Becoming A Better Investor: The Twaddle Tendency

Renowned investor and former Berkshire Hathaway vice-chairman Charlie Munger emphasised just how much human psychology affects our decision-making, especially when it comes to investing. In his speech "25 Tendencies of Human Misjudgment,” he outlined 25 core psychological tendencies that influence our decision making. He says that when we recognise these tendencies, we can avoid mistakes and make rational investment decisions.

This week, we explore the twenty-third tendency, the Twaddle Tendency, and how it impacts us as investors.

What is it?

The Twaddle Tendency is about, well, twaddle or trivial conversation. He says it is the human inclination to engage in, produce or consume meaningless, trivial, or unreliable information, which often masks a lack of genuine understanding.

Twaddle is when we feel the need to say something, even when we have nothing useful to say. People who lack genuine knowledge and expertise may resort to twaddle and jargon to hide their ignorance.

How does it play out in the world of investing?

Twaddle tendency, as Munger saw it, is our tendency to talk in platitudes, believe and share unverified nonsense, or cling to shallow narratives. In the world of investing, where the difference between a good and bad decision can mean millions, twaddle is dangerous: it distracts from essential truths, dulls our critical thinking, and reinforces herd behaviour.

This happens because we as humans want to understand things — so we seek out things which are easy to understand. There’s also the fear of being left out: we want to appear informed and knowledgeable, even when we are not, so we play along. And this erodes our ability to question and think rationally.

So how do we avoid the Twaddle Tendency? To begin with, be honest. If we don’t know something, we need to admit it and take steps to get informed. It’s far better that we acknowledge what we don’t know and learn, instead of pretending, engaging in twaddle, and investing using half-based knowledge.

Second, tune out of the crowd. Instead of relying on what other people have to say and agreeing with them, we should do our own research using the right sources. Read original sources like annual reports, transcripts of investor calls, press releases, etc. The key is to learn across disciplines, not just study the markets. And when we come across a piece of information, we should look at it objectively and ask- “Is this insight, or is this just twaddle?”

Many of us slip into twaddle mode, talking for the sake of it or because we think we know something, when we actually don’t. Basing investment decisions around twaddle can be dangerous, since there’s no real knowledge or data backing it. So we need to be honest with ourselves, acknowledge what we know and don’t know, and seek out the right information from the right sources.