Why My Losing Bets All Started With a Good Story
Pattern Matching Beats Narrative Reasoning
Scott Stevenson, co-founder of Spellbook, argues that narrative reasoning—short, compelling stories that feel smart—drove most of his losing bets in business and investing. Real outcomes are multi-causal and messy, so legible stories get over-bought and bandwagoned. Instead he favors pattern matching, like a chess engine or intuition, and describes scoring past product bets on 16 attributes that had little to do with the feature's story. Switching to this approach, he says, made his active portfolio perform roughly 20x better than his passive one over nine years.
If your bets don't generate some confused looks, they're probably too obvious, and thus overdone.
- dash2
>For example, “You can’t beat the market, dollar-cost average into index funds!” is the kind of viral story that will earn you nods of approval from millennials and upvotes on Reddit.
>Pattern matching, on the other hand, can drive you to make moves like an advanced chess engine. Moves that others find alien and incomprehensible.
Sure. Index funds is a viral story which has a lot of rigorous data behind it. As for the advanced chess engine of intuition... ever heard of Fooled By Randomness?
- ameliaquining
Doesn't this post consist entirely of the kind of narrative reasoning that it says doesn't work?
- grandpajoey
> Most of my losing bets, in both business and investing, were driven by narrative reasoning: short compelling stories about the world that sound smart.
> “Marijuana is about to be legalized in Canada. This is a rare opportunity to invest at the ground floor of a new industry.”
> “I’m going to invest in a cobalt mining company because they won a contract with Tesla.”
So the author made some bad investments and now looks to "pattern matching" as his next scheme? How about just some basic research and fundamental analysis? Marijuana is a commodity and blackmarket goods that become legal drop in price historically. Doesn't seem like a good investment with 10 seconds of thought put into it.
Tesla may have a huge market cap but they have pretty paltry sales, also doesn't seem like a good investment after a moment of reflection.