"The map is NOT the territory." - How can you invest successfully even in the midst of a changing market?
Every Wednesday, we discuss various investing tips and coaching comments that can help us achieve true financial freedom. We believe these things will positively impact both our personal and families’ lives. In today’s article, let’s talk about a coaching comment my friend and colleague, Professor Joel Litman, delivered to his workforce at Valens Research. Continue reading to know why “the map is not the territory” and how this concept is important in the world of finance and investing.
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"The map is NOT the territory." - How can you invest successfully even in the midst of a changing market? Have you watched the 1998 action-thriller movie titled, “Ronin”? The film stars Robert De Niro, Jean Reno, Natasha McElhone, Stellan Skarsgård, Sean Bean, and Jonathan Pryce. The plot revolves around the story of Deirdre (McElhone) putting together a team of experts that she tasks with stealing a valuable briefcase. As the operation gets underway, several team members are found to be untrustworthy. Because of that, Sam (De Niro) must complete the mission while maintaining a watchful eye on everyone else. You should give the movie a try if you haven’t yet! It offers lots of amazing insights, especially if you’re planning to become an international spy someday (just kidding!).
“The Map is NOT the Territory” One of the memorable scenes in “Ronin” was when Sam and his team planned the heist in Europe. After meticulously mapping out the mission, the leader of the group emphatically remarked: “The map is not the territory.” Sam insisted that he and his team visit the site where they would conduct the heist and see the actual target. According to him, they should go beyond the map and into the territory itself. Simply said, Sam was implying that drafted plans don’t always happen. The mapped-out version doesn’t always precisely show what the actual territory holds… Did you know the original author of that statement is Polish-American scientist and philosopher Alfred Korzybski? He said that quote back in 1931. He’s also known for developing the field of “general semantics” a few years later. [General Semantics: This refers to the study of human behavior. It’s all about understanding the differences between how humans perceive the world and how it actually is.] Korzybski’s concepts around perception have helped improve critical thinking and analysis over the past few years… and by saying “the map is not the territory,” he drove home the point that nothing is perfect. Every model or framework is bound to miss some aspects of reality. That’s why it’s important to also get into the actual territory! Let’s take a look at how this concept applies to investing… According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, investors all have plans. They track the market, study its ebbs and flows, and determine how to invest properly. However, it’s also important to realize that in the world of investing, investors are also like maps. They can’t—and will never be—perfect. Think about this: Sometimes, the ideas and investing plans you conceive in your mind, no matter how well-thought-out they are, aren’t always what happens in reality. You have a detailed timetable yet you still tend to panic at every negative news that comes out about certain stocks… You still “put all your eggs in one basket” even though your financial adviser tells you not to do so… You trade too much even though you don’t have a clear investment goal yet… These are a few instances where you need to be prepared to change your “map,” adjust for any new patterns in the stock market, and rethink your approach. In other words, you have to be ready for a territory that is different from what you expect. That’s why Professor Litman and his team of financial analysts created the Timetable Investor, a database of over 25,000 companies, each with manual adjustments to uncover more economically accurate and comparable corporate performance. It serves as a “map” that helps them summarize the patterns that occur in the U.S. stock market and incorporate appropriate indicators to understand the market’s valuations and trends better than anyone else on Wall Street. However, these don’t mean the Timetable Investor is perfect. Just like how great cartographers know that maps have different versions, Professor Litman and his team also know the timetable needs to adapt to changes over time. Besides, the territory doesn’t always stay the same. Rivers can dry up, new roads and cities can be built, and new trademarks can occur. As a result, maps need to change as well. — Korzybski’s map-territory insights are valuable for investors, financial analysts, and financial planners or advisers alike. He said: “There are two ways to slide easily through life; to believe everything or doubt everything. Both ways save us from thinking.” What does this mean in the world of finance and investing? A great investor doesn’t ignore his or her maps. However, he or she also doesn’t rely on them for every decision. Systems and frameworks like the Timetable Investor can help investors become more successful… but that’s only because they understand that the world is constantly changing. Take note of this valuable coaching comment for your personal life and investments! Keep in mind that “the map isn’t always the territory.” Get out into the field. Do your own research. Be open to changing your “map.” This will enable you to be nimble as an investor, and adjust your strategies accordingly. Hope you’ve found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Wednesday’s The Independent Investor! Have you heard about multi-source feedback, or what is commonly known as the 360-degree review? Learn more about this performance evaluation tool and how you can use it in your investments in next week’s article! |
