Sound Thinking: Thinking Skeptically

Thinking Skeptically

Risk markets are currently trading at all-time highs, cryptocurrencies are soaring, and investment markets are looking forward to a broadly positive post-COVID future. At times like these it can be valuable to consider the role that skepticism plays in the investment process. How should an investor approach the wide range of opportunities that come across their desk, each presented by a convincing expert individual, but only a fraction of which are going to pay off? Answering this question requires us to focus on skepticism: skepticism about markets, skepticism about counterparties, skepticism about investment claims, and skepticism about models. Embedding skepticism into the investment process may help drive better decisions but understanding what that means can be hard. This short paper is designed to help clarify the role that skepticism can play, and also to clarify how investors can use it as a tool without being captured by it, because excessive skepticism may lead to missed opportunities.