Wednesday, November 20^th, 2024

Humankind’s Two (2) Forms of “THINKING”

We have, in effect, two (2) forms of “THINKING”: FAST and SLOW.

FAST “THINKING” involves tapping into our experience, our habits, or our OVERSTANDING/UNDERSTANDING of processes or things familiar to us. When we think QUICKLY, we can often do other things SIMULTANEOUSLY.

SLOW “THINKING” involves REASONING, MATHEMATICS and/or, STATISTICS. This takes longer and requires our full attention.

Our FAST thinking works fine for most things, most of the time…

A good portion of our lives functions through well-practiced “HABITS”. But most of the BIASES and MISTAKES that can get us into trouble – financially or otherwise – come from using our FAST “THINKING” in situations where SLOW “THINKING” is called for.

NOBEL PRIZE winner DANIEL KAHNEMAN and his colleague AMOS TVERSKY made their careers by identifying and OVERSTANDING/UNDERSTANDING these types of mistakes.

In KAHNEMAN’ book THINKING, FAST and SLOW, he describes these mistakes in wonderful detail.

Let’s play with this, so YOU, ME, WE the ATWWI FAMILY can experience the difference directly.

Start by solving this question QUICKLY…

A bat and a ball together cost $1.10. The bat costs $1 more than the ball.

How much does the ball cost?

This is the kind of question that requires a little more thought. Therefore we must engage our SLOW “THINKING”. Yet most people answer this quickly… and initially get it wrong.

Go back and think through that same question SLOWLY before reading on.

Now, when people do this QUICKLY, they usually say that the bat costs $1 and the ball costs $0.10.

BUT, if that were the case, then the bat would cost only $0.90 more than the ball.

If you said the ball costs $0.05, you are correct.

Of course, not all math questions require SLOW “THINKING”.

FAST “THINKING” is generally acceptable for something like 2+2.

That’s something you know by “ROTE” memory…

Seeing 2+2 is identical to seeing the number 4. And you can easily solve it while carrying on a conversation.

BUT, can you quickly answer 17×28?

Unless you are an exceptional math student, that one requires more CAREFUL calculation.

Here’s where we can run into trouble…

We don’t like to stop what we are doing. SLOWINGS down to “THINK” more CAREFULLY about things takes ENERGY and TIME.

In short, our minds are LAZY.

BUT, LAZY for a good reason…

Our brains use a tremendous amount of our METABOLIC ENERGY. So it’s natural for us to conserve that energy rather than spend it on unnecessary tasks.

We are much more “COMFORTABLE” using our FAST “THINKING”. It’s EASIER and comes “NATURALLY”.

It doesn’t require extra energy we might need for other things…AND there is a flow to it, so it feels “GOOD”.

That’s why we rely on our FAST “THINKING” in situations that require SLOW “THINKING”.

When faced with a difficult question that requires our “SLOW” THINKING, we often – without noticing it – replace that HARD question with a much EASIER one.

That way our FAST “THINKING” can answer in a “JIFFY”.

It “FEELS” like we have answered the question we’ve been asked. But since we answered the WRONG question, we likely came up with the WRONG answer…

For example, we may be asked, “How well do you expect this investment to perform over the next year?”

That type of question requires HOMEWORK and CALCULATIONS. So we are likely to REPLACE it with an EASIER question, like:

“How do you feel about this investment?”

You can see how that can lead to TROUBLE!!!

Maybe your feelings about a stock happen to line up with the performance of the investment. But that’s really a matter of LUCK.

This is often what happens when we make INVESTMENT DECISIONS based on EMOTIONS… AND while it may save some METABOLIC ENERGY in our brains, it can cost us a lot of MONEY in the financial world.

WHENEVER, we look primarily for information that CONFIRMS our existing “BELIEFS”;

WHENEVER, we hold on to an investment for too LONG

WHENEVER, we keep doing what is “FAMILIAR” with our money but has NOT actually worked very well for us;

WHENEVER, we don’t SELL a “BAD” investment because we know it’s going to turn around any minute…

All of these are examples of MISTAKES we make by using our FAST “THINKING” when we would be better served by using our SLOW “THINKING”.

To put it bluntly, the more “MASTERY” you can gain over these, the more you will be able to deliberately apply your SLOW “THINKING” where it is needed.

The more that strategy of “THINKING” becomes part of your decisions, the MORE money you will GENERATE and the LESS money you will LOSE.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Friday, November 15^th, 2024

Why Our “PERCEPTIONS” Don’t Always Reflect “REALTY”

We make “SENSE” of the world around us primarily through our “EXPERIENCE” – what we have been exposed to, our interactions, our perceptions and the stories we hear.

In other words, we are “BIASED” by what’s available to us…

This “BIAS” creates a mental shortcut that makes it possible for us to solve problems quickly and simply.

These SHORTCUTS are everywhere in our thinking and even in our “PERCEPTIONS”. Most of the time, they work just fine. They save TIME and ENERGY, which is a tremendous advantage.

BUT, when dealing with things that are more COMPLEX or ABSTRACT or that involve large numbers of people or large amounts of information, this general sense is not enough.

That means decisions pertaining to your MONEY and INVESTMENTS, for instance, are going to require you to “THINK” DIFFERENTLY…

We can see how these SHORTCUTS function in our “PERCEPTIONS” when we are faced with an OPTICAL ILLUSION.

We think we “SEE” the world exactly as it is – photons bouncing off objects in the world and hitting light receptors on our retinas.

BUT, that’s NOT all we see…

Because we take the information from those light receptors and integrate it with what we EXPECT to “SEE” – and create an image of the world that makes “SENSE” to us.

YES, part of our “PERCEPTION” is created by our own minds.

That’s why an OPTICAL ILLUSION can TRICK us…

For example, without analyzing it, take your best guess at reading this word: 3xp3r1ence

As you can see, some of the letters are not as they should be. So what we “SEE” is NONSENSE…

BUT, through your “PERCEPTION”, your mind likely made “SENSE” of them and came up with the word EXPERIENCE

Just by using the context of all the other letters and your past of seeing the accurately spelled word many times.

We do the same thing with IDEAS, INFORMATION and, EVENTS. We take whatever INFORMATION we have and “CREATE” a story that makes “SENSE” of it all AND we regard that story as “TRUTH”.

Most of the time, what we “PERCEIVE” is CLOSE ENOUGH to “REALITY” that it works…

We come to “TRUST” our “INTERPRETATIONS”, because in our day-to-day life we are continuously getting “FEEDBACK” from the world on whether our “PERCEPTIONS”, “JUDGEMENTS” and/or, “IDEAS” good enough.

When we trip on something that we were not expecting – like thinking that you heard a crying child when it was really just a cat – we take NOTE, ADAPT and, LEARN for next time, and carry on.

The NEWS is another great example of this...

If we watch television NEWS, we are “SEEING” the WORST things happening around the world.

We are seeing the CRIME, SUFFERING and AWFUL BEHAVIOR of a VERY SMALL PERCENTAGE of the population.

BUT, it’s FRAMED in such a way that IT FEELS LIKE a high percentage of the population AND since that’s the information available to us, that’s how the world “SEEMS” to be.

If you watch THRILLERS, you’ve probably had the experience of “FEELING”, after watching one, that the world is a little more “DANGEROUS” than it was BEFORE you watched it.

If you work in a “HAPPY” environment, you might feel like the world in general is a “HAPPIER” place than it OBJECTIVELY is.

If you have heard a couple of stories about PLANE WRECKS, you might be inclined to DRIVE instead of FLY for your next trip (even though DRIVING is more DANGEROUS).

When stories about NATURAL DISASTERS are in the news, we can get the impression that they are INCREASING, even if STATISTICALLY they are NOT.

When it comes to MONEY, the “PERCEPTION BIAS” can lead us to make POOR DECISIONS that can COST us “DEARLY”!!!

If it seems that everyone is talking about how “GREAT” a particular stock is, that information will pervade your senses – it will seem like the payoff for buying that stock is a “SURE THING”.

If all that you are reading tells you to “SELL” everything and “BUY” GOLD, that will seem like a “SOLID” strategy to you.

When we have been successful in the past, that success can “SKEW” our JUDGEMENT because when all we have known is “SUCCESS”, FAILURE is not on our radar and the experience of it isn’t available to us.

THEREFORE, we become “OVERCONFIDENT” and “DISMISSIVE” of WARNING SIGNS – until we’re hit with a LOSS, seemingly from out of nowhere.

The antidote to this “BIAS” is to recognize that it exists and that it affects us all.

The benefits of doing this, particularly with regard to your MONEY and INVESTMENT DECISIONS, are SIGNIFICANT!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Thursday, November 14^th, 2024

CONFIRMATION BIAS: Why it’s Hard to SEE the “TRUTH”

A healthy relationship with the “TRUTH” is essential for a happy and successful life.

BUT, this is not a simple task…

The ability to “SEE”, “ACKNOWLEDGE” and, accept what’s “TRUE” – about our CIRCUMSTANCES, RELATIONSHIPS, STRENGTHS, WEAKNESSES and, the CHALLENGES we face – is actually much harder than it may seem.

We all have known people in our lives who are SMART, SELF-AWARE and, CURIOUS but, they keep making the same MISTAKES “OVER and OVER” again.

While it may look obvious to others, that individual doesn’t seem to see the problem at all.

Often, we fail to “SEE” what I like to describe as “CONFIRMATION BIAS”. A “BIAS” that would MINIMIZE where things didn’t work very well – and MAXIMIZE where they did.

We are made to “LEARN” and “GROWTH”. To a significant extent, our success in life depends on INCREASING our “AWARENESS” and OVERSTANDING/UNDERSTANDING of the world.

Yet we have a tremendous array of “BIASES” that color our interpretation of what we “PERCEIVE”, what we “EXPERIENCE”, and what we “THINK” we know.

Don’t get me wrong… These “BIASES” are not FLAWS in our system…

They exist because they are FUNCTIONAL. The automatic nature of these “FUNCTIONS” allows us to live and not be continually overwhelmed with bringing CONSCIOUSNESS and WILLPOWER into every tiny aspect of our lives.

We generally work very hard to confirm our EXISTING BELIEFS, STORIES and, BIASES because the familiarity we live within gives us a sense of “SECURITY” and “CONSTANCY”.

It is comforting to feel that what we think we know is “TRUE”, that what we believe is “TRUE” and that our sense of the world is “TRUE”.

Even when it is not actually “TRUE”.

By holding tight to the stories we already BELIEVE, we can be “BLINDED” to essential information and feedback that we need to make our best decisions.

Time for a REALITY CHECK

Let’s discuss a few examples of this in “ACTION”…

• If our finances are NOT so good, it is common for us to avoid looking at the WHOLE “TRUTH”. We will tend to “FUDGE” things in our mind just enough to avoid knowing the full extent of what we are facing. In our minds, we will take our best month of income and expenses as the norm and avoid looking at the “TRUE” numbers for all those other months.

• If our behavior is causing problems in our relationships, we will tend to deflect and focus instead on what the other people are doing. It is much easier for us to see the faults and mistakes of others than it is to see our own.

• If our diet and exercise are NOT healthy, we will tend to underestimate how often we eat those double bacon cheeseburgers, while comparing ourselves with people whose diet and exercise are worse than our own. We will make a note of the days when we have eaten a particularly healthy diet, and gloss over all the many days when we have not.

We do this to avoid the ANXIETY, the REGRET and maybe the SHAME we might “FEEL” if we were to look at our situation “HONESTLY”.

Those “EMOTIONS” – particularly SHAME – are AWFUL and avoiding them is OVERSTANDABLE/UNDERSTANDABLE, but not helpful.

We also do this to avoid confronting just how much we don’t know – because facing the “UNKNOWN” can be a frightening thing.

BUT, in that AVOIDANCE, we also DEPRIVE ourselves of the ability to solve those problems.

We need a CLEAR PERCEPTION of information and feedback in order to ADJUST our behavior. We also need the “PAIN” of our NEGATIVE” EMOTIONS to fuel our motivation to GROW, LEARN and, CHANGE the habits that keep us stuck.

If you spent more than your income and went into debt, it can hurt to feel that – to see how you are making your future-self suffer and pay for things you have already bought and used.

BUT, you have to “FEEL IT” and, see it so you don’t keep doing it.

If you made an impulsive investment that cost you dearly, you have to “FEEL IT” and “SEE IT”, so you don’t lose more money later.

If you learn about new investment principles, you may feel regret that you didn’t learn them earlier – but the regret and learning will save you from additional regret.

This can be terribly “PAINFUL”, but it’s how we learn…

We learn much more from our MISTAKES and FAILURES, because they show us our “BLIND SPOTS”. The KEY is to be open to “LEARNING” from them.

There are always “BLIND SPOTS”: KNOWLEDGE and OVERSTANDING/UNDERSTANDING that we do not yet have… until we do. Then our field of OVERSTANDING/UNDERSTANDING grows, and we can take in more of what had been “HIDDEN” from us until that point in time.

The more we can lean into this “DYNAMIC” process, the greater our potential for LEARNING and SUCCESS.

Accept that of course we all have “BLIND SPOTS”, and it’s often “PAINFUL” when we first see them.

Welcome that “PAIN” as an ALLY. It’s there to motivate you to “SEE” what you had not “SEEN” before, to “LEARN”, and to change your behavior.

Approaching our “BIASES” and BLIND SPOTS with that “SPIRIT of CURIOSITY” and “DISCOVERY” can make the difference between SUFFERING and FLOURISHING.

Between FAILING in the same way “OVER and OVER” and FAILING in NEW ways that expand our KNOWLEDGE, OVERSTANDING/UNDESTANDING, and SKILLS.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Friday, November 8^th, 2024

Per CNN Business

The world’s 10 richest people got a record $64 billion richer from Trump’s reelection

Trump's win made Elon Musk $15 billion richer

Wednesday wasn’t just a good day for Donald Trump. The wealth of the world’s 10 richest people also soared by a record amount, according to Bloomberg’s Billionaire Index.

The biggest gainer was Elon Musk, the world’s richest person and one of Trump’s most outspoken and dedicated supporters, whose wealth jumped $26.5 billion to $290 billion Wednesday, according to Bloomberg. Amazon founder Jeff Bezos’ wealth grew $7.1 billion a week after defending his decision to withhold the Washington Post’s endorsement of Vice President Kamala Harris. Oracle cofounder Larry Ellison, another Trump supporter, saw his net worth rose $5.5 billion Wednesday.

Other gainers include former Microsoft executives Bill Gates and Steve Ballmer, former Google executives Larry Page and Sergey Brin and Berkshire Hathaway CEO Warren Buffett. Although none of those billionaires endorsed a candidate this year, they have spoken in favor of Democratic candidates and causes in the past.

Collectively, the top 10 richest people gained $64 billion.

Bloomberg notes it’s the “biggest daily increase” of wealth it’s seen since the index began in 2012,. The market rallied Wednesday as the election concluded swiftly and with expectations that Trump will usher in a new era of deregulation and other pro-business laws and policies investors believe could benefit the stock market overall — especially billionaires who hold much of the world’s wealth.

“There is this huge perception of business friendly, tax-friendly regime coming into place, especially with them winning the Senate,” said Michael Block, chief operating officer at AgentSmyth.

Truth Social owner Trump Media & Technology Group, Trump’s social media company, also cashed in with shares skyrocketing in value after CNN and other media outlets projected Trump won. The stock rose as much as 35% at one point before fading.

Trump is the dominant shareholder in the conservative social media company, which has scant revenue and is losing money. The president-elect’s 114.75 million shares were worth about $5.3 billion briefly based on those early gains, up from $3.9 billion when trading ended on Election Day.

Tuesday, November 5^th, 2024

It Is “WISE” To Be A “INVESTOR” NOT A “SPECULATOR”!!!

WARREN BUFFETT is often described as the world’s most “SUCCESSFUL” investor. With an estimated fortune of $140bn, I can see why he’s credited with being number one (1). And given this status, it’s not surprising that he attracts a “CULT” like following with many of his quotes — so-called “BUFFETT BITES” — being used to justify a VALUE-DRIVEN approach to investing.

But one of my favorite pieces of “ADVICE” came from BEN GRAHAM the AMERICAN ECONOMIST...

He once wrote: “The individual investor should act consistently as an investor and not as a speculator”.

It’s not particularly memorable… AND it doesn’t have BUFFETT’s style.

BUT, I think it’s the most “VALUABLE”…AND one that I wish I would have followed when I started on my own investing journey many years ago.

BUFFETT has often credited GRAHAM with being the inspiration behind his approach to buying stocks. Indeed, he has his own version of the quote — “Our favorite holding period is forever”.

So what does GRAHAM’s and BUFFETT’s quotes mean???

In his book, THE INTELLIGENT INVESTOR, GRAHAM distinguishes between an INVESTOR, who’s keen to preserve their capital and seeks a reasonable return, and a SPECULATOR, who might lose everything in pursuit of a greater reward.

When I first started TRADING/INVESTING, I fell into the latter category. I wasn’t too reckless but relatively modest returns didn’t interest me. I soon realized this was a MISTAKE. Trying to ‘TIME THE MARKET’ almost NEVER works.

Since January 1986, the FTSE 100 has delivered an ANNUALIZED RETURN (with DIVIDENDS REINVESTED) of 8.6%. Other markets have done better. For example, the S&P 500 INCREASED by 11.4% a year during this period.

Finally, to those who disagree with about the value of “LONG-TERM INVESTING, I would refer them to the performance of BERKSHIRE HATHAWAY, BUFFETT’s holding company.

An investment of $20,000 in 1964 would have GROWN to $88bn by the end of 2023!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.