Approach - Jus' the Tip by Ali-Asad

Here, I set out my approach to investing; a thesis statement, if you will.

My 3 investing axioms:

I could be wrong
Value works
Momentum works (until it doesn’t)

“I could be wrong”

When investing, I take a counterintuitive approach by accepting that I could be wrong and always look out for what would prove me wrong. This approach stems from the work of George Soros, and particularly on his theory of reflexivity.

In his books The Alchemy of Finance and The New Paradigm for Financial Markets, George Soros explains that the way we understand and perceive the world, along with our active participation in the world, impacts the way financial markets function. As people, we perceive the world but we also participate in the world, and the interplay between these two aspects has major implications for investing. These two functions, termed the cognitive function (perception of reality) and the manipulative function (participation in reality), sometimes work simultaneously with disastrous consequences.

Firstly, Soros seeks to demonstrate that we cannot separate our perception of the world with our actions within it. He argues that attempts to understand the world through rationality and reason are inherently limited and incomplete because rationality and reason are a part of the word we are trying to understand – there is no separation between the tools we use to understand reality and reality itself because these tools exist within the realm of reality.

Secondly, Soros agrees that when the cognitive and manipulative functions occur independently or sequentially (e.g. in a scientific settings), worthwhile results can be achieved. But situations involving people result in the cognitive functions and manipulative function occurring simultaneously. Perceptions give us a awareness of reality (cognitive function). But we also live and act in this reality, so our awareness of reality determines our actions in reality (manipulative function). These actions have an effect on reality; thereby changing the reality we had an awareness of in the beginning.

Here is an illustration of the cognitive and manipulative functions acting separately: