Lessons from Charlie Munger-VI - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Lessons from Charlie Munger-VI

Sep 29, 2011

In the previous article, we had discussed how the 'disliking and hating' tendency can be a threat to your investments. Today, we shall discuss a very important human tendency that every investor should undoubtedly not avoid.

Doubt-avoidance tendency

The name itself is quite self-explanatory. Doesn't our mind often display a tendency to steer clear of doubts to quickly reach a decision or conclusion? It surely does, and at times to our own disadvantage. Charlie Munger presents an evolutionary perspective about how this tendency must have developed in humans from their non-human ancestors. He asserts that it would be suicidal for a prey animal threatened by a predator to take a long time to decide what to do. The development of this tendency has come as a survival tactic in times of stress and confusion. Much of religious propaganda has in fact taken advantage of this tendency. How otherwise would you explain the immense faith displayed by people in religious decrees that will otherwise find difficulty to get past the check-post of logic?

So the evolutionary justification of this tendency is reasonable. But the problem with any kind of psychological tendency or mental programming is that it doesn't work well in all situations. Say, a person who is neither under pressure nor threatened should ideally not be prompted to remove doubt through rushing to some decision. Yet, more often than not we find ourselves doing exactly the opposite.

Doubt-avoidance tendency in stock markets

Have you observed the doubt-avoidance tendency manifesting itself in the stock markets? The answer is a loud 'yes' in our view. How often do you trade on impulse without asking the right questions? How open are you to hear negative things about stocks that you are very optimistic about? When a person comes to the stock markets with a bag full of money to invest, he is usually inclined to fall in love with any stock that seems promising. The boredom and pain that is usually part of a thorough scrutiny and analysis of a stock is often avoided. Quick conclusions and quick decisions are often preferred instead of the burden of doubts and ambiguity.

Without any exaggeration, we strongly believe that if you learn how to reign over the doubt-avoidance tendency while you conduct your business in the stock markets, there is little that can stop you from becoming a successful investor.

We will continue to discuss some more thinking errors and psychological tendencies that can affect your investment decisions in the subsequent articles of this series.

Lessons from Charlie Munger Article Series - Previous article | Next | All Articles
Try the Charlie Munger Quiz

Equitymaster requests your view! Post a comment on "Lessons from Charlie Munger-VI". Click here!

  

More Views on News

Great vs Good: Which Stock Will Win in 2021? podcast (Views On News)

Jan 22, 2021

Rahul Shah discusses which group of stocks performed the best in 2020 and its implications for your portfolio.

One Chart to See Before You Sell (Fast Profits Daily)

Jan 22, 2021

In this video, I'll show you a crucial chart that you need to check before you decide to sell any stock or index.

SBI Small Cap Fund: Discovering Multi-bagger Ideas (Outside View)

Jan 22, 2021

PersonalFN's analysis on the features and performance of SBI Small Cap Fund.

How to Invest in Smallcap Stocks in 2021 and Beyond (Profit Hunter)

Jan 22, 2021

Here's why I believe there is a lot more steam is left in the smallcap rally.

You and Me (Fast Profits Daily)

Jan 21, 2021

An inside look into what happens behind the scenes in my trade recommendations.

More Views on News

Most Popular

Top Investing Gurus of India

Investing gurus are the champions of value investing. These are the people who've mastered the art of compounding wealth from...

Why Gold Hit Lower Circuit (Fast Profits Daily)

Jan 11, 2021

Were you shocked that bullion prices hit lower circuits on Friday on the MCX? Find out why it happened...

Time to Book Profits in Pharma Stocks (Fast Profits Daily)

Jan 15, 2021

In this video, I'll show you why it might be the right time to take money of the table in pharma stocks.

A Rare Chance to Invest in Potential Multibaggers in 2021 (Profit Hunter)

Jan 11, 2021

Our ace stock picker is ready to capitalise on a big growth opportunity.

Smallcap Stocks: Your Best Bet for 2021 and Beyond (Profit Hunter)

Jan 15, 2021

The pandemic failed to thwart Richa's investing success formula for 2020.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jan 22, 2021 (Close)

MARKET STATS