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Jason Zweig, editor of Ben Graham’s The Intelligent Investor, quotes Richard P. Feynman, physicist and intellect extraordinaire, in his latest missive on investing:

"You must not fool yourself—and you are the easiest person to fool."

'For investors, the bigger the commitment, the more certain they become that they must have been right to make it—and the harder it becomes to let go.

The literal meaning of the word "invest"—from the Latin vestire, to clothe or dress—is to wrap oneself up in something. Experiments at racetracks and elsewhere have shown that people who bet on an outcome become up to three times more confident that it will occur than people who didn't put up any money.

Not trying to disprove your own beliefs is an especially dangerous deception. In a commencement address he gave to students at the California Institute of Technology in 1974, Mr. Feynman urged his listeners to avoid what he called "cargo cult" thinking, after Pacific islanders who believed they could make airplanes land, full of food and clothing, merely by standing alongside makeshift runways, as they had done during World War II.

You also can fool yourself by placing too much faith in the findings of supposed experts. Mr. Feynman recounted the story of an influential formula for measuring the charge of an electron that was devised by the pioneering physicist Robert Millikan. The result was slightly wrong, but it took many researchers years to prove it wrong—since Millikan's successors assumed that he had to be right. They adjusted the value, but not enough; deference made them too timid to believe the evidence of their own eyes.

So how can investors avoid deceiving themselves?

First of all, remember that "the riskiest moment is when you are right," as the economist Peter Bernstein was fond of saying.

You should set, in advance, a threshold of profit at which you must review any holding—say, a 50% gain. At that point, you must seek out the opinions of people who think you are wrong—research from short sellers betting against the stock, for example.

Look at the results of other people and organizations that have tried something similar to the investment actions you are considering. Unless other people have succeeded at it, there isn't any objective reason to believe that you will.

Monitor yourself for vehemence. If you find yourself tempted to ridicule anyone who tells you are wrong, you probably are wrong. The philosopher Bertrand Russell wisely warned that the less evidence someone has that his ideas are right, "the more vehemently he asserts that there is no doubt whatsoever that he is exactly right."

Finally, try the technique that psychologist Gary Klein calls a "pre-mortem." Gather a group of people whose views you respect. Ask them all to imagine looking back, a year from now, at the investment you just made—and that it has turned out to be a disaster. Have them list all the possible causes of the failure. That may well help you see how it might have been avoided.

Above all, remember that the smarter you are, the more easily you can fool yourself. '
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