LongHaul

I just watched The Social Dilemma on Netflix and would highly recommend it. There is too much to list here but it was highly informative and revealing. At the least it will have one questioning much of what one is doing with their time and how social networks might be manipulating us all and wasting our lives away. https://www.thesocialdilemma.com/

18. Availability-Misweighing Tendency "The mental tendency echoes the words of the song: “When I’m not near the girl I love, I love the girl I’m near.” Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it, as the fellow is influenced by the nearby girl in the song. And so the mind overweighs what is easily available and thus displays Availability-Misweighing Tendency. People have an innate ability to overemphasize information that’s right in front of them. Recency bias is a direct result of this. In investing, it leads to chasing returns."

There are probably a lot more opportunities for very small businesses than big scaleable ones. Perhaps we can start a thread at some point on this. I'll throw out one that could be really big. An Auto mechanic shop that is essentially like the Costco of Auto mechanics. 1. Honest all the time so Grandma can walk in and Never EVER be ripped off. 2. Lower prices because of lower costs of real estate, marketing, sales for lower overall costs. 3. Quality fixes 4. Could be specialized in fixing pickups or by brand like the dealers. 5. Open longer hours. 6am-11pm as long as utilization could be higher. So it would honest, cheaper, and offer good service. I think it would essentially be a dealer killer. There was a great place like this that cleaned up. Simple formula but it would take expertise and organization skills and capital and CHARACTER in a businessperson's bones to do.

I liked this article about people starting a variety of businesses in the pandemic. Human resourcefulness at its best. https://www.wsj.com/articles/is-it-insane-to-start-a-business-during-coronavirus-millions-of-americans-dont-think-so-11601092841?mod=business_minor_pos5 I think there is a TON of opportunity in the US to start all types of businesses. If you show up on time, are capable and have a fair price you can clean up in the US as in so many fields customers are desperate for great services and solutions. Opportunity is of the mind. Thoughts?

I have noticed that very often Amazon's used books are more expensive than other sites. Amazon is probably trying to milk it. Ebay is actually great for used books https://www.bookfinder.com is a pretty book search engine. https://www.thriftbooks.com/

I appreciate the post Saluki! I am in Texas so I should give it a read. BTW - no zoning in Houston is great IMO!

17. Stress-Influence Tendency "Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in a human body, prompting faster and more extreme reaction. And everyone who has taken Psych 101 knows that stress makes Social-Proof Tendency more powerful. In a phenomenon less well recognized, but still widely known, light stress can slightly improve performance — say, in examinations — whereas heavy stress causes dysfunction." "This should come as no surprise that excess stress can lead to faulty decisions. Being able to remove the things to lead to stress will only help improve decisions." Lots of people are experiencing extra stress now - although perhaps a bit less now that we are all getting numb to the pandemic and learning to cope with it. For investing, the stress of a massive market collapse, especially over years of watching your net worth fall drastically is too much for many. Stress is one contributor to capitulation and panic selling. Expect massive falls in your investments and test their fundamentals for bad times. Learn healthy ways to cope with stress such as: 1. Exercising 2. Meditation 3. Awareness of your inner self 4. Eating 500 Cherry Snowcones 5. Being in nature 6. Getting plenty of sleep

Thanks for the response Wabuffo and others. I think the big deficit is more than one time and has been higher in the last 12 years than historically. https://www.brookings.edu/policy2020/votervital/how-worried-should-you-be-about-the-federal-deficit-and-debt/#:~:text=For%20fiscal%20year%202019%2C%20which,GDP)%20in%20the%20previous%20year. I have no idea what might make interest rates rise. I really don't understand how they have been this low. But I think it is very likely that they go up over the next decade to at least over the inflation rate. Especially if you get a big country that defaults and scares the crap out of the other democracies. Historically financial panics came about when big banks or borrowers went under. 700 year low of interest rates. https://www.visualcapitalist.com/700-year-decline-of-interest-rates/

Wabuffo, What is your best guess then to how this plays out in the US and Japan which have a lot of debt but also have their own currency? Seems like could be a big cost at some point. Is the most likely scenario high inflation and higher taxes with lower spending in the US and Japan? Also, how about historically all the countries that defaulted - Russia and Argentina in the last 25 years. They had their own currency but issued dollar debt but still defaulted - couldn't one have argued that they could of just issued more debt in local currency and paid back their USD bonds rather than defaulted? I wonder if it is sometimes easier politically to just default and screw the creditors. It is interesting to me that if there is debt to the public of 200% of GDP then at "normal interest rates of say 5% interest costs alone would be 10% of GDP which is much harder to keep paying.

Great post Wabuffo. There is much regarding this I don't understand, not from your writing but because of the complexity of the topic.

Good example. Reminds me of this: “Some people seem to think there’s no trouble just because it hasn’t happened yet. If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem.” Charlie Munger

16. Contrast-Misreaction Tendency "Because of the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses. Moreover, as perception goes, so goes cognition. The result is man’s Contrast-Misreaction Tendency. Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as man’s buying an overpriced $1,000 dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 car…" "Small changes are almost imperceptible to see, but quickly add up. Compounding does this for the better, but also for the worse. Tiny mistake after tiny mistake, add up to huge problems:" "Cognition misled by tiny changes involving low contrast, will often miss a trend that is destiny." "One of Ben Franklin’s best-remembered and most useful aphorisms is “A small leak will sink great ships.” The utility of the aphorism is large precisely because the brain so often misses the functional equivalent of a small leak in a great ship. Price anchoring and upgrades also take advantage of this." ====================================================================== Perhaps a solution could be to think more in absolutes. Price vs value when buying something. Helps to step away from the situation for a time.

That's great BPCAP. I think the early the knowledge of psychology the better as they can spot more patterns. I have found with my kids that they can grasp a lot of these concepts fairly young 7+. I taught my daughter about ego and she used it correctly when to tell me that some action was my ego.

I have no idea when country defaults will occur but if history is any guide they will occur. There have been waves of cycles of default in history. Frankly I don't think ANYONE really knows when and if a default or high inflation will occur - way too many variables. Even the PHD economists have no idea and I don't trust their viewpoint. In the US historically before ~1970 it seems like both sides wanted and had low debt. THat is now gone and the mantra of more debt - no problem defies common sense. Which means it is likely a higher probability to occur in my opinion. https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises

Some very good points LC. Thanks for posting. Depends on the situation.

Excellent post Scorpion. Will check out. Munger mentioned that he thought the democracies will get in trouble with debt. There is this very stupid notion out there that deficits and debt don't matter for countries. I guess reality doesn't matter either - until it does. Humans seem to need a crisis to learn basic stuff at times (I have been guilty of this too at times). I think we will see some defaults or high inflation. Italy anyone? Sorta of related but I was reading part of Cody Lundin's book "When All Hell Breaks Loose" (I bought for a self insurance policy). Great book but he is a huge advocate for self reliance and I think it is really pathetic that we are all so reliant on the government for so many things - and the media perpetuates this weakness and blame mentality probably because of their political ideology and kissing their customers asses.

15. Social-Proof Tendency "The otherwise complex behavior of man is much simplified when he automatically thinks and does what he observes to be thought and done around him. And such followership often works fine. For instance, what simpler way could there be to find out how to walk to a big football game in a strange city than by following the flow of the crowd. For some such reason, man’s evolution left him with Social-Proof Tendency, an automatic tendency to think and act as he sees others around him thinking and acting." “Monkey-see, monkey-do” is more than a turn of phrase. Social proof leaves people susceptible to groupthink and herd behavior. In investing, the crowd is a comfortable place to be. Most investors would rather be wrong with everyone else, than wrong by themselves. What doesn’t help is how the nature of cycles makes it more profitable to be independent of the crowd at the extremes of the cycle. The solution: Learn how to ignore the examples from others when they are wrong, because few skills are more worth having. ============================================================================ I think questioning what everyone else is doing is also very important. Does this makes sense for me? Is this the most effective way to do this? Just because something has been done for a long time doesn't mean it is the best way. It helps to have an independent type of personality - not a crowd follower but also not always a cynic. To be independent is to try to rationally choose the best approach. Drive the speed limit, know what businesses are worth and why, eat healthy, etc. eh - those are my personal views anyhow. Helps to be aware of the concept of social proof too. Not always to easy to do something different. How many of us have done stupid stuff in our teenage years because of this?

Could you elaborate on that Scorpion? Interesting comment.

Just a thought but perhaps you guys should go after Yahoo's finance's market. That product has gotten worse over the years and Google has basically exited. Morningstar has gotten worse too. There is a need for a good basic free product. Not sure of the economics though.

Great information in here. I recommend printing out and sharing with family. https://docs.google.com/document/d/1fB5pysccOHvxphpTmCG_TGdytavMmc1cUumn8m0pwzo/edit#

14. Deprival Super Reaction Tendency "The quantity of man’s pleasure from a ten dollar gain does not exactly match the quantity of his displeasure from a ten dollar loss. That is, the loss seems to hurt much more than the gain seems to help. Moreover, if a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away…" In displaying Deprival Superreaction Tendency, man frequently incurs disadvantage by misframing his problems. He will often compare what is near instead of what really matters. This can go in several directions. First is the losses hurt twice as much as gains feel good, which is prevalent in investing. Then there is the sunk cost fallacy and potential for loss aversion. And finally, there’s the drive to break even. Casinos know this all too well, by designing games where you’re almost always thiiiis close to winning your money back. So you compound losses further.

I am curious which Auditors Gregmal? You can put it in code here if you want perhaps.

I would say as a general comment if you see multiple red flags write them down and see what they add up to. Usually a picture can be created of a CEO's /mgmt's mentality taking multiple data points and not ignoring them. Here are some I have noticed over the years: 1. Read the entire annual report. One reason Buffett reads the Annual report/10-k is that it leaves a trail of what type of CEO is running the business. 2. Is the CEO letter if full of spin and BS? 3. If they start making up all their own accounting metrics and don't mention Net income. I think GE was making up their own adjusted pension numbers, etc. WTF. 4. Is the 10-K clear and simple to read? The truth is simple. Frauds often make 10-K's long and complex to confuse, tire you out and have most people give up. The bad stuff is lost in the details. Business should be simple at the end of the day. 5. Are they screwing around with earnings manipulation to smooth earnings over? You need to be skilled here. 6. Lots of deals can hide a lot things. Adds a lot to complexity and hard to figure out what is going on. Tyco, GE, Valeant, all the failed rollups. 7. A CEO that is aggressive with short sellers is a major, major red flag. There is an enormous historical precedent for this. The more aggressive- the more likely it is a fraud. If you are CEO of a legitimate business and some finance guy hates the stock - if you and your business are real you can just keep selling to customers, grow and he will likely lose in the long run. But - if the short seller is criticizing a fraud heavily and the fraud has nothing really behind it then it is going to hit a nerve as the FRAUD IS HIS LIFE and go after them. And btw - if you actually read the 10-K you will be ahead of a huge percentage of speculators who don't do this. Even many value investors who manage over $1 billion don't read them. And much of the time the frauds are obviously bad - you never know how bad - but you could of seen how the books were being cooked even years ahead of time while the stock kept on plowing higher - until it collapsed. And the Auditors wont catch shit. They seem useless in this regard and sold out long ago. Por la plata el mono baila.

13. Over-optimism Tendency "Demosthenes, the most famous Greek Orator, said, “What a man wishes, that also will he believe.” Demosthenes, parsed out, was thus saying that man displays not only Simple, Pain-Avoiding Psychological Denial but also an excess of optimism even when he is already doing well." "How many people blindly buy stocks without doing any work because they absolutely believe they’ll make money? The force that drives people to believe the stock market, casinos, or lotteries are the source for quick riches is excessive optimism. Understanding simple probabilities is a great reminder of how little control we have over the future." I think this is very related to Excessive self regard and perhaps they are really both a form of Overconfidence Bias. Overconfidence bias summary from Wikipedia has been defined in 3 ways. 1. Overestimation of one's actual performance. 2. Overplacement of one's relative performance. 3. Overprecision in the accuracy of one's beliefs. https://en.wikipedia.org/wiki/Overconfidence_effect Of course we are not seeing ANY Over Optimism or Overconfidence among todays gamblers in the stock market. (I am 100% certain of my opinion of this ;) )

Interesting question. I think really focusing the mind and research on 1 company when it is really cheap helps. Block everything else out and then ultimately make a decision. The noise has to be tuned out also. The decision could be buy x% now or at y price.