When investing, do you have a scout or soldier mentality?

​​Your investing mentality can be the difference between success and failure. What do I mean by a scout or soldier mentality?

In a recent article on ted.com, author Julia Galef made the distinction between the soldier and scout mindset and how it can affect how you see the world. This can be extended to the world of investments, where having a soldier vs. scout mentality can affect your decision-making.

In her article, Galef makes a distinction between the role of a soldier and of a scout. She asks us to imagine being a “Roman foot soldier, medieval archer or Zulu warrior.” No matter the time or place, all soldiers go through the same experience. Their adrenaline is elevated, and their actions are dictated by “deeply ingrained reflexes, reflexes that are rooted in a need to protect yourself and your side and to defeat the enemy.”

The soldier takes orders and has two roles:  to attack or to defend. Soldiers on the battlefield march and battle in unison – taking cues from each other.

The role of the scout is very different from the role of the soldier and with a completely different mindset.

​​The scout’s job isn’t to attack or to defend but to analyze, to understand. Scouts have autonomy in their data-gathering role of mapping the terrain, identifying potential obstacles, and assessing the enemy. The accuracy of the scout’s data is crucial to the survival of the army.

The soldier mentality – one driven by emotions – can lead us to make wrong decisions even though we think we’re right. Emotions tend to cloud our judgment.

In psychology, this phenomenon is known as “motivated reasoning,” where “our unconscious motivations, desires, and fears shape the way we interpret information.”

​​Motivated reasoning results in biases where we favor certain information that validates our motivations while ignoring other information that goes against them.

Galef cited an incident in the French army in the late 1800s involving a French-Jewish officer in the army wrongly accused of selling secrets to Germany based on a single unsigned letter.

​​The accused soldier’s fellow soldiers blindly accepted tenuous evidence as fact and ignored evidence that would have acquitted the soldier. Instead, unconscious fears and instincts ruled, and the French-Jewish soldier was wrongly convicted. This is an example of the “soldier mindset,” where emotions are allowed to cloud our judgment.

In investing, do you have a soldier mindset? ​​

​​Do emotions and fears cloud your decision-making?

​​Like the French soldiers at the end of the 19th century who wrongly accused another soldier of treason because everyone else was going along with it, are you, as an investor, going along with what everyone else is doing even though it’s probably wrong?

“Our judgment is strongly influenced, unconsciously, by which side we want to win — and this is ubiquitous.”

In war, soldiers justify questionable actions in the name of the greater good (i.e., for their side to win). In investing, investors with the soldier mentality want so badly to win that they’ll justify questionable actions. They want so badly for questionable stocks and speculative investments like crypto to win that they’ll ignore facts and data to carry out their unconscious agenda.

The scout has one job:  to gather information. Emotions, deep-rooted fears, and biases serve no good. The scout mentality is the better mindset to adopt when investing. The scout gathers objective data and makes sound judgment calls based on that data. Ignoring data could end in disastrous results, so the scout is methodical and obsessive in gathering accurate data.

Just as the rest of the army is highly dependent on the scout, your investment portfolio is highly dependent on your scout mindset. The more you can ignore your emotions and deep-rooted biases, and the more you can rely on accurate data and fact gathering, the better you’ll be off.

What the scout sees and the actions based on their data gathering may go against the other soldiers’ (i.e., investing public) will or mindset, but if it will serve the army far more than actions based on emotions.

Your portfolio will benefit from a scout mentality – one based on accurate data – and not from a soldier mindset that has bias towards a specific outcome – often leading to questionable decision-making that distances you from the ideal outcome of financial independence and not bankruptcy.