Intellectual Humility

Humility, or lack thereof, is a quality that is easy to identify in others, yet difficult to see in ourselves. Humility is a difficult quality to develop because it may threaten our sensitive egos. Ego is important; we all have one. Our very survival depends on what “I” do or what happens to “me.” In addition, a healthy ego gives us a sense of purpose, value and confidence.

However, our ego oftentimes dominates our thoughts and decisions as the desire to be right becomes our main prerogative. Whenever our intellect is on the line, we become even more protective of our ego. This is a completely normal and natural response, but just because it is normal doesn’t mean it is beneficial.

Developing Intellectual Humility

The most important part of developing intellectual humility is to acknowledge and respect uncertainty. This is true in all aspects of life, especially within the investment realm. This does not mean we can’t have strong opinions; it just means we need to recognize we could be wrong.

Being wrong doesn’t mean we are ignorant or less of a person; it doesn’t have to hurt our ego. There are many things outside our control that may influence an outcome. There is the role of luck/chance in outcomes. Information we rely on may be incomplete or misleading. Sometimes, we simply misinterpret or misperceive a situation.

Investing Humbly

Acknowledging uncertainty, that we don’t know it all and that we could be wrong, helps us take a more thoughtful approach to decision making. It encourages greater due diligence, making conservative assumptions and sharpens our focus.

Humility can help us stay true to our personal investment plan and it reduces the likelihood of making costly mistakes. In our experience as an investment advisor, the greatest risk to reaching financial goals is making costly mistakes.

©2021 The Behavioral Finance Network

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