Dangerous, Faulty Memory

In this brief, insightful video, Daniel Kahneman talks about the experiencing and remembering selves, and how happiness can potentially be measured.

Investing related take-away:
Our memories are not a true representation of reality. We tend to forget most things we experience. This is important to be aware of in a field where history, current affairs, and effective links between the two, can be used to make significant decisions.

One may forget the thought-process which drove an investment-decision of the experiencing self. That is to say, one may forget the initial reason why the reflective-self made an investment decision. Instead, we may become victims of bad experiences (bad earnings or bad press) in the short run. Thus, we may exit a good long-term position due to short-term discomfort and uncertainty. This is partly a case of being unable to recall exactly why you did something.

Furthermore, we only remember inflection points in a story. Thus, it is important to be careful when one is inclined to do something based on past 'experience'.  We must consequently question any comparison we make and any story we begin to tell ourselves. However, experiences are still useful; One cannot question each memory indefinitely, as this questioning could potentially prevent you from making big, bold bets, even when they are 'right'. In effect, we must be aware of our limitations and biases, but must also not get overwhelmed and encompassed by how little we really 'know'.

In order to (partially) resolve the issues raised by our dangerous, faulty memory, it may be a good idea to document our thinking and conclusions on an ongoing basis. This will give us something to hold onto when we are feeling uncomfortable; it will enable our remembering self to remember more of what the experiencing-self thought. Thus, we can see how our thinking has changed over time, and we do not have to rely solely on your unreliable memory.