This post is a review on 'Don't Believe Everything You Think: The Six Mistakes We Made in Thinking' by Thomas Kida. It can be borrowed from NLB (at 153.42 KID).
As explained in the title, the book highlights six thinking mistakes:
1) We prefer statistics to story.
2) We seek to confirm
3) We rarely appreciate the role of change and coincidence in life
4) We can misperceive our world
5) We oversimplify
6) We have faulty memories
Overall the book is quite interesting. It touches on the above six points and also other aspects such as the use of science (eg hypothesis testing in statistics) to overcome our thinking mistakes. It is rather readable to me and I do detect certain overlapping materials with Taleb's "Fooled by Randomness" and "The Black Swan". This is not surprising given that Taleb draws a lot of materials from psychologists.
Before I end this post, maybe I can briefly share how these points can be relevant to investing. Pt 1) explains why listed companies nowadays announce their results with a press release. The press release is to satisfy our desire for stories. For pt 2), it is commonly known that Soros seek to avoid this bias by searching for disconfirming evidence. Pt 3) is linked to my older post on rear-view or restropective thinking.
Pt 5) is interesting as we may oversimplify in our investment hypothesis. It leads me to question whether if Monish Pabrai's view is correct. Pabrai's view is that in looking at stocks, only a few variables are important. I am not sure if he has fallen to oversimplification but then again, his hedge fund performance is supporting Pabrai's view.
Well, pt 6) is one of the reasons that I started a blog. The blog will hopefully prevent me from having faulty memories.
No comments:
Post a Comment