Outside the Box

A Look in the Mirror

John Mauldin

January 15, 2007

Ancient Chinese philosopher Lao-tzu once said, "He who knows others is wise; he who knows himself is enlightened." Learning to overcome one's own emotions and bias can be one of the single hardest hurdles than an investor faces. It is equally challenging to discern between advice and noise by "experts" in any given field. Today's Outside the Box is written by my good friends Mark and Jonathan Finn where they address some of the psychological difficulties confronted by investors.

For those of you unfamiliar with this father son tandem, Mark (father) and Jonathan (son) run Vantage Consulting. Mark was the former chairman of the Virginia Retirement System and has a distinguished academic career. He consults with large pension funds and high net worth investors, as well as sits on the board of several large mutual fund families. Jonathan is well-known for his research on the topic of past performance and is a chartered financial analyst. In their article "A Look in the Mirror," they take a look at systematic errors in the investment field and how to deal with them.

We all have something to learn from looking introspectively in our decision making efforts. I hope you find this piece to be both enlightening and "outside the box."

John Mauldin, Editor
Outside the Box

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A Look in the Mirror

By Mark and Jonathan Finn

Consultants hold themselves out to be the experts. Most people assume that being an expert enables one to make better judgments than non experts. One key element of superior judgment is a superior forecast. Here at Vantage we have reviewed much of the research on experts' forecasting ability and found it very humbling. The focus of this year-end letter is why experts seem to…

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