The Research HUB: Perceptions Of Your Enemy

How expectations drive actions

When I think about reading books, I always think: “What type of books or collocation of books have most people in markets NOT read?”

When I think about competition, I never want to enter a domain where someone else is the best. In an open system where there are no rules, your goal is survival, not MVP.

One book I am reading right now (among the others scattered across my office) is called Perception and Misperception in International Politics:

Why am I reading this? Well, it is so easy for this old-school value investing mindset to seep into your thinking where the price of a stock or reality has to conform to the “underlying value” or “equilibrium” even though the “underlying value” is an uncertain and elusive concept in itself.

One of the concepts the author touches on in the intro is how expectations shaped so much of the action around the Cold War. Was there an actual risk or was it just a perceived risk? How are others perceiving you and are you being perceived the way you want to be?

Here is a quote from the book:

The common saying is “I’ll believe it when I see it,” but human perception is more accurately characterized as “I’ll see it when I believe it.” In international politics where expectations of hostility are common, the results are often unfortunate. As Henry Kissinger said to a Soviet visitor in May 1971, “If there was an atmosphere and attitude of profound suspicion then something was bound to happen to confirm suspicions.

- Perception and Misperception in International Politics

When you think about both the uncertainty of the world and how agents actively try to manipulate perceptions to accomplish a desired result, the quote from The Art of War will make a lot more sense:

All warfare is based on deception. If you know the enemy and know yourself, you need not fear the result of a hundred battles.

Every true professional knows their actions have a hit ratio. You will win some battles and lose some battles. You will win some trades and lose some trades. But how can you KNOW that your success in the war is inevitable?

Know the enemy and know yourself

What does this look like tangibly in markets? Be the subject matter expert in whatever domain or asset you are in. Master that market and master your own internal mindset in order to operate optimally in your domain. This can apply to markets or wherever you are right now.

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I would challenge you to think about what is holding you back from this type of thinking.