Thinking About Think...
Successful investing is about making good judgments and then acting on those judgments. We in this industry constantly learn from books, others' stories, observations, and experience. Our brains are wired to place our own experience at the top of the "how we learn" pyramid. Over my career, I have been fascinated by this topic of how we learn and how we make decisions. I am currently reading three books on the subject of learning. I am still a recovering bookaholic and, even in this digital age, find books a great source of "learning." Wonderfully, my iPad can hold hundreds of them, so I don't have to fill my backpack with them on trips.
I am writing this at 35,000 feet over Ethiopia. On the plane I watched the movie Founder, about Ray Kroc on the creation of McDonald's. The intensity of the learning curve that Kroc maneuvered is the kind of story that movies are made of. He's a prime example of someone who followed his gut, tested his ideas, was incredibly persistent, and took great risks. What's especially interesting to me is how he learned from his earlier failures, which actually seemed to feed into the actions and decisions that permitted his success. In hindsight, just as with Apple founder's Steve Jobs' explanation of his life with his famous "connect the dots" story, it's as if everything Kroc read, experienced, or heard fed into that success.
In my own field of endeavor, creating investment portfolios that succeed, thrive, and perform is about making good decisions lots of them. Sometimes people working in portfolio management make decisions that seem to reflect a "set and forget" approach, because certain investments are held for years. However, decisions are made every day on that investment, as to whether to buy more, sell what's owned, or hold it. We chat about our portfolios being constructed each day as if we hold 100% cash so as not to let unhealthy or distorted thinking lead us astray. Today there is science to support this notion that successful decisions don't bear fruit only by luck though luck will always exist. Some will say luck is what made the success experienced by McDonald's, Apple, Amazon, and Ford, to name a few. If you look at how we learn and how the brain works, and then deconstruct the cause of success, it's easy to see the consistent threads, or "dots," that connect o reveal what the common characteristics were in successful outcomes.
Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty, because they didn't really do it, they just saw something. It seemed obvious to them after a while. That's because they were able to connect experiences they've had and synthesize new things. (Excerpted from Social Physics, by Alex Pentland, Penguin Group, 2014, iBooks)
Most people's brains are wired to let them simply "get by," to react to changes as necessary and to do nothing else till the pain becomes greater than the reward for changing. This is especially true for people with older brains. I make a distinction here because I am 62 and still exploring, finding joy in learning new things, and feeling humble when I make mistakes, or have a learning event, or see a failure in a portfolio (however you wish to frame that "failure" or "learning experience"). I meet 20- and 30-year-olds who have old brains; they seem to know it all, know what life is about, and possess all the answers. They don't have a dozen books sitting on their bedside table or in their Kindle or iPad reader filled with yet-to-be-discovered ancient wisdom or the latest science. They are not, as Alex Pentland would call them, "explorers." So old (read "lazy") brains are not actually the brains of old people rather, they are a mindset that can be found in many people, both the young and the old.
The most consistently creative and insightful people are explorers. They spend an enormous amount of time seeking out new people and different ideas, without necessarily trying very hard to find the "best" people or "best" ideas. Instead, they seek out people with different views and different ideas. (Excerpt by Pentland)
Functioning successfully these days requires that we employ both a rigorous process and a desire to be creative and to explore the truth of what's going on in a world where things change at lightning speed. Even facts have become "fluid" in today's polarized news environment, in which thought leaders have learned that one's own brain will tend to hold the first belief it encounters, even if the evidence is overwhelming that that belief is false. It's hard to give up a belief if giving it up will cost us in social status, or a need to do more discovery, or a desire to learn something new. It's hard to teach an old dog's brain new tricks; our own brains, if we don't train them to be constantly in a discovery/creativity/growth-oriented mind-set, will embrace whatever allows them to not have to learn, change, or use a few new neurons. The fact is, everything changes, and we must anticipate the change and be ready for it. Better yet, as Amazon, Facebook, Tesla, and many others are doing, we must "create it!"
The transformation of culture and society brought about by embracing a combination of new ways of thinking and new technology. A highly problematic concept in sociology and development studies, modernization theory assumes that all societies are on an evolutionary trajectory taking them from "primitive" to "modern" and that if they are not yet modern it is because they are reactionary and/or underdeveloped. (Excerpted from A Dictionary of Critical Theory, by Ian Buchanan, Oxford University Press, 2013, iBooks)
Learning is a process, a method, an area of mastery, and with effort, focus, and practice, we can get a lot better at gaining expertise. Find value. It's impossible to learn if we don't want to learn, and to gain expertise, people have to see skills and knowledge as valuable. (Excerpted from Learn Better, by Ulrich Boser, Rodale, 2017, iBooks)
One day, when I was chatting with a friend of mine who does team building for Ugandan companies, I pulled out a Pinter-est posting to show her. She looked at it and said, "Pinterest that is my favorite!"
A few years ago, I thought of Pinterest as a place for crafty knitters, cake decorators, and a few wedding planners to exchange ideas. Not really relevant to me, I thought then. Now, I find it a site that has great resources for thoughtfully created ways to communicate, convey rants, and share edgy stuff that helps me to think more clearly and to learn from others. One posting of "15 Styles of Distorted Thinking" that I have saved on all my iPads is reprinted here. I don't use items from the list to win arguments or to point out flaws in others' thinking. Better yet, I use them to reflect on my own thinking and my decision-making processes, to help me get to reality and, with any luck, to help me make sure I'm thinking properly about my own contemplation/thinking process.
Over the years, I have watched McDonald's hold onto its core systems, which are built around customer experience, cleanliness, consistency, efficiency, simplicity, and a sort of engineered, efficient, design elegance in their "stores." I have also watched them remake themselves as consumer tastes have changed, as competition has affected key bits of their franchise, and as technology, systems, and "best practices" have changed. There is no such thing in managing a business as "set it and forget it." Things change! At FIMgroup, we spend a lot of time thinking about how we think, and striving to have a discovery/learning/growth/success/humble/creative-truth-seeking mind-set. Today it seems that much of society is looking for the "set it and forget it" governance system as a kind of religion, a reactive decision matrix, and such. At least from my experience, the oversimplified "set it and forget it" systems are doomed to fail, either by breaking under stress or by melting like ice cubes as things slowly change. It appears that in today's investment world the seductive ways of indexing, robo (computerized) advice, and cheaper, simpler, easier ways to "invest" and manage portfolios are all influencing capital flows and creating manias in many markets.
We are in this business for long-term success and we realize that distorted thinking is not helpful if our goal is positive, consistent, long-term performance. We look at McDonald's Ray Kroc, who was stubborn about trying over and over again, keeping his mistakes small, and when something worked having the guts to fully invest in it, while others were saying, "huh just a few items on the menu, no place to sit down, eating out of paper?!" These were highly revolutionary at the time. As we watch the evolution of self-driving cars, the retailing havoc caused by Amazon and its like, plus increasing Internet connectivity and vast changes in how we are entertained, it's easy to see that those who are scanning the horizon for "what's next" and who embrace the "best practices" and the new science and discoveries will find their lives and portfolios tilted a bit more toward success. And that's what successful investing today is about. Our goal at FIMgroup, then, is to always be actively scanning and constantly looking to the future for more and greater opportunities.
15 Styles of Distorted Thinking
Filtering: You take the negative details and magnify them while filtering out all positive aspects of a situation.
Polarized Thinking: Things are black or white, good or bad. You have to be perfect or you're a failure. There is no middle ground.
Overgeneralization: You come to a general conclusion based on a single incident or piece or evidence. If something bad happens once you expect it to happen over and over again.
Mind Reading: Without their saying so, you know what people are feeling and why they act the way they do. In particular, you are able to divine how people are feeling toward you.
Castastrophizing: You expect disaster, you notice or hear about a problem and start "what if's. What if tragedy strikes? What if it happens to you?"
Personalization: Thinking that everything people do or say is some kind of reaction to you. You also compare yourself to others, trying to determine who's smarter, better looking, etc.
Control Fallacies: If you feel externally controlled, you see yourself as helpless, a victim of fate. The fallacy of internal control has you responsible for the pain and happiness of everyone around you.
Fallacy of Fairness: You feel resentful because you think you know what's fair but other people won't agree with you.
Blaming: You hold other people responsible for your pain, or take the other tack and blame yourself for every problem or reversal.
Should: You have a list of ironclad rules about how you and other people act. People who break the rules anger you and you feel guilty if you violate the rules.
Emotional Reasoning: You believe that what you feel must be true automatically. If you feel stupid and boring, then you must be stupid and boring.
Fallacy of Change: You expect that other people will change to suit you if you just pressure or cajole them enough. You need to change people because your hope for happiness seem to depend entirely on them.
Global Labeling: You generalize one or two qualities into a negative global judgment.
Being Right: You are continually on trial to prove that your opinions and actions are correct. Being wrong is unthinkable and you will go to any lengths to demonstrate your rightness.
Heaven's Reward Fallacy: You expect all your sacrifice and self-denial to pay off, as if there were someone keeping score. You feel bitter when the reward doesn't come.