Not Totally Worthless

I hated being an attorney, but I gained a lot from it.

This edition of TBL outlines what I gained from my legal training and experience. All in all: Not Totally Worthless.

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Not Totally Worthless

I went to law school straight out of college on account of certain skills I possessed – some general academic talent, analytical and writing skills, the ability to marshal arguments, and very good standardized test-taking ability. But I didn’t really understand what attorneys did in any meaningful sense. Indeed, I had never met a lawyer before enrolling in law school at Duke.

As it turned out, I became a pretty good attorney – my skill set was appropriate. But I never liked it very much and I was better suited for the investment world. I favor accommodation, collegiality, and collaboration to conflict. I’m better at big picture trends and goals than I am at minute details. I prefer adding value to playing zero-sum games. I have a much shorter attention span than the litigation process permits. So, I now refer to myself often as a recovering attorney.

That said, my legal training wasn’t totally worthless. It has helped me long after I took the off-ramp from a legal career to Wall Street. Indeed, law school provided a pretty good education for a budding investment professional. I outline five specific and interrelated investment lessons I’ve learned from my legal training and experience below.

Think probabilistically. Civil (not criminal) cases are generally decided based upon where the decider of fact (judge or jury) determines the greater weight of the evidence rests. That means that the side with the better evidence and arguments wins (and in the event of a tie, the party with the burden of persuasion loses). In other words, 50.1 percent probability is enough to win. The law recognizes that certainty is elusive at best. We don’t need to be 100 percent sure. Instead, we need to make our best judgments and go with the better evidence and arguments. We aren’t going to be certain. Often, we won’t even be sure. But the tiniest bit better – the more probable result – should generally be enough to carry the day. It’s surely the best place to start. Investors never have reason to be certain. There are so many variables involved in the markets that reasonable probability is the best we can hope for. Attorneys get that. Investors and their advisors should too.

Learn to argue the other side. A remarkable universe of discoveries in psychology and neuroscience demonstrate that our preexisting beliefs skew our thoughts and even color what we consider our most dispassionate and reasoned conclusions. Expecting people (including ourselves) to be convinced by the facts is contrary to, well, the facts. Factor in our behavioral biases (headlined by the lead actor, confirmation bias) and it’s easy to see, at least conceptually, why we can get it so wrong so readily.

Our tendency is to look for and consider only those views that correspond to our own – which goes a long way towards explaining the popularity of Fox News and MSNBC, for example, while also explaining why the viewers of each of those networks tend to think that only the other side is nuts. If we are going to be able to see things a bit differently, we need to seek out and consider sources that look at things differently.

Since attorneys are paid to take a particular side and are evaluated based upon how well that side is represented, “motivated reasoning” is a particular problem. That’s why the best attorneys work at understanding and even learning to argue the other side’s case. Bad lawyers run around looking for anything and everything that may help their cases and for stuff that might damage the opposition to the exclusion of everything else. The best attorneys recognize that examining, understanding, and even appreciating contrary evidence is helpful to their own thinking and can provide a good check on the coherence of their positions.

Understanding the opposition’s best evidence and seeking support for its best arguments is a powerful learning tool and one investors and their advisors should emulate. We might even decide that – gasp – mistakes were made (almost surely by someone else, of course).

It’s all about the evidence. In a legal action, evidence is king. While juries are sometimes bamboozled by a good story or prejudiced by bias, judges are charged with dismissing even powerful cases when the evidence is insufficient. The entire legal process is focused upon gathering, evaluating, and presenting good evidence. There are careful and detailed rules for deciding whether proffered evidence should be deemed evidence at all and whether it can and should be admitted for consideration by the appropriate finder of fact.

As investors and advisors, we should focus on the evidence in a similar way. As I have stressed repeatedly (and I’m not alone in this, obviously), it is crucial for investors to focus on the available data and always to be seeking more and better data. We should always strive for a data-driven perspective and a data-driven process. That isn’t easy to do, sadly. We relate better to stories and are all too willing to believe and concoct narratives of various sorts to support our latest nonsense, but it’s a worthy aspiration and commitment, nonetheless. As W. Edwards Deming, perhaps the original data scientist, famously emphasized: “In God we trust; all others must bring data.”

The evidence must be evaluated and presented analytically. Attorneys need to gather evidence with great care and then evaluate that evidence with great care because judges are called upon to rule on the admissibility of every piece of it. Because our tendencies toward behavioral and cognitive bias as well as toward misused and misapplied heuristics, we must similarly analyze our investment evidence.

As I repeatedly point out, information is cheap, while meaning is expensive. Accordingly, we need to evaluate the evidence properly to figure out what it means and how it can be applied successfully and effectively. One of my reasons for consistent publication is that it offers a terrific commitment device. Wishy-washiness simply won’t cut it. Moreover, since my mistakes and failings are public, I must face them head-on. Accordingly, it is crucial that I get to publication with great care.

Attorneys recognize that need well, as their positions must be presented formally and in writing at every level to be scrutinized and challenged by the opposition. Possessing evidence that might look good isn’t enough. It needs to be presented effectively and stand up to adversarial scrutiny to make a difference. Part of that is stylistic. Evidence needs to be presented persuasively. But even more importantly, it needs to be presented within an analytical framework that makes sense. Style doesn’t matter if it isn’t supported by substance. “Writing it up” is never a bad idea.

Check and re-check your work. Good attorneys check and re-check their work and their evidence. In big cases, they even bring in good attorneys to take a look at their files and help them look for holes in the evidence or weaknesses in their arguments. Similarly, we need (relative) objectivity if we are going to succeed in investing and in life unless we are extremely lucky. Having an accountability partner or (better yet) a competent and empowered team to scrutinize your work is particularly important due to our great ability to spot what’s wrong with everybody else (if not ourselves, due to bias blindness). It also means taking and dealing with criticism seriously – even welcoming and encouraging it.

It shouldn’t be surprising to see so many people who experience great investment success suffer indifferent performance or even failure subsequently. The more success and power we achieve, the easier it is for us to believe the hype. Accountability mechanisms that are maintained and honored can help to undercut that. No matter how good our process is, we need also to assume that we have made errors and set out actively to find them by testing and confirming everything to the extent possible.

Once we have decided that a given view is correct or commit to a particular course, confirmation bias tends to take over. Planning to be lucky and believing that psychological realities don’t apply to us is a lovely (if arrogant) thought. But it’s not remotely realistic. If you want to succeed, keep testing and looking for ways that you’re wrong…and make sure that you have help.

Investors and advisors of all sorts would benefit from making careful presentations of their conclusions and proposed investments to skeptical outsiders for them to challenge their thinking and their conclusions. As the adage suggests, measure twice, cut once. But in the investment world, twice may not be enough. Even better, let somebody else do some of the measuring.

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Totally Worth It

On March 6, 1970, 55 years ago, The Beatles released Let it Be as a single. The song would enter the Billboard Hot 100 Singles chart at number six, the chart’s highest debut at the time, before climbing to the top spot.

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On Christmas Eve 2020, New York State Representative Brian Kolb wrote an op-ed warning people not to drive drunk over the holidays. On New Year’s Eve 2020, he got drunk and drove his state-issued SUV into a ditch.

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This is the best thing I’ve read recently. The coolest. The most emotional. The most significant. The most interesting. The worst job. Tyler Cowen. Lots of famous people were rejected by SNL. Drone warfare. Weather forecasting. Lotto arbitrage. Featured songs in TV and film. Dude Perfect. Dunk perfect. Best Picture winners, ranked. Solved. Cats and dogs.

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“The number of babies born in Japan last year fell to the lowest level since records began 125 years ago as the country’s demographic crisis deepens and government efforts to reverse the decline continue to fail.” In Japan (and China), the market for diapers for the elderly is already larger than for babies, with ever fewer workers to support ever more retirees. The U.S. faces a similar risk unless we accelerate immigration (unlikely) or find a way to encourage greater fertility.

The late historian, Paul Fussell, had what George Orwell called “a power of facing unpleasant facts.” He unpacked it in an essay of that name.

“Some exemplary unpleasant facts are these: that life is short and almost always ends messily; that if you live in the actual world you can’t have your own way; that if you do get what you want, it turns out not to be the thing you wanted; that no one thinks as well of you as you do yourself; and that one or two generations from now you will be forgotten entirely and the world will go on as if you had never existed. Another is that to survive and prosper in this world you have to do so at someone else’s expense or do and undergo things it’s not pleasant to face: like, for example, purchasing your life at the cost of the innocents murdered in the aerial bombing of Europe and the final bombings of Hiroshima and Nagasaki. And not just the bombings. It’s also an unpleasant fact that you are alive and well because you or your representatives killed someone with bullets, shells, bayonets or knives, if not in Germany, Italy or Japan, then Korea or Vietnam. You have connived at murder, and you thrive on it, and that fact is too unpleasant to face except rarely.”

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Benediction

Ben Harper and the Blind Boys of Alabama offer today’s benediction with a terrific song first made famous by Porter Wagoner in 1955 and subsequently covered by a Who’s Who of performers, including Ella Fitzgerald, Joan Baez, the Byrds, Glen Campbell, Bob Dylan (and the Band), Lucinda Williams, Lindsey Buckingham, Jeff Buckley, Willie Nelson, Robert Plant, and Johnny Cash.

We live on “a hurtling planet,” the poet Rod Jellema informed us, “swung from a thread of light and saved by nothing but grace.” To those of us prone to wander, to those who are broken, to those who flee and fight in fear – which is every last lost one of us – there is a faith that offers love and hope. And may grace have the last word. Now and forever. Amen.

As always, thanks for reading.

Issue 184 (March 7, 2025)