Poke the Box

Mental Model of the Week: Liking

“The deepest principle in human nature is the craving to be appreciated.” ~ William James

We want to be liked and accepted. We believe, trust and agree with people we know and like. We do things for people we like. We like the people who like us (check your Facebook now! :-)) And if we feel that a person likes us, we tend to like them back.

Now, likability comes in many forms – people might be similar or familiar to us, they might give us compliments, or we may just simply trust them.

Companies that use sales agents from within the community employ this principle with huge success. People are more likely to buy from people like themselves, from friends, and from people they know and respect.

Also, we like those who are physically attractive, popular, or those we have positive associations with. We also like and trust anything familiar.

Aristotle said – “Personal beauty is a greater recommendation than any letter of introduction.”

Studies show that we believe that physically attractive people have a more desirable personality than average-looking or unattractive people. Experiments show that attractive criminals are seen as less aggressive and get a milder punishment than ugly criminals.

But like the 6th Century Greek writer Aesop wrote, “Appearances often are deceiving.”

The best con artists always behave as though they are not acting in their best interest. The 16th Century Italian political philosopher Niccolo Machiavelli said in The Prince – “Princes who have achieved great things have been those who have given their word lightly, who have known how to trick men with their cunning, and who, in the end, have overcome those abiding by honest principles.”

Look at stock market investing. Most often, we like a stock after it has run up sharply (Titan, Asian Paints, Page), while we hate things that have dropped in price.

We are attracted to fast-growing companies and fast-rising CEOs, as we see our own aspirations in them, want to become like them, and want to associate with them. All this without worrying what that fast growth may lead to, which is often a rapid decline!

Now, while the “liking” tendency is deeply ingrained in our minds, to avoid falling deep into it, it’s important to…

• Concentrate on the issue and what you want to achieve, not on appearances.
• Not depend on the encouragement of others.
• Not automatically mistake people’s appearance for reality. It may be a social mask!
• Not automatically mistake fast-growing companies or fast-rising investments with great returns. They may turn out to be WMDs for your portfolio.

Better, seek an enemy or devil’s advocate who may dislike what you are doing and tell you exactly why he/she things so.

As Benjamin Franklin wrote, “Love your enemies, for they tell you your faults.”

Anyways, despite often reading nonsense on Safal Niveshak, I hope you would continue to like me! 🙂

At least, I wish you continue to like me on Facebook! 🙂

Poke of the Week – Believe in Yourself

“When you doubt your power, you give power to your doubt.” ~ Honore de Balzac

Remember that voice you often hear in your head?

The voice that says – “You can’t do it! You’ll never be good enough! You’re going to fail!”

This voice scoffs at you whenever you set out to achieve something. It criticizes you when life gets difficult and you are down in the dumps. It holds you down when you struggle to get up after a fall.

You see, self-doubt not only bothers you when you have it, often it slips past your barriers and gets over you. And when you let it loose, it destroys your confidence, strips logic and reason from your mind, and steals happiness from your heart.

In return, it leaves you with only fear and insecurity.

I have faced such situations several times in the past, and continue to face them day in and day out. The more I fight my self-doubt, the more it fights back.

However, I have also realized that with self-knowledge and understanding, I can use self-doubt for my benefit…and I am learning to do just that.

Most often, in life, what should concern us is not the way things are, but rather the way we think things are.

If I think I can’t do a thing, I will act in such a way that I will never be able to do that thing.

It’s a self-fulfilling prophecy: As I think, so I am.

You must have found yourself in similar situations in the past when you realized that you were not able to achieve some things because you believed from the very start that those things were unachievable.

When it comes to investing, despite the fact that Benjamin Graham and Warren Buffett’s amazing ideas have been with us for decades, the reason most people don’t invest sensibly is because they think they can’t.

So we will remain in the comfort of the crowd, buy what others are buying, look for signals on forums, blindly trust others with their money, and rarely get down to do the independent homework of finding great investments.

Again the reason is that we would believe the world but ourselves, negating what Graham said years ago – “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

The critic in your head or outside of you won’t let you believe yourself…but you have no option but to believe in yourself if you really wish to live a life on your own terms.

Watch this video and you will know that anything is possible if you believe in yourself…

If you can’t see the video above, click here.

Mental Model of the Week: Process vs Outcome

“Individual decisions can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful, because the recognized possibility of failure in fact occurs. But over time, more thoughtful decision-making will lead to better overall results, and more thoughtful decision making can be encouraged by evaluating decisions on how well they were made rather than on outcome.” ~ Robert Rubin, American economist.

Research has identified a common trait amongst successful performers in fields where probabilities play a big role – they all emphasize process over outcome.

Look at investing, and look around you. Most investment experts selling their services always highlight the outcome – so much return in so many months or years – and never the process they used to get this outcome. This is simply because, while the outcome is there for everyone to see (availability bias), investors rarely ask the question whether that outcome was due to the skill of the expert (a proper investment process) or merely luck!

This is not to say that results don’t matter; obviously they are extremely important in measuring success. But if the results have been largely thanks to luck, they may not come in as expected in the future.

What is more, if you focus only on the outcome, you are less likely to achieve it. Instead, if you focus on the process, the outcome will take care of itself.

Thus, judge decisions – especially yours – not only on results, but also on how they were made. This matrix may be of some help to you…

Poke of the Week – Reverse

Often in life, when you are seeking solution to a challenge or problem, it pays to reverse your perspective, and look at things from a different angle.

Like in investing, when you are searching for successful businesses, it pays to study what makes business fail.

In his book “A Whack on the Side of the Head”, Roger Von Oech advocates that “reversing your perspective” is an effective technique for expanding your thinking. He provides the following example…

“For many years, 19th century English physician Edward Jenner worked to find a cure for small pox. After studying many cases, he reached an impasse in his thinking. Then he reversed his perception of the problem. Instead of focusing on people who had small pox, he switched his attention to people who never had small pox. He found that dairy maids rarely got the disease. It turned out that most dairy maids had had cow pox, a similar but usually nonfatal affliction. Cow pox had served to ‘vaccinate’ its victims against the more dangerous small pox. This led to Jenner’s concept of ‘vaccinating’ people.”

Von Oech then shares a wonderful quote by innovator Andrew Mercer – “You can’t see the good ideas behind you by looking twice as hard at what’s in front of you.”

You would relate to what Charlie Munger says when he quotes Carl Jacobi – “Invert, always invert.”

For Munger as an investor, this means stacking up all the reasons you like a stock. But then, before considering purchase, invert i.e., list all the reasons to dislike that same stock.

In a 1986 speech, Munger elaborated, “It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backwards.”

Like the Greek philosopher Heraclitus said, “It is disease that makes health pleasant, hunger that makes fullness good, and weariness that makes rest sweet.”

You see, there is real value in “reverse experiences,” that is, we don’t fully appreciate something until we have thought about or experienced its opposite.

For example, just pull out experiences from your life and you would realize that…

• Success is sweeter after you’ve tasted defeat.
• Life seems more precious after having a near-death experience.
• You love someone more after you lose him/her and then regain him/her.

If you are married, here’s a way to use the ‘reverse’ strategy to bring peace to your household. Spend a minute describing a current problem. If you’re the husband, describe it from your wife’s viewpoint. If you’re the wife, do the reverse. From my personal experience, it’s a great way to live happily ever after. 🙂

Watch this small video for how reverse thinking can completely change your perspective in life…

If you can’t see the video above, see here.

Mental Model of the Week: Occam’s Razor

“Occam’s razor is a principle of parsimony, economy, or succinctness used in logic and problem-solving. It states that among competing hypotheses, the hypothesis with the fewest assumptions should be selected.” ~ Wikipedia

In other words, all things being equal, the best solution to a problem is usually the simplest one.

In investing, simplicity is the way to long term success. As Warren Buffett says – “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

While analyzing stocks, it pays to avoid businesses where a lot of hypothetical situations must go right for future success. Thus, search for simpler business that require fewer assumptions and hypothetical scenarios to work out for them.

I often wonder why does our society appear to be increasingly embracing the complex way of life, when “the simple way” clearly leads to awesome wealth and happiness?

As an investor, I am pretty sure if you can avoid complexity, you would do wonders. In fact, the principle of Occam’s Razor is an intelligent investor’s best friend. Having a simple investment philosophy would mean more time for life outside of investing!

If you need inspiration, here’s something from the world’s best behavioural scientist, Professor Daniel Kahneman, who follows a simple financial plan for himself – “Keep it simple and aim to beat inflation. Don’t try to beat the market. When it comes to investing, less is more. And if you try to do more, you’ll often end up with less.”

Leonardo Da Vinci said, “Simplicity is the ultimate sophistication.”

Anyways, while Occam Razor is very useful, it should not be seen as a substitute for good empirical testing. It relies on subjective assessment of simplicity, rather than an objective tests in evaluating arguments.

So, as Newton said, try to make things simple, but not simpler. 🙂

Poke of the Week – Be Led Astray

“Expect the unexpected, or you won’t find it.” ~ Heraclitus

When we explore for ideas and information, sometimes we find things that are better or more exciting than what we were originally looking for. Thus, we need to keep our minds open to unsought-for possibilities.

Think of the times in your own life when one thing has led to something entirely different. How did you get interested in your line of work?

How about the times you’ve opened a particular book in search of a specific idea, and then found something even better in the inside pages?

As noted author Franklin Adams wrote – “I find that a great part of the information I have was acquired by looking up something and finding something else on the way.”

Inventor Charles Kettering said, “There will always be a frontier where there is an open mind and a willing hand.”

So, the next time you meet something unexpected, don’t ignore it. Instead, pay special attention to it. It may be a better idea God might have for you.

Idea Source: Roger von Oech’s Creative Whack Pack