Mar 20, 2013|
Lessons from Charlie Munger-XIX
In the previous article, we discussed how investors often make wrong investing decisions due to misguided influence from authority figures. Today we shall discuss yet another human tendency that often leads us into unproductive behaviour.
All creatures survive in groups. And the one factor that connects creatures of a species is communication. It goes without saying then that communication has been one of the most critical tools in the evolution and survival of all species. Broadly, communication facilitates sharing of information about food, attracting a mate, signaling danger and so on.
One of the things that differentiate human beings from other animals is our ability to think. The relatively larger size of our cerebral cortex is the reason for our creativity, language and logical deduction. As such, we have a highly advanced and complex language at our disposal.
But do we always make the most rational and productive use of words? The answer seems to be no. And this is where the 'twaddle tendency' fits in. An online dictionary defines 'twaddle' as silly, trivial or pretentious talk or writing. Being a social animal, man often indulges in petty small talks and chatter. No wonder the celebrity rumour and gossip pages are often the most widely viewed amongst all other news and editorial content!
Twaddle or nonsense talks are not such a bad thing by themselves. They only become a nuisance when they come in the way of some serious work that is in progress. And this is what we need to keep a check on.
Charlie Munger relates an interesting experiment on honeybees which can be used as an analogy to show how the twaddle tendency can lead to unproductive results. For those not very well-read in biology, honeybees have a peculiar dance language that they use to indicate to their fellow mates where the food is. After returning to the honey comb with pollen or nectar, the worker bee performs a dance with particular movements. Through this, it communicates to the other bees both the distance and the location of the food. The other worker bees then follow the directions suggested and set out to gather pollen and nectar.
A certain scientist was curious to know how the honeybees would respond if the nectar was placed in an unusual position. So he placed the nectar in a straight-up position at a significant height. As you would have guessed, no nectar exists in such a position in a natural setting. So, this baffles the honeybee. It does not have a genetic program that is capable of communicating this new position.
According to you, what should the honeybee ideally do in such a situation? It should just go back to the hive and pick a quiet corner, shouldn't it? But the honeybee does not do that. Instead, it comes back and attempts a dance. But the dance turns out to be incoherent. Just like twaddle!
Can this behavioural tendency of the honeybee also apply to human beings? In our next article of this series, we will analyse the twaddle tendency in human beings, particularly in the context of the stock markets and the economy. We will also discuss ways that could help investors to filter away all the useless twaddle.
||Ankit Shah (Research Analyst), Editor, Vivek Kaul's Inner Circle has been a research analyst at Equitymaster for nearly 6 years. In the past, Ankit has been the driving force behind our learning initiative Equitymaster's Secrets. He has also travelled extensively across India with Richa and the Hidden Treasure team to identify winning small cap stocks. He now works closely with Vivek Kaul and his global network of independent thinkers, analysts, and economists.
Besides being an ardent follower of the Warren Buffett and Peter Lynch style of investing, he is a keen student of the Austrian school of economics. He is deeply fascinated and inquisitive about the workings of the human mind...and all the bizarre things that conspire when it comes in contact with money and power. He follows the multidisciplinarian approach to thinking and learning, drawing ideas and insights from fields as diverse as quantum physics, evolutionary biology, history, neuroscience, behavioural economics, and psychology...to the ancient arts and sciences of India and the rest of the world.
More Views on News
Jul 14, 2016
Tata Consultancy Services (TCS) has declared results for the quarter ended June 2016. The company has reported a 3% QoQ increase in consolidated sales while the consolidated net profit was up 0.3% QoQ.
Jul 8, 2016
Tata Motors Ltd has reported a 19% YoY and 202% YoY growth in sales and net profits for the quarter ended March 2016.
Jul 4, 2016
Idea Cellular has reported a 12.4% YoY growth in the topline and a decrease of 0.4% YoY in the bottomline for the quarter ended March 2016.
Oct 27, 2016
All of us want to lead a successful financial life, but financial discipline is often ignored the endeavour.
Oct 27, 2016
A typical situation wherein the company performing well doesn't translate into the stock doing well.
More Views on News
Oct 19, 2016
A brief discussion on one BHK apartments going for Rs 1.8 crore in Mumbai and why it makes no sense.
Oct 24, 2016
Why we are bullish on some small cap stocks despite the high index PE.
Oct 19, 2016
Using Directional Movement Indicators to build your trading system
Oct 20, 2016
PersonalFN explains why top performing mutual fund schemes may not always be the perfect fit for your investment portfolio.
Oct 15, 2016
Why the PE ratios of mid caps and small caps are currently at such lofty levels.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-6143 4055. Fax: +91-22-2202 8550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407