Which investment news is worthwhile?
These days it is not much fun to read about the markets. So I think it’s important to keep a good sense of humor. On that note, today I share a light story from one of my previous email newsletters (you can sign up here).
Friend: I can’t believe it. The market was down big time.
Me: Yes it was. What are you going to do about it?
Friend: Probably nothing, but man, my portfolio is hurting.
And so I shrug. News should be about improving your decisions. Will you change your investments? Will you minimize risk? Instead, news frequently serves as entertainment, gossip, and discussion for small talk.
We’re inundated with stories so we have to focus our efforts. How can you tell which news is important? If you’re confused, then consider using the “Test of Three” that comes from Socrates.
The Test of Three (source of story)
In ancient Greece, Socrates was widely lauded for his wisdom.
One day the great philosopher came upon an acquaintance who ran
up to him excitedly and said, “Socrates, do you know what I
just heard about one of your students?”
“Wait a moment,” Socrates replied. “Before you tell me I’d
like you to pass a little test. It’s called the Test of Three.”
“Three?”
“That’s right,” Socrates continued. “Before you talk to me
about my student, let’s take a moment to test what you’re
going to say. The first test is Truth. Have you made absolutely
sure that what you are about to tell me is true?”
“No,” the man said, “actually I just heard about it.”
“All right,” said Socrates. “So you don’t really know if it’s
true or not. Now let’s try the second test, the test of
Goodness. Is what you are about to tell me about my student
something good?”
“No, on the contrary…”
“So,” Socrates continued, “you want to tell me something bad
about him even though you’re not certain it’s true?” The man
shrugged, a little embarrassed. Socrates continued. “You may
still pass though, because there is a Third test — the filter
of Usefulness. Is what you want to tell me about my student
going to be useful to me?”
“No, not really.”
“Well,” concluded Socrates, “if what you want to tell me
is neither True nor Good nor even Useful, why tell it to me
at all?” The man was defeated and left, ashamed. This is the
reason Socrates was a great philosopher and held in such high
esteem.
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9 Responses to “Which investment news is worthwhile?”
That’s a good test, although I’d still rather hear the information and dismiss it on these grounds than to just not hear it, mostly because of the varying shades of “truth” that we have to deal with… if one person told me the student was bad, it means nothing, but if twenty do… maybe it means something.
By Aaron on Sep 18, 2008
As with stock tips and fantasy football news, it’s always good to know what the idiots are thinking. Plan and draft accordingly.
By DrObviousSo on Sep 18, 2008
I think we know why Socrates stayed single his entire life
By RohoMech on Sep 18, 2008
Thats a really nice write! I should use this principle from now on!
By Sandhya on Sep 18, 2008
Clearly Socrates was an introvert. Introverts often prefer maximum information density delivered in an efficient manner. The acquaintance above is an extrovert. He just wants to chat and gossip, and learn by copious amounts of talking.
Just taking a wild guess here, but I expect an extrovert would prefer to get their financial news by TV (talking heads), and chatting with others, and possibly doing something like an “investment club”, or “financial adviser”, with whom they have a “relationship”. An introvert is more likely to digest large quantities of written material, such as books, and websites like seekingalpha.com
By Paul on Sep 18, 2008
DrObviousSo:
Great point–rumors become “useful” in predicting how foolish people will act. Often stupid people can drive an irrational equilibrium. This principle once saved my professor about $250 when teaching a course:
http://mindyourdecisions.com/blog/2008/03/18/game-theory-tuesdays-winning-a-%E2%80%9Cbeauty-contest%E2%80%9D-or-how-my-professor-gambled-250-teaching-a-lesson/
Paul:
True, people learn in different ways, but I wouldn’t take the rule of three too seriously…it’s more of an amusing idea that we spend too much time on gossip. And if more people used that rule, well, we might not have as many paranoid rumors turning into self-fulfilling prophesies!
By Presh Talwalkar on Sep 18, 2008
That’s a good test, but when I heard it, it was the reason Socrates never found out his student was sleeping with his wife.
By Alex on Sep 20, 2008
Alex:
Yes, I’ve heard that punchline too but it didn’t sit well–though it does point out the downside of the test.
By Presh Talwalkar on Sep 23, 2008