One tendency veteran money-managers often share is a high tolerance for cognitive dissonance. This is because without it their job would be a nightmare. Clients know that outsize returns come from taking risks, and want them to do so, but then balk when they lose money. Research is essential for gaining an edge, but a good chunk of even the best analyst’s ideas will fail to turn a profit. And of course, the most carefully built portfolio—with each position backed by a solid thesis and weights fine-tuned to the basis point—can be trounced by one that might have been slapped together in five minutes.
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