High Probability > High Conviction

This post will probably be another play of words, although words themselves are the building blocks of how we frame our thinking.

I think words are both underrated and overrated based on their ability to either clarify or obscure the true nature of what we're trying to convey.

The overrated part is usually how we elevate certain terminology to almost mythical status, while the underrated part mostly revolves around how precise language can create mental frameworks that lead to better decision-making.

Depending on the context, using precise words can make a lot of difference, similar to having the precise location of a place could spell the difference between arriving at your destination or getting completely lost.

In my view, the word conviction sometimes seems overrated, specifically from an investment lens.

Unlike borrowed conviction, which is quite dangerous, having a high conviction of a particular investment decision/thesis entails deep research, understanding of potential outcomes, and honest assessment of one's own knowledge boundaries.

The latter simply means recognizing where your expertise ends and uncertainty begins.

Rationally Irrational Markets

Given that markets are inherently unpredictable in the short term, one could nod in agreement that conviction must be tempered with humility and flexibility.

Also, can a person invest for the long term without an element of conviction?

I'm not so sure, even though I'm sure probability can facilitate conviction, it remains to be seen whether one can truly separate them in practice.

In reality, issue arises when conviction crosses the edge of logic and enters the land of irrationality. More or less completely divorcing from any grounded-ness of actual reality.

Image Source

Interestingly, this can be viewed as a good thing. Because of the emotional resilience it provides during market volatility and also the patience it fosters for long term horizons.

But precisely when conviction becomes identity, i.e being right matters more than making money, it could work against you when situations have changed and you can't adapt to a reality that contradicts your thesis.

A tangible example from my own experience is the Mocaverse project and the MOCA token.

The current all time MOCA chart looks more or less like the average short-lived memecoin. I initially invested with high conviction about the ecosystem's potential, the team's vision, and the utility roadmap.

When the token began its descent, my conviction served as an emotional anchor, telling me "this is temporary, the fundamentals haven't changed."

As much as a generic term this is, I'm beginning to realize that what seemed like fundamentals can change overnight in crypto. Solid yesterday, Evaporate tomorrow.

Already Factored In

With probability thinking, there's a sense of consideration or perhaps expectation that drawdowns are ahead, and one has already mentally accounted for multiple scenarios, including failure.

"What is the likelihood my thesis is wrong?" seemed more like a compass guiding rational decision-making than seeking evidence to reinforce existing beliefs.

In the Mocaverse case, switching from conviction-based thinking (I know this will succeed) to probability-based thinking (What's the likelihood of recovery versus further decline?) would have preserved capital and mental bandwidth.

It's an interesting psychological journey to travel to and fro between "just hold on" point of thought and "reassess and reallocate" train of thought.

The former creates investors who go down with the ship. Investors who survive to deploy capital another day are of the latter category.

This doesn't imply that a ship that goes down wouldn't eventually resurface. The likelihood is simply not worth the opportunity cost in most cases.

Probability thinking doesn't shadow conviction, it simply places it within a framework of reasonable expectations and multiple potential outcomes.

In today's world, the investor who survives is rarely the most convinced, but always the most adaptable.

So says experience, arguably the most expensive teacher of all.


Thanks for reading!! Share your thoughts below on the comments.