"I am the wisest man alive, for I know one thing, and that is that I know nothing."
I was very pleased with myself. Through early October, on my person investing outside of venture, I was actually up nearly 3% for the year. My shorts had held, gold was acting as an insurance, I had gone to cash sufficiently early. I clearly had figured out how to manage the markets in turbulent times and was even getting good at forecasting. This illusion shattered in the following three weeks. It always happens when I (or others) become complacent, overconfident and convinced that my good fortune is due to my genius and will continue on linearly. I took my shorts off prematurely, Gold started to drop with the market (depression concerns) and my proudly purchased 4 P/E stocks dropped in a matter of days to 3 P/E stocks. I tried to put the hedges back on just as the market would jump back up and remove them just as they would go back down, knowing full well of each investment rule I was violating. Suddenly, I was 10% down in just 7 days. Whoops...
This just goes to show how important it is to keep ones discipline in both good times and bad as well as a balanced view on both the up & down sides. There are a lot of people who have lost a lot of money (or are losing their companies now) because they lost discipline during the good times. For VC's, this is momentum investing, paying up for rounds, expecting someone else to pay an even crazier amount. For entrepreneurs, this is allowing your burn to grow and focusing on too many things. Then there are those losing money on the downside and we all have more than enough examples there.
James Montier, from Societe General, recently wrote an interesting piece on the beauty of Ignorance and Humility. Click here to download Montier_Ignorance.pdf. In it, he discusses the need for acknowledging ignorance and our inability to forecast the future as well as the importance, therefore, of staying humble while sticking to the fundamentals of a business. This is the key insurance policy you have in these times. It's a good read.