Happy National Day, Smart Investors!
A man is on a quest to find the secret of successful investing. He is told that if he just follows the road ahead, he will eventually find the answer. But he is also told that along the way, there will be a fork in the road….
…. At the junction will be two brothers whom he can ask for directions. One is named Bill and the other is called Ben – they are identical twins….
…. but one is a compulsive liar who can never tell the truth. The other is as honest as the day is long. He can never tell a lie. But the man won’t know one from the other. He is also allowed to ask them only one question.
So, what should his question be?
The man sets upon his journey and eventually reaches the fork where, as expected, Bill and Ben are standing.
If he asks Bill for directions to successful investing, he could be told to take the left fork. But is Bill the serial liar or is Bill telling the truth? If he asks Ben the same question, he faces the same dilemma.
He spends ages thinking of the right question to ask. Then, his “eureka” moment arrives. It’s simple when you know what to ask.
So, he asks Bill which road his brother would say is the way to successful investing….
…. If Bill is the honest twin, then he will know that his brother is the compulsive liar. If the left fork is the correct route, then he knows that Ben would lie and say the right fork….
…. but if Bill is the compulsive liar, then he also knows that his brother Ben cannot tell a lie. So, Ben would naturally point to the left fork. But because Bill is a liar, he will tell the man that Ben would point to the right fork.
So, the man should choose the fork that neither twin points to!
As we proceed on our long investing journeys, we will encounter many forks along the way. There will be no shortage of people advising us on whether we should take the left fork or the right fork….
…. they might tell us to buy gold, buy cryptocurrencies, buy land banks, buy this vaccine maker, or buy that vaccine developer, buy greenbacks, buy loonie, buy into this IPO or buy that penny stock.
But the secret to successful investing is to always find the right question to ask.
In my case, it is how do I predict the future of a business. If it cannot be predicted, then it cannot be valued. And if it cannot be valued, then it is not an investment. It is a punt.
We will never be 100% right. But it is always better to be roughly right than to be totally wrong.
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Disclosure: David Kuo does not own any of the shares mentioned.
