Friday, 16 September 2011 00:00

Munger Models and Trying Times

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Munger Models

I'm just finishing reading the book, The Invisible Gorilla: How Our Intuitions Deceive Us, by Christopher Chabris and Daniel Simons and wanted to make sure I mention it to readers of the blog because it contains another model that we can plug into our "Munger Mental Model" approach.

The authors discuss how people can miss gorillas in videos, what convicts can have in common with chess masters, how a company like Motorola lose billions developing its Iridium service, what causes people to link two unrelated events together, and much more.

Some new concepts to add to your mental models would be: the illusion of attention, the illusion of confidence and the illusion of cause.

A juicy quote from the book sure to make you want to read a copy (I hope at least!):

"...Be wary of your intuitions, especially intuitions about how your mind works. Our mental systems for rapid cognition excel at solving the problems they evolved to solve, but our cultures, societies, and technologies today are much more complex than those of our ancestors. In many cases intuition is poorly adapted to solving problems in the modern world. Think twice before you decide to trust intuition over rational analysis, especially in important matters, and watch out for people who tell you intuition can be a panacea for decision-making ills. And if anyone ever asks you to watch a video and count the passes of a basketball..."

Amazon Book Link:
The Invisible Gorilla

Amazon Kindle Link:
The Invisible Gorilla

Trying Times

I also thought I'd share some quotes from a book whose content helped me transform a section of the revised edition of my book, The Focus Investor, that I'm working hard to complete. The book is titled: The Great Depression: A Diary by Benjamin Roth and the following quotes from it really detail just trying it must have been to be an investor during that time period (you think we have it bad now?)

One reason that I think this book is so interesting is that its written by an individual who understands what investing is really all about as is evident from this quote:

(page 29) "...the conservative longtime investor who follows the general rule of buying stocks when they are selling far below their intrinsic value and nobody wants them, and of selling his stocks when people are bidding frantically for them at prices far above their intrinsic value - such an investor will pretty nearly hit the bull's-eye.... Their secret to a large extent lies in having liquid capital available and the courage to invest when things look the blackest."

Here are a few other quotes I found interesting. Just imagine trying to keep investing during these times. Would you have the courage and the belief in your approach to be able to do so?

( page 9) June 15, 1931 "Stocks continue to go lower and dividends are being slashed right and left.For over a year now people have been buying stocks at what they think are bargain prices."

(page 47) January 11, 1932 "The stock market continues downward and there seems no end of it.The contrast between 1929 prices and today is unbelievable.A few samples of some of the drops are Truscon 63 to 5; Sheet & Tube 175 to 12; U.S. Steel 250 to 35; Republic Steel 140 to 4... Even now there is no way of telling if the bottom has been reached."

(page 29) March 3, 1933 "People who bought "bargains" in stocks in 1931 now find they were too quick and these same stocks are now selling at 1/3 of 1931 prices.If they can hold on long enough they will come out alright but it is a soul-trying period of waiting."

What did he conclude about investing as a result of this time period? Buy a copy of Mr. Roth's book or wait for me to finish my own book!

Amazon Book Link:
The Great Depression: A Diary

Amazon Kindle Link:
The Great Depression: A Diary

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