Less Conviction, More Nuance

Investors love talking about their high conviction ideas but conveniently forget one uncomfortable truth: conviction has no bearing on accuracy. I’ve seen high conviction ideas wildly succeed and crash and burn. The correlation between the two is weak, if not entirely missing.

Conviction is everywhere. From sports GM’s talking about their “can’t miss” draft picks, to CEO’s high conviction guidance, all the way to politics and religion. There’s no reference to expertise, just absolute conviction in their views.

As Scott Adams puts it: “Being absolutely right and being spectacularly wrong feel exactly the same.”

Conviction is easily faked, which is why it’s worthless. Just like applicant resumes – so easily manipulated they have no value.

Oren Vazol calls this, “…the art of pretending to have an opinion—smiling, nodding, and bluffing our way through a makeshift answer. We’ve been told to “fake it until we make it,” and we’ve become experts at the faking part…”

Many high conviction ideas are just chasing what’s recently worked. There’s no skill to that. Any idiot can just tag along with what’s working. In a long bull market, conviction grows. But it’s not conviction that’s working, just rising asset levels. 

Conviction matters when someone has a long track record of being right. In investing, like in sports and politics, that’s a very short list.

Conviction masquerades as chest thumping, trying to make a name for yourself or attracting the next dollar of AUM. You don’t get the CNBC interview with nuance and balance.

Conviction becomes a sales tool, not an indicator of validity

I get why it’s done, I’m more curious why investors embrace it.

Nassim Taleb learned the cure for excessive conviction from George Soros: “My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.”

Adam Grant sums up the paradox: “In every domain, from business and politics to science and art, the people who move the world forward with original ideas are rarely paragons of conviction and commitment. As they question traditions and challenge the status quo, they may appear bold and self-assured on the surface. But when you peel back the layers, the truth is that they, too, grapple with fear, ambivalence, and self-doubt.”