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jerryking : devil’s_advocates   7

How I Avoid Confirmation Bias When Investing
Nov 8, 2017 | - The Experts - WSJ | By Ted Jenkin.

(1) Examine all evidence with equal rigor. If you have been sitting on cash during the stock market’s run this year or have been conservative with your investments choices, you may be feeling that you’ve missed out on big returns. And this could lead you to jump into some investments simply because you believe that the market highs will continue (and they have, after all), not because they are the right choice for your portfolio. I can remember a few years back when I thought I missed out on the 3-D printing run when those stocks were blazing.

You need to try to avoid such tendencies to accept confirming evidence without question by looking for real empirical data and evidence–and examining the evidence on both sides with equal rigor. For instance, consider whether the U.S. market is a better bet than international right now. Or, how the GOP tax plan will impact the markets. Make sure you ask yourself the tough questions.

In my case, I forced myself to first consider the downsides to investing in the emerging 3-D printing industry or what consolidation might happen along the way–and the effects it could have on the stocks I was considering. In the end, I took a pass.

(2) Get someone to play devil’s advocate. It has happened to the best of us, no matter our education or background in investing. You are at a dinner party or having a conversation in the kitchen at work when you hear someone say, “I just made 100% profit buying ABC stock, and this thing is just taking off.” When we hear of opportunities to make money, our interest is undoubtedly piqued. And if you hear a tip from a person you trust and like, chances are you will become convinced that it is, of course, a good idea.

Do yourself a favor and find someone you trust just as much to play devil’s advocate and argue the opposite. Ask the person to build a counter-argument using questions such as: What is the strongest reason to do something else? The second strongest reason? The third? What is the worst-case scenario? And can you live with it, if it happens? Then, consider this position with an open mind.

For me, it was a former boss. At times, I would grow frustrated with him because on the surface he would never agree with me when I presented an idea. Over the years, however, I realized it wasn’t really him challenging me as much as it was him challenging me to challenge my own thought process so I could be a better decision maker. His sage advice has made me a better investor today.

(3) Be honest with yourself about your motives. Have you ever heard the saying, “If you can see John Brown through John Brown’s eyes, you can sell John Brown what John Brown buys?” I think it applies to the way I’ve looked at investments in the past–and the motives behind my decisions. We often don’t realize the power of our own motives–and we aren’t honest with ourselves about what they are.

For instance, when I’ve made money in a stock in the past, I’ve felt that those gains justify holding onto to the stock for the long term–even if the stock isn’t performing as well as it once did. So now, when I start doing research about that stock’s prospects, I need to make sure that I am really gathering information to help figure me out the right time to sell the stock. This will help me to determine whether any long-held desire to keep an investment is rooted in sound financial reasoning or is just based on pride or another emotion.

(4) Don’t ask leading questions. One of the biggest mistakes you can make as an investor is to ask questions that set you up to get the answer you want–not the answer you need.....if you find that your financial adviser always agrees with your investment ideas, it may be time to find a different adviser. Healthy and heated debates with my adviser have allowed me to make better personal and business decisions over the years.
personal_finance  investing  confirmation_bias  questions  financial_advisors  worst-case  devil’s_advocates  biases  self-delusions  motivations  hard_questions  counter-arguments  red_teams  open_mind 
november 2017 by jerryking
How ‘red teaming’ can foster critical thinking at your company - The Globe and Mail
HARVEY SCHACHTER
Special to The Globe and Mail
Published Wednesday, Jul. 19, 2017

Red Teaming

By Bryce Hoffman
Crown Books, 278 pages, $37.00

the same concept, ensuring second thought in a time when complexity and psychological biases can get you in deep trouble. “Red teaming works. It works for small California tech start-ups and Japanese wealth funds. It works for old, iconic corporations and innovative disruptors. It works for non-profits and hedge funds. And it can work for your company too, if you let it,” consultant and former journalist Bryce Hoffman writes in Red Teaming.....Ideally, red teaming should begin after a plan has been developed but before it has been approved. You want time to modify it. The red team needs healthy discussion and a free flow of ideas. That is best achieved with divergent thinking, looking at alternatives, which ultimately morphs into convergent thinking. In that vein a good deal of the book is devoted to sharing techniques to achieve that balance.....
books  red_teams  Harvey_Schachter  devil’s_advocates 
july 2017 by jerryking
The "Warning" Czar?
Oct. 17, 2009 | - Adam Smith, Esq.| by Bruce MacEwen. The US
has a "national intelligence official for warning", Kenneth Knight, who
oversees a staff of a half-dozen analysts whose job is to monitor the
rest of the intelligence community, challenging their analyses and
assumptions. The goal is to to avoid surprise. One of Knight's core
insights is the difference between what he calls the "simple
likelihood-of-the-event versus impact-of-the-event calculation." Knight
thinks you can systematize this type of analysis by being understand
and being beware of the cognitive biases of experts; by training; and by
creating an institutional check--a warning staff or Red Team. Beware
analytical frameworks--know their limitations.
Bruce_MacEwen  strategic_thinking  security_&_intelligence  systematic_approaches  contrarians  risk-management  counterintuitive  red_teams  anticipating  biases  surprises  warning_signs  devil’s_advocates  frequency_and_severity  intelligence_analysts 
october 2009 by jerryking
Seven Ways to Fail Big
September 2008 | Harvard Business Review | by Paul B. Caroll
and Chunka Mui.
(1) The Synergy Mirage (2) Faulty Financial Engineering (3) Stubbornly
Staying the Course (4) Pseudo-Adjacencies (5) Bets on the Wrong
Technology (6) Rushing to Consolidate (7) Roll-Ups of Almost Any Kind.
Avoiding Disasters: The Devil's Advocate.
See also "Questions Every Company Should Ask" at the end of article.
HBR  magazines  overoptimism  synergies  failure  devil’s_advocates  roll_ups  decision_making  thinking_big  strategic_bets  taxonomy  financial_engineering  questions  red_teams 
may 2009 by jerryking
Risky Business - HBR.org
September 2008 | Harvard Business Review | The Editors. an
article about investment strategies in the Persian Gulf—“Where Oil-Rich
Nations Are Placing Their Bets.” The authors—Rawi Abdelal, Ayesha Khan,
and Tarun Khanna—persuasively argue that there’s a world of difference
between what the Gulf countries are actually trying to achieve and what
Western leaders imagine they’re aiming for. “Seven Ways to Fail Big,”
by Paul Carroll and Chunka Mui, has an ambitious agenda: to categorize
the bad strategic bets that companies make and to identify
decision-making processes that will help other companies avoid similar
failures. The key process is appointing devil’s advocates with enough
clout to stop a bad decision in its tracks.
big_bets  HBR  risks  magazines  decision_making  Persian_Gulf  Middle_East  failure  devil’s_advocates  petro-dictators  petro-politics  thinking_big  strategic_bets  taxonomy  red_teams 
may 2009 by jerryking

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