculous he is.

Further reading

I’ve got a long history with emerging markets. In 1979-80, I lived in the Middle East; in 1985, I traveled roughly 3,500 miles through eight West African countries over four months; in 1992, I spent a day at the Zimbabwe Stock Exchange.

And, my records show, on Valentine’s Day 1990, I bought 100 shares of Templeton Emerging Markets Fund, a closed-end portfolio that in those antediluvian days was the only practical way for an individual investor in the U.S. to put money to work in emerging markets.

Earlier that winter, I’d been in the Bahamas for the wedding of a friend and went out to Lyford Cay to interview John Templeton, the great global investor. He’d told me about the bargains that abounded in Asia and Latin America and, to a lesser extent, in Africa.

A few weeks later, back in New York, I attended an event at which Templeton pitched his new fund to an auditorium full of wealthy investors. Chatting with them over dessert after Templeton had finished his presentation, I was startled to find that most had no interest in the fund. Hearing about stocks trading at single-digit price/earnings ratios didn’t excite them, but the threat of unstable governments and collapsing economies did frighten them.

To me, that was the clincher: Emerging-market stocks were cheap, and American investors wanted nothing to do with them. So I bought. With my own experience telling me that these markets were neglected and cheap, and knowing that almost no one else shared my enthusiasm, I invested what then was a ton of money for a young reporter. The 100 shares of Templeton Emerging Markets Fund cost me $1,472.50 ($14.375 per share, plus a $35 — or nearly 2.5% — commission).

A few years later, when the yields on emerging-market bonds widened out past 15%, I’d also bought Scudder Emerging Markets Income Fund.*

So I was an extremely early enthusiast for investing in emerging markets. But few areas of investing are so rife with myths and misunderstandings. Foremost among them is the perennial claim that emerging-market stocks should have higher returns because emerging-market economies are faster-growing than the U.S. After writing my column for The Wall Street Journal this weekend about the way many emerging-market companies seem to be manipulating their reported earnings, I realized that the expectation of rapid earnings growth is probably rooted in the same old erroneous belief that stocks in fast-growing countries ought to have higher returns. No matter how many times this story gets debunked, it still comes back. People are still saying it in 2019 — even though it isn’t true. I first debunked it in 2007, in this old column I just fished out of my archives:

Whenever a popular investing argument starts to sound like a no-brainer, I know that lots of people will soon be losing lots of money.

Anyone with ears has been hearing lately how “it’s obvious” that emerging markets stocks are sure to keep outperforming those in the industrialized world. To which I say, look out below.

Don’t get me wrong. Investing in emerging markets is the right thing to do in the long run. But the investing gods punish people who do the right thing for the wrong reason.

Jump into emerging markets now in pursuit of hot returns and you’re sure to get hurt. Here’s why.

Who gets the growth?

These days everybody from Goldman Sachs strategists to your dry cleaner seems to believe something like this: Because the economies of places like Brazil, China and India are expanding two to three times faster than in the U.S. or Europe, these emerging markets are bound to have higher stock returns.

But the obvious “truth” is wrong. The U.S. economy — the original “emerging market” — grew faster in the 19th century than in the 20th, and yet stock returns were no higher.

Over the past 20 years, Asia has grown faster than Latin America but Latin American stocks have done better.

And London Business School’s Elroy Dimson, the world’s leading expert on long-term market performance, has found that on average the highest stock returns come from the countries with the lowest rates of economic growth. In the long run, stocks in the slowest-growing nations earn an average annual return of 12%, or twice that of stocks in the fastest-growing economies.

Japan was the world’s fastest-growing nation over the past century, but it produced the lousiest returns of any big stock market. The same upside-down relationship applies to countries such as Italy (high growth, low returns) and Australia (low growth, high returns).

What accounts for results that seem to fly in the face of basic logic?

First of all, when countries grow fast, the economic pie does expand, but it gets cut into thinner and thinner slices as more companies offer stock in initial public offerings.

In 2003, for instance, there was a single IPO in Russia taking in just $14 million. In the first five months of 2007 there have been 13 Russian IPOs raking in $16 billion.

Last year more than 130 Chinese companies issued roughly $60 billion in new shares. That’s at least 20% more than the total value of IPO stock that was issued here in the U.S.

Future profits in China and Russia now have to be divided among many more investors. That leaves less for you.

Buying high

Second, it doesn’t matter how glorious the future turns out to be if you paid too much for your piece of it. Emerging markets stocks sell for an average of more than 16 times their net profits, while U.S. stocks trade at around 17 times earnings.

That gap is seldom so narrow, and when it is, emerging markets usually end up getting hammered. That’s because they should be cheaper.

The U.S. government, whatever its faults, doesn’t confiscate industries or create inflation so severe that you need a wheelbarrow full of money to pay for a loaf of bread. Russian president Vladimir Putin isn’t shy about jailing critical CEOs and busting up their companies. The next stock he seizes may be one your fund owns.

I’m not saying you should bail out. As an enduring part of your portfolio, emerging markets are a great way to hedge against the hazard of keeping all your money at home; when the U.S. zigs, emerging markets tend to zag. If you invest patiently over time, you have little to worry about.

But there’s a big difference between owning and buying. Owning an emerging markets fund permanently makes all the sense in the world. Buying one today – plunging in for the first time – does not.

Emerging markets will go on sale soon enough; the time to buy is when the headlines turn bleak and your friends stop bragging about how much money they’ve made in China.

When that day happens, buy a cheap index fund like Vanguard Emerging Markets Stock, iShares MSCI Emerging Markets or Vanguard Emerging Markets ETF.

Until then, if you want to jump into the developing world, book a vacation to Rio.

*I no longer own either fund. I don’t know exactly when I sold, but I remember it was sometime in the late 1990s, when Americans suddenly couldn’t get enough of emerging markets. I do own a permanent position in emerging-market stocks through the total international-stock index fund that constitutes about 40% of my overall stock allocation.

Further reading