Finance 101 – The Hedgehog and the Fox

One of the most famous works of philosophy is Isaiah Berlin’s The Hedgehog and the Fox. A hedgehog only knows one trick (see below). Foxes, on the other hand, have many tricks up their sleeve, hence the phrase “as cunning as a fox”. Ask anyone you know with a chicken coop about the vigilance required to stay one step ahead of a fox!

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The Hedgehog and Fox analogy can be extended to contrast those with only one way of seeing the world vs those with multiple perspectives. There are many faiths of investing, with millions of devout followers. Some are value investors and pray to Warren Buffett at night. Others are index investors, worshipping their patron saint Jack Bogle. These are investing hedgehogs with only one way of viewing investment markets. A common giveaway of an investing hedgehog is the phrase “it makes no sense that the market…”. What they’re essentially saying is “Prices are not moving the way I thought they would, so there must be something wrong with other investors”. Markets are incredibly complex and in constant flux, meaning that a singular viewpoint is often incomplete and/or outdated.

So how do you become a Fox in investing or other domains in life? Following the mantra “strong opinions, weakly held” is a good start. There’s nothing wrong with having a strong view on investing, politics, or any other subject. Where people get in trouble is when they stick to their guns despite ample evidence that they’re mistaken. This is more likely to occur to people who think highly of themselves and their abilities.

Charlie Munger (an esteemed minister of the church of value investing) attributed his success to having a low opinion of his abilities “If you think your IQ is 160 but it’s 150, you’re a disaster. It’s much better to have a 130 IQ and think it’s 120.

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