Investing When It Doesn’t Make Any Sense

“If you don’t know when you’re wrong, you certainly don’t know when you’re right.” – Adam Robinson

I love finding new ways to explain old topics. The world is constantly changing but the basic principles are almost always the same.

So whenever I read or hear a novel explanation of an age-old topic I’m always pleasantly surprised.

Tim Ferris recently sat down for an interview with Adam Robinson, one of the founders of the Princeton Review education courses for standardized tests. He’s also a former chess prodigy (who played regularly with Bobby Fisher) and is currently an advisor to some of the world’s largest hedge funds and family offices.

I really like the way he explained his investing process:

I start to write down what I expect to happen. I think the key to investing is to have expectations and then wait to be surprised. And one of the key things with investing is to be aware when you hear a voice in your head that says, “It doesn’t make sense.”

And that’s always a sign of something really powerful.

So if somebody says to me, “It doesn’t make any sense why gold keeps going lower,” I know that it’s got a lot lower to go. Because what that person just said, in saying it doesn’t make sense, is this person has a dozen logical reasons why gold ought to be going higher; and it’s going lower. And he says, “That doesn’t make sense.” But the world always makes sense. What doesn’t make sense is his model. And this applies to life.

If a stock goes up and there’s no rational reason, it means that there’s some x-factor that you haven’t considered. Because it makes total sense now in retrospect. But then it didn’t. […] People stumble on these ideas and they dismiss them because they go, “Ah, that doesn’t make any sense.” And that’s where the gold mine is — things that don’t make sense.

2016 perfectly encapsulates this idea. How many times did you say to yourself or hear from an expert or pundit that something didn’t make sense this past year? It was a regular occurrence.

Robinson continued with some thoughts on what he focuses on:

Things that are really obvious. If it’s obvious, no one bothers to examine it. In global markets, I start from the premise that understanding is an illusion, that explanation is impossible. The world is simply too complex to understand, so I don’t bother trying.

The world (and the market specifically) is an unbelievably complex place. No one will ever understand everything that’s going on with all of the moving pieces and different goals and agendas out there. This is one of the reasons I think it makes sense for investors to let go of the why and instead focus on what have control over.

Robinson does this by paying attention to what other investors are doing:

All I do is I watch investors attempt to make sense of the world. And they form views. So they’re looking at the world, trying to predict what’s going to happen and all I’m doing is studying them, because they’re the ones who are going to make buy and sell decisions and affect asset prices.

It’s like playing poker. And I see the hands that global investors are playing. So I don’t try to understand the world, I just try to get into their heads.

This idea reminds me of the old John Maynard Keynes analogy about the beauty contest:

Professional investment may be likened to those newspaper contests in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view.

 It is not a case of choosing those which, to the best of one’s judgment, are the really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects average opinion to be.

A few simple takeaways:

  • Don’t always assume that you’re right and everyone else is wrong. It may be that you’re looking at an old version or model of the world that’s no longer applicable.
  • Understanding where and when you’re wrong is more important than understanding where and when you’re right.
  • Successful investing is not just about understanding yourself, but also understanding the actions of other market participants.

Adam’s ideas on investing start at around the 28-minute mark. It’s worth a listen:
Becoming the Best Version of You (Tim Ferriss Show)

Further Reading:
Investing, Basically

Now here’s what I’ve been reading lately:

  • George Soros, fallibility, reflexivity and the importance of adaptability (Enterprising Investor)
  • Making better decisions through blindness (Dan Egan)
  • Budgeting that actually works (Peter Lazaroff)
  • 11 things everyone on Wall Street needs to stop wearing (Business Insider)
  • “it’s easy to have illusions about the future if you don’t even have a grip on your own recent past.” (Irrelevant Investor)
  • Why the finance industry is failing (Tim Hanso)
  • How diversification became a 4 letter word (Pension Partners)
  • Commodity futures investing is both complex and unique (Alpha Architect)
  • An interview with Jerry Seinfeld (HBR)
  • FOMO and imperfect portfolios (Abnormal Returns)
  • 99 reasons why 2016 has been a great year for humanity (Angus Hervey)



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  • Matt W

    Lot of echoes from Ben Hunt’s Epsilon Theory letters here – are you familiar with his work?

    • Ben

      I am. Good point.

  • This article gave me a new idea for investing – instead of attempting to identify the best explanation, focus on why people have chosen a particular explanation. Although I wonder if the explanation du jour will tend to justify an asset’s movement over the past 10 trading days?

    Nick de Peyster

  • Ben,

    Your chat-piece has the fallacy of all timers and technicians: you keep alluding to things “going” higher or lower.

    You never know where things “are going.” The only facts you have is where they have gone.

    And you should know by your age why prices are where they are right now. Half the smart money thinks they should be higher and half the smart money thinks they should be lower. That’s when or whether they have all the facts, or just some.


  • Georg Wuitschik

    Although it sounds smart at first I disagree with the approach described here. It’s a momentum strategy in disguise but one that is poised to make you invest close to turning points (before and after!). Also, it makes the assumption that the market price somehow is “right” and that there are hidden factors that would explain everything if they were just known to us mortals…

    • Ben

      Someone like George Soros has been shown to be a trend-follower as well. Momentum sounds easy but you have to still be right twice (when to hop on and when to hop off).

  • bubba123

    Who the hell is Adam Robinson? What’s his investing track record? His website looks ridiculous….

    • Ben

      Don’t judge a book by its cover. This is the website for renaissance technologies, likely the greatest performing fund of all-time:

      • bubba123

        RT is founded by Jim Simons…

  • Brandon Koepke

    Took me a bit to realize what you were saying.

    When I first read though I thought you meant “if something doesn’t make sense then I must be missing something” but I think you were being more specific. Would I be correct in assuming you meant that “if you don’t understand why something has a high/low value then you probably shouldn’t take a position in the market that opposes the current value”? If that is not correct could you please clarify your position? The way I currently read it would be in direct opposition to a traditional value approach (i.e. Volkswagen falling to the ~$90 range despite high BV and sales doesn’t make sense so buying was a good idea.)

    PS: I am an ETF guy so don’t take the Volkswagen comment as supporting stock selection.

  • Zvi Wolf

    Your post accords with something it took me a long time to learn, that when an asset price is moving persistently in a particular direction contrary to the “fundamentals” something is going on that I did not see. Yes, this is a form of momentum, but momentum often leads news and fundamental data. (And momentum works, not always, but well enough that many quants embed in their algorithms.) Once I learned to trust my instincts on this, I used it successfully many times through my long career managing macro oriented bond and currency funds. I wholly disagree with the earlier commenter that this will lead you to take action only near turning points. If that were true, this would be an even more valuable observation than it is.