When Do You Admit You Are Wrong?

• Posted by Greg Harmon
• on July 16th, 2013

Many traders, pundits, economists and investors make analyses and predictions on what the market will do. Most predictions that you see are harmless to those making them if they are wrong. They get shrugged off with a ‘Oh, well’ and then the move on to another prediction. But for the trader and investor, where the result of that work is used to place capital, there can be severe penalties for being wrong. It does not have to be that way. Proper risk management and cutting losses can limit the pain. This is how you survive and continue to participate in the markets. The real penalty, the true pain, comes from not being able to admit you are wrong.

I have been bullish on this market for a long time. That still stands and I am not considering a change in stance at this point. But a twitter conversation this weekend got me thinking about the question in the title, When Do You Admit You Are Wrong? I was doing my weekend research when the following tweet rolled across my screen from Abigail Doolittle. And let me say above the picture, that this is not about picking on Abigail. From what I have seen of her work she has been pretty bearish for some time, as the market has been moving against her. But this started me thinking how long can she be

wrong and keep the same view. After some back and forth it became clear to me that her timeframe is much longer than mine, and that plays an important part in the analysis. Although she can see a scenario where the Russell 2000 drops towards 400 she stated that she expected the turn to start in the 3rd or 4th quarter. I failed to ask her where her stop was. The point where she would admit she was wrong and reverse her call, but I am sure she has one. I have a stop on my bullishness in this market too. Expressed in terms of the S&P 500 it is currently 1553.

It also became clear that this was the right question to have, but I was thinking about it for the wrong person. The point of this is that as a bull in a bullish market my brain was ready to react to any view that was not bullish. Strong conviction is fine. And I expect it from traders and other Wall Street Type-A people. So why did I not anticipate a well informed argument for a move to 400 on the Russell? It may be enough to have a strong view and a firm stop loss, but this whole scenario points out that beyond that there is value in understanding the counterargument whether you agree with it or not. I pride myself on usually being open minded and able to understand other points of view. Not to abandon my own, but to be able to listen. I had moved beyond that point at some point in the last few months. Don’t let that happen to you. Have a view. Keep you conviction. But also keep your mind open. I started by wondering when Abigail would lose her conviction. But ended up realizing my views were too closed. I was wrong and needed to open my mind.

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