“Strong opinions, weakly held” – Paul Saffo

Allow your intuition to guide you to a conclusion, no matter how imperfect — this is the “strong opinion” part. Then –and this is the “weakly held” part– prove yourself wrong. Engage in creative doubt. Look for information that doesn’t fit, or indicators that pointing in an entirely different direction. Eventually your intuition will kick in and a new hypothesis will emerge out of the rubble, ready to be ruthlessly torn apart once again. You will be surprised by how quickly the sequence of faulty forecasts will deliver you to a useful result. – Paul Saffo

Paul Saffo is a specialist in forecasting and has been working and teaching in this area for decades; however, my exposure to his thinking is recent. This simple heuristic is a very interesting concept of how to deal with any investment issues. Be bold, do not be “squishy” about your opinions, but be willing to change upon seeing new evidence or a better argument. Only through having strong arguments can you tear them apart and find something better. Weak opinions will lead to weak alternatives.

There can be a lot of investment talk, but is it being translated to a strong opinion and subjected to close analysis? Take a simple example, the potential inversion of the yield curve. If the inversion argument is true, then you should have some strong opinions on what to do with your portfolio. Period. No waffling. Now, what are the counterarguments for not holding this strong opinion? If you have convincing evidence that your strong opinion should not lead to action, stop and move to a new hypothesis or argument.

How many investment policy meetings include lots of discussion and limited action? Most participants will say something like “I feel” or “I think” but few will say, “The evidence I see says we should do X, prove me wrong, otherwise we should act.” Put a line in the sand and ask to be proved wrong. If new evidence is presented, change your mind. Perhaps the true power of quant investing is a strong opinion. If those opinions prove consistently false upon testing, a quant will accept that there has to be change.

The bane of investment management is not making the wrong decision, but not making any decision because we have weak opinions, strongly held.