There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”

This is Water

The above quote is from David Foster Wallace‘s commencement speech to the 2005 graduating class at Kenyon College. It illuminates a fundamental risk that we all face and is arguably the most critical to manage if one is to achieve investment success. The following is a summary quote from the speech (emphasis added):

The point of the fish story is merely that the most obvious, important realities are often the ones that are hardest to see… the really significant education in thinking that we’re supposed to get in a place like this isn’t really about the capacity to think, but rather about the choice of what to think about… I’d ask you to think about fish and water, and to bracket for just a few minutes your scepticism about the value of the totally obvious…

He goes on.

the exact same experience can mean two totally different things to two different people, given those people’s two different belief templates and two different ways of constructing meaning from experience… a huge percentage of the stuff that I tend to be automatically certain of is, it turns out, totally wrong and deluded. I have learned this the hard way, as I predict you graduates will, too.

The Science: Thinking, Fast and Slow

Daniel Kahneman is the preeminent expert in the field of decision making and the winner of the Nobel Prize in Economic Sciences.

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