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Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)


LongHaul
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This will be the last Bias I am posting.  I appreciate everyone's comments and input I think we have all

had an additive learning effect.  Steel sharpens steel.

 

 

Psychology of Misjudgment Bonus Bias:  The Dangers of Ideology 

 

"Charlie Munger on the Dangers of Ideology and How to Form Intelligent Opinions"

 

“Another thing I think should be avoided is extremely intense ideology, because it cabbages up one’s mind. You’ve seen that. You see a lot of it on TV, you know preachers for instance, they’ve all got different ideas about theology and a lot of them have minds that are made of cabbage.

 

But that can happen with political ideology. And if you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very careful with this ideology. It’s a big danger.

 

In my mind I have a little example I use whenever I think about ideology, and it’s these Scandinavian canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools in the Grand Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into and I think the same is true about a really deep ideology.

 

I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another. And that is I say “I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it. I think that only when I reach that stage am I qualified to speak.” Now you can say that’s too much of an iron discipline… it’s not too much of an iron discipline. It’s not even that hard to do.”

 

— Charlie Munger

==============================================================================

 

2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

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Do you consider value investing to be an ideology?

That's interesting and tricky to answer so here's Li Lu's answer:

"I’m not ideologically opposed to anything. I am against any ideology."  :)

It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

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Do you consider value investing to be an ideology?

Probably not directed at me but I would say that hell yeah value investing is an ideology.

 

I also disagree to some extent that ideology turns your brain into cabbage. I think a lot of what's talked about ideology these days has to do with politics and its messy discourse. But ideology is really a base of ideas and that can be very good. In my opinion it's the theory built on top of the ideology that boils the boils the cabbage. For example: Ideology: freedom is good. That is a very good ideology. But the theories on top of that, i.e. how do you achieve freedom can go very wrong and can very well boil the cabbage.

 

To the original question. Value investing ideology: buy something for less than what its worth. That is an ideology, it is a very good one, and it is self evident. However if the theory built on that is that value investing is practiced by picking cigar butts that can lead to bad outcomes and boil the cabbage as you loose your mind looking for those butts. You have to be able to critically analyze the theories on top of the ideology. That's where Munger has been very successful. He's clinged to the ideology buy rationally switched from theory to theory when it was warranted. Hell he probably invented them.

 

Finally since Longhaul brought up communism. Communism is certainly an ideology and it had some theories on top. When communism was actually implemented it was implemented with a different set of theories than initially designed but kept the ideology. Now the ideology is certainly flawed - it lacks free markets and competition which leads to inefficiency. But then it wasn't even those flaws that were the big problem that did it in. There are certainly in this world countries that are more efficient than others and they both do ok. What did it in was developing a theory of nationalism and starting a bunch of trade wars. This theory had absolutely nothing to do with the communist ideology. But this was the one that boiled the cabbage and let to its demise.

 

In the end I guess there's nothing inherently wrong with ideology. Like everything in life is the implementation that bites you in the ass. Commitment bias, unwillingness to think critically and shift gears when warranted, and ultimately and mostly ego that's what boils the cabbage.

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Do you consider value investing to be an ideology?

That's interesting and tricky to answer so here's Li Lu's answer:

"I’m not ideologically opposed to anything. I am against any ideology."  :)

It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

 

True and a reasonable answer. I meant it more as an exploration of my/our own blind spots as value investors. That is usually unnerving and unwelcome but more productive in realtime than mocking scandanavian rowers with hindsight.

 

There have been many articles and postings about how value investors have suffered because they stayed to close to their "ideology". I wonder if there is any truth in that?

 

rb, agreed. E.g. one of Munger's better known friends used to buy only asset value discounts, but he changed. Is there a change required now?

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Do you consider value investing to be an ideology?

That's interesting and tricky to answer so here's Li Lu's answer:

"I’m not ideologically opposed to anything. I am against any ideology."  :)

It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

 

True and a reasonable answer. I meant it more as an exploration of my/our own blind spots as value investors. That is usually unnerving and unwelcome but more productive in realtime than mocking scandanavian rowers with hindsight.

 

There have been many articles and postings about how value investors have suffered because they stayed to close to their "ideology". I wonder if there is any truth in that?

 

rb, agreed. E.g. one of Munger's better known friends used to buy only asset value discounts, but he changed. Is there a change required now?

Your question that I've bolded is the problem. Change is not required now or at a point in time. Change is required always.

 

I wrote a bigger post on theories layered on ideologies. Munger's friend was anchored to asset value discounts which was a theory. Nothing prevented him from investing in discounted intangible assets before his "change". I'm sure Coke, P&G and Wrigley traded at discount before the 1980s as well. Similarly I am sure there are better ways to do value today than cigar butts and GARP. The ideology is intact but you must always evolve and be flexible about theory/implementation.

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Do you consider value investing to be an ideology?

 

 

i·de·ol·o·gy

noun

1. a system of ideas and ideals, especially one which forms the basis of economic or political theory and policy.

 

I suppose Value investing is an ideology.  More time please....

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

 

I am not sure of the percentage of people in favor of communism prior to countries becoming communists.  But I suspect it was quite high as it was sold and seemed to offer

the masses something and that is why so many fought for it.  I think it is a great example of the danger of an extreme ideology. 

 

I think it was a disaster for a host of reasons resulting in millions of deaths, poverty, loss of freedom, etc.

 

 

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

 

I am not sure of the percentage of people in favor of communism prior to countries becoming communists.  But I suspect it was quite high as it was sold and seemed to offer

the masses something and that is why so many fought for it.  I think it is a great example of the danger of an extreme ideology. 

 

I think it was a disaster for a host of reasons resulting in millions of deaths, poverty, loss of freedom, etc.

I agree it was a bad system but you suspicion is incorrect.

 

Communism's spread in Europe for example was done through military conquest. The United States gave (gifted?) half of Europe to the USSR. At that point the countries had two choices: they could become communist or Russian tanks would roll into their countries and become communists. The second choice is actually a bit dramatic as at the point these countries became communist the USSR actually had armies stationed in these countries and the controlled the governments. They merely appointed the communist party as the ruling party.

 

It's pretty obvious that when you have to use a gun to get people to do something it is because they're not convinced by your ideas.

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

 

I am not sure of the percentage of people in favor of communism prior to countries becoming communists.  But I suspect it was quite high as it was sold and seemed to offer

the masses something and that is why so many fought for it.  I think it is a great example of the danger of an extreme ideology. 

 

I think it was a disaster for a host of reasons resulting in millions of deaths, poverty, loss of freedom, etc.

I agree it was a bad system but you suspicion is incorrect.

 

Communism's spread in Europe for example was done through military conquest. The United States gave (gifted?) half of Europe to the USSR. At that point the countries had two choices: they could become communist or Russian tanks would roll into their countries and become communists. The second choice is actually a bit dramatic as at the point these countries became communist the USSR actually had armies stationed in these countries and the controlled the governments. They merely appointed the communist party as the ruling party.

 

It's pretty obvious that when you have to use a gun to get people to do something it is because they're not convinced by your ideas.

 

True, however, ideas can be effective bullets and when the gun is social media, there's no shortage of targets that will jump in front of the shots.

 

I recently watched a few different documentaries on the rise of the nazi party in Germany. Disconcerting idealism to say the least.

 

Have we simply had too much peace in the developed world & are just itching for a fight?

 

I just want truth and it shouldn't take this much effort to get it.

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Interesting!

 

Normally I would say that those bullets are not ideas but propaganda and the social media gun is a better disseminating mechanism. But then you have Qanon which is weird and dumbfounding. It definitely contains ideas. So i don't know what to say about that.

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Interesting!

 

Normally I would say that those bullets are not ideas but propaganda and the social media gun is a better disseminating mechanism. But then you have Qanon which is weird and dumbfounding. It definitely contains ideas. So i don't know what to say about that.

 

One persons propaganda is another persons ideology.

 

Tomāto tomăto, ketchup catsup, right?

 

Words can be weaponized.

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Do you consider value investing to be an ideology?

That's interesting and tricky to answer so here's Li Lu's answer:

"I’m not ideologically opposed to anything. I am against any ideology."  :)

It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

True and a reasonable answer. I meant it more as an exploration of my/our own blind spots as value investors. That is usually unnerving and unwelcome but more productive in realtime than mocking scandanavian rowers with hindsight.

There have been many articles and postings about how value investors have suffered because they stayed to close to their "ideology". I wonder if there is any truth in that?

And i wonder if having a punchcard (few decisions over a relatively long period for truly good ideas) "ideology" helps to adjust to blind spots. i'm not sure. At least it may help to resist the temptation to go after what's been recently popular?

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

 

I am not sure of the percentage of people in favor of communism prior to countries becoming communists.  But I suspect it was quite high as it was sold and seemed to offer

the masses something and that is why so many fought for it.  I think it is a great example of the danger of an extreme ideology. 

 

I think it was a disaster for a host of reasons resulting in millions of deaths, poverty, loss of freedom, etc.

I agree it was a bad system but you suspicion is incorrect.

 

Communism's spread in Europe for example was done through military conquest. The United States gave (gifted?) half of Europe to the USSR. At that point the countries had two choices: they could become communist or Russian tanks would roll into their countries and become communists. The second choice is actually a bit dramatic as at the point these countries became communist the USSR actually had armies stationed in these countries and the controlled the governments. They merely appointed the communist party as the ruling party.

 

It's pretty obvious that when you have to use a gun to get people to do something it is because they're not convinced by your ideas.

 

You are right that many countries in Europe became communist through military conquest.  Good point.

 

But then there was Russia, China, Vietnam, North Korea and Cuba.  Likely a bigger percent of the population believed Communism would be better in those countries. 

Would have been better for the populations if the leaders just threw out the Communist ideology and picked the system that worked the best.

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Ideology is what you allow it to be, and in many ways its what you want it to be. For all the negative connotations, theres people in cults like Alcoholics Anonymous adhering to rhetoric that has legitimately saved their lives. Same is true for religion. Of course there are darker sides and uses, but thats true for everything.

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Guest cherzeca

ideologies help one believe that one's success is something one has earned and is entitled to, and one's failures are a result of fate or forces beyond one's control.  filters and rules pretty much do the same thing.  if you choose and practice your ideology well, it can be hugely rewarding. I think one of the most ideological investors is Buffett.   

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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.

I personally think these ideologies turn people's brains into BOILED CABBAGE.

All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.

While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

 

I am not sure of the percentage of people in favor of communism prior to countries becoming communists.  But I suspect it was quite high as it was sold and seemed to offer

the masses something and that is why so many fought for it.  I think it is a great example of the danger of an extreme ideology. 

 

I think it was a disaster for a host of reasons resulting in millions of deaths, poverty, loss of freedom, etc.

I agree it was a bad system but you suspicion is incorrect.

 

Communism's spread in Europe for example was done through military conquest. The United States gave (gifted?) half of Europe to the USSR. At that point the countries had two choices: they could become communist or Russian tanks would roll into their countries and become communists. The second choice is actually a bit dramatic as at the point these countries became communist the USSR actually had armies stationed in these countries and the controlled the governments. They merely appointed the communist party as the ruling party.

 

It's pretty obvious that when you have to use a gun to get people to do something it is because they're not convinced by your ideas.

 

You are right that many countries in Europe became communist through military conquest.  Good point.

 

But then there was Russia, China, Vietnam, North Korea and Cuba.  Likely a bigger percent of the population believed Communism would be better in those countries. 

Would have been better for the populations if the leaders just threw out the Communist ideology and picked the system that worked the best.

Ok, let dig deeper. Russia and Cuba were revolutions. In these cases you are probably right that communism was accepted by a large part of the population. Though I doubt it was really the ideology of communism that did it. These revolutions were brought upon by extreme inequality. Most of the population was living at or below subsistence level. So you have a large mass of population with nothing to loose. If it wasn't communism it would probably have been some other ideology that would have done it.

 

This brings me back to the theory overplayed on ideology issue. Communism as an ideology was not crafted for agrarian societies like Russia and Cuba. It was crafted for industrialized societies like Germany and Britain. But in Russia Lenin and the gang decided to toss that out take the kernel of ideology and overlay a new theory on it to make it work there. So it's not so much the ideology but the theories that go with it.

 

Now past that it all changes. One mistake that people in the west made about communism is that it was the ideology and communists were ideologues ready to die for communism. That couldn't be farther from the truth. Was Lenin an ideologue? Probably. But not in the ideology of communism but in his own theory of communism. Past that come the next generations. Was Stalin a communist ideologue? Not for a second. He was a power hungry tyrant. As a power hungry tyrant communist Russia had a pretty good system set up to achieve his goals. Why would he want to change it?

 

I have to admit that I don't know as much about Asian communism as the European one. In China I know the communists fought a civil war and they won so communism it is. If you fight a civil war you don't have that great of an acceptance of an idea. But clearly enough of one for people to fight and die for the idea. Korea, again pretty big war so not overwhelming acceptance there either. Vietnam is tricky because you have so many moving parts: French imperialism, Russian influence, American interests so I'm not even gonna try to venture a guess.

 

In the end it ironically looks like the only place where communism ideology succeeded and was really supported by a large part of the population ideologically was Cuba. But this wasn't really communist ideology that was supported. It was Castro's version of communism. His theory basically. I think there's a fair chance that the people that came up with the communist ideology did not even know that Cuba existed.

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I wrote a bigger post on theories layered on ideologies. Munger's friend was anchored to asset value discounts which was a theory. Nothing prevented him from investing in discounted intangible assets before his "change". I'm sure Coke, P&G and Wrigley traded at discount before the 1980s as well. Similarly I am sure there are better ways to do value today than cigar butts and GARP. The ideology is intact but you must always evolve and be flexible about theory/implementation.

 

Yes I think that’s a good way to frame it: the idea itself may be valid, but there may be limits to how far you can take it. Reminds me of the quote by Ben Graham. You can get in more trouble with a good idea because you forget that the good idea has limits.

 

Russian communism could be thought of as an example of this. If you see a system with one Tsar and everyone else a serf, it’s easy to get a good idea that more equity would be better. One can take that idea too far. There is probably a balance and an optimal level of inequality and opportunity.

 

  Change is required always.

 

I disagree if you are talking about value investing theories and practices. Change is required periodically maybe, but not always. If it were always required the framework would be useless since you would be reevaluating it everyday, instead of using it for evaluating companies.

 

 

 

And i wonder if having a punchcard (few decisions over a relatively long period for truly good ideas) "ideology" helps to adjust to blind spots. i'm not sure. At least it may help to resist the temptation to go after what's been recently popular?

 

The punchcard approach works when searching for competitively advantaged growth companies. There aren’t as many as reading VIC would lead you to believe. Graham and Schloss didn’t use that approach. It doesn’t work for cigarbutt investing ( yes, pun intended)

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At the end of the day I think the big picture point is to not be so sure that one is right that one cannot even listen or consider evidence that is different.

I think Munger said something about putting it in percentages - For example - I think I am 80% sure of this vs acting like one is 100% sure.

 

 

 

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