Here at GeoInvesting, we try to go beyond the “normal” analysis that everyone else does, the number crunching and modeling and the like. We read. We talk to people. And we embrace different ideas. That is why Dan Gilbert has caught our attention.
So here is an idea that we think is interesting: the study of decision making. Because if we can make better decisions, we can make better investments. But we can also ultimately be happier.
You have probably seen Dr. Dan Gilbert on TV commercials talking about retirement, but the Harvard professor is actually a very serious researcher and teacher. His TEDTalk on Happiness is something we suggest you watch, but it has a few corollary thoughts we might expound on.
One is Gilbert talks about Bernoulli’s probability expectations and how a lack of understanding of risk leads to very poor decision making. This is rampant in the investment world. Think about your misperceptions of risk (or reward) and how it influences your investment decisions.
Another thing Gilbert mentions on this subject of bias is “it’s hard to look things up by the third letter.” I actually wrote an article about investment bias as it relates to behavior. We at Geo do that, approach the available information in different ways to find different insights that lead to information arbitrage opportunities. Here is an exercise to try: take a piece of paper and start writing down every rule of thumb you use. Now break down those rule of thumb and ask “WHY?” Can you find counter examples to that rule? Enough to reject it and develop a new one, like Geo has?
The last idea we want to make sure you are aware of is the systematic error of comparing current situations with the past that had different situations. Remember: 20 years ago eyeballs were considered a good metric and a business plan could be funded while still written on a napkin. Ten years ago we were in a housing bubble and everyone knew that home prices would keep going up and up. What assumptions from the past are influencing your decisions today?
Gilbert uttered a statement in the Q&A after this talk: most organisms are neophobic. Change is not welcome because new animals in your environment are a threat to eat you. Yet the animal that adapts, that can change or expand their perceptions, will survive and thrive. After you watch the talk you might want to think about it a bit. What do you need to do to adapt to change, to become a better person and investor?
Geo is always looking to make improvements to better unleash our strengths and add value to our Members. We have many exciting things coming soon that we expect will continue to drive premium services to the GeoCommunity. Also, look for more educational and thought-provoking articles like this weekly later this summer. In the meantime, if you are not yet a Member, could we suggest a trial so that you can continue to access premium member insights, see what stocks we are buying and help you find great companies early ?
Thank You, Siggy