Oct 212014

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Dr. Earl R. Smith II

During a recent conference call with a bunch of my investor friends the conversation focused on the basis for deciding. We grappled with a variation of the old question ‘how do I know that this thing is true’. We had all known each other for a very long time, so there was little posturing – and, when it did show up, it was slapped down directly. Nobody was allowed to claim either omnipotence or omniscience.

During the course of the conversation, there seemed to be three given reasons why something is tagged as ‘true’.

  • Because I say it is true
  • Because facts seem support it being true
  • Because I have talked to a range of people I know and trust and they all seem to think it is true

Because I say it is true: Of course, among highly educated and experienced people this is the most dangerous of the rationales. On the one hand, you feel that your education and experience give you superior judgment. After all, you did graduate from an ivy encrusted institution, build a successful business (or maybe two or three) and now manage an investment fund that has seen at least some of its portfolio companies win big. On the other hand, you do know the correct spelling and meaning of the word hubris!

After an initial dismissal of this rationale, the group settled on a more productive approach. Education and experience yield intuition that is more reliable because of the education and experience. We generally agreed that intuition does not rise to the level of truth.

More than one of the group lamented that the founders of some of their companies never seemed to get past relying on intuition as a substitute for truth. One even stole my line – “you can lead a horticulture, but you can’t make her think”. He went on about one particular CEO who seemed to confuse rational thought with religious belief. “This guy had a sense of manifest destiny,” he observed. “According to him, everything was the result of ‘god’s plan’. Except, of course, his failure in business. That he took on himself. And I had to write off the entire investment as a contribution to his cathedral of self-worship”. We all chuckled that ‘been there, done that’ laugh.

What we agreed on was that intuition only gets you a lead to the truth. If you say it is true because you ‘believe’ it is true, you are on very thin ice.

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