If you don’t know who the sucker at the poker table is, it’s you.

If you can’t spot the donkey, you are the donkey.

The donkey is the patsy. The easy mark. Us investor types do not like the idea of being the donkey. Partly because being the donkey often means losing money. Also because finance tends to attract intelligent, competitive personalities who do not like losing, period.

But we are all donkeys sometimes.

In my experience, anyone who has any real experience trading or investing, and has been around for any length of time, will readily laugh about all of the ways they’ve managed to lose money. The more beers you get in us, the funnier the stories get (and the dumber the donkey mistakes). Being the donkey is part of the journey. It’s how we learn. One of my first donkey moves was buying a cyclical stock CuZ lOw Pe. ‘Doh! Classic donkey move. Half a cycle later, I had learned an important lesson about low headline multiples on cyclicals. I paid for the lesson. The best lessons don’t come free.

Of course, being the donkey isn’t an unalloyed good. You can easily blow yourself up being the donkey.

It’s not about making sure you’re never the donkey. It’s a matter of realizing whether you *might* be the donkey in a given situation and adjusting your risk accordingly. Where you’ll run into serious trouble is betting like a shark when you are, in fact, a donkey. This seems like a trivial insight. However, in my experience, it can be fiendishly difficult to practice.

The economics of the finance industry incentivize acting smart and looking smart. Act smart and look smart long enough, and I bet you’ll start to believe you’re pretty smart. The masks you wear, end up wearing you. And don’t think I’m writing this from some enlightened state of consciousness. I’m as guilty of this as anyone.

A wise man once said: never get high on your own supply.

It’s often useful to think of financial markets as a series of nested games. When learning a new game, you are almost certainly the donkey. So, for example, if you are a smart financial advisor or smart high net worth individual who has decided to dabble in private market investing, it would behoove you to proceed under the assumption that you are the donkey. Likewise, whenever you are playing a game with a dynamic ruleset (*ahem* investing), it is possible to become the donkey by refusing to adjust your play style.

A subtle way in which otherwise skilled investors turn themselves into donkeys is through inflexibility. Self-described contrarians–and I promise I say this with love because deep down inside I am one of you–be especially mindful of turning yourselves into donkeys! Our worldview is necessarily dismissive of market feedback. This is both a feature and a bug. Do not be the guy or gal who blows up shorting paradigm shifts.

(It is much easier to be mindful of explicit forms of shorting paradigm shifts than implicit forms of shorting them, btw)

One way of thinking about a “circle of competence” is that you should only do things that fall within the circle. This is dangerous in a dynamic world. Better to think about expanding the boundaries of the circle incrementally, without taking excessive risk.

Take new risks and learn new games.

But play with small dollars until you can spot the donkeys.