Investing Like Sherlock Holmes

I love watching programs about Sherlock Holmes, especially the movies in which Robert Downey Jr plays Sherlock and the TV show, Elementary. The fictional character, Sherlock Holmes, amazes me in his wit, ability to discern quickly, and act decisively (and correctly). I like the Sherlock character because he portrays talents that I would love to possess.

Smart and Stupid

Sherlock doesn’t work alone. His trusty assistant, Dr. Watson, is very intelligent but deficient in comparison to Holmes’ ability to discern what is really going on. As we watch Holmes crack cases, we sit in awe at how he picked up small clues that the rest of us, and even his intelligent assistant, missed. His perception makes him smart.

But at the same time one could say that Sherlock Holmes is stupid, at least in some things. For example, he doesn’t have a clue about the composition of the solar system. This shocks Dr. Watson who can’t believe that someone so smart as Holmes could be so ignorant of widely held information. But Holmes’ response to not knowing certain things demonstrates he isn’t ignorant, he is strategically ignorant.

“I con­sider that a man’s brain orig­i­nally is like a lit­tle empty at­tic, and you have to stock it with such fur­ni­ture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowl­edge which might be useful to him gets crowded out.”    – Sherlock Holmes

Sherlock is careful about what information he chooses to learn and pay attention to so he has the mental capacity to process that what really matters for his profession.

Investing Like Sherlock Holmes

Investors can improve their game by following Sherlock’s methods. We only have so much mental capacity, yet market data is constant and inexhaustible. This is not an intelligence issue, it is a physiological capacity issue. Scientists estimate that the brain can hold 3 terabytes of information. While that is a huge amount of data, IBM estimates that 3 TB is only 1/1,000,000 of the data produced daily.1

Here are three tips investors can use as part of their decision-making process based on Sherlock Holmes’ methodology:

  1. Filter. Much of the financial information is not relevant to you. For example, long-term investors shouldn’t bother themselves with short-term news and outcomes – yet that is a major source of stress and distraction for investors.
  2. Facts. Focus your attention only on relevant facts and not on someone’s interpretation of the facts (everyone has opinions, many of which are influential yet mistaken).
  3. Reflect. Consider what information isn’t being said or well known, but is relevant and true.


1. Silver, Nate. The Signal and the Noise.

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