Wednesday, September 20, 2006

Lawyers vs. Detectives

A lawyer's job is to argue a position, regardless of what s/he actually believes. If a lawyer is defending an accused criminal, his/her responsibility is to zealously defend the client, not to seek out facts in an attempt to get to the truth. Its okay for a lawyer to look at all facts through the lens of how it exonerates the client, even if such an interpretation is unlikely.

A detective's job is to start with no presupposition, and simply find the truth. In an ideal world, the detective would dispassionately seek out facts and interprete them in conjunction with other facts in the case, and his/her own experience investigating crime.

Detectives can get in trouble when they arrest a suspect, then begin to view all evidence in terms of how it relates to the suspect already in custody. The result might be that exculpatory evidence is ignored, or else evidence that could be interpreted multiple ways is only viewed in one way.

Investors have to remember that we are detectives, not lawyers. By this I mean, we need to look at evidence about our investments objectively and dispassionately. Unfortunately, a lot of investors act like lawyers, where their current positions are the client. Every piece of evidence is viewed in terms of how it could benefit the investors' portfolio bets. Say I'm long the Thai Baht. Yesterday I hear there is a coup in Thailand. Given the situation and the price of the Baht, the currency is either a good investment or not. The fact that I was long the Baht before the coup is irrelevant, as long as I remember that I'm a detective. If I allow myself to become a lawyer, then I will start from the supposition that the Baht should rise, and then seek evidence that concurs with this view.

Anyone can fall into the lawyering trap. I recently saw a research report from a top 10 Wall Street investment bank that said that the coup was actually a reduction in uncertainty in Thailand. Maybe I'm wrong, but this sure sounds like the logic of a lawyer defending his position rather than a detective seeking facts.


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