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Intuitive Competence: Just another fancy pants way of saying lucky?


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I started thinking about this after reading a recent post in the Berkshire section:

 

indeed, yet it all makes sense:

 

cheap at the start of new economic cycle >> cheap at the end of the previous economic cycle

Just needed a GDP vector + a dearth of other opportunities

 

Maybe 5 years from now, we would say that the dearth of 'big' opportunities in 2020 was the best thing that happened to BRK

 

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When deciding on a possible investment, he recommends, “If you need a computer or a calculator to decide whether to invest, then don’t do it – invest in something that shouts at you – if it is not obvious, walk away . . . If you don’t know the business, the financials won’t help at all.”

 

Our brains, equipped with millions of sensory inputs, create interpretive mental “frames” or filters to make sense of data. These mental filters help us understand and respond to the events around us. Framing is a heuristic – a mental shortcut – that provides a quick, easy way to process information. Unfortunately, framing can also provide a limited, simplistic view of reality that can lead to flawed decisions.

 

Financial data is especially susceptible to framing. Companies always express earnings and losses positively, either as an increase compared to past results or a smaller loss than previous periods. Trends can be manipulated based upon the comparison point and time interval.

 

Framing can lead rational people to make irrational decisions based upon their projections of the outcome. This accounts for the difference between economics’ rational man and psychology’s natural man.

 

Mr. Buffett’s investment style has been criticized by many over the decades. Trend followers and traders are especially critical of his record and philosophy, claiming that his results are the result of “luck, given the relatively few trades that made him so wealthy.”

 

www.moneycrashers.com/warren-buffett-decisions-secret-investing-success/

 

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Buffett has stuck to what he knows (yes/no) and lately he's delegated authority to experts who have complementary competencies that he lacks.

 

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Throughout my life, things have worked out very well.

 

Any time I've ever gone on a job search, the prospects seemed bleak, and yet I'd always find something great. Every time I got hired, I'd become intimidated by the magnitude of what I was expected to do, but once I got onboard everything would come together.

 

Similarly, I start writing words and a tune, and it takes on a natural direction that simply works out. It may take a bit of editing, but the end result is usually pretty satisfying.

 

How much of this success is a result of intuitive decision making (in fields where I have deeply learned skill sets that seem natural to me)?

 

Back to investing: I believe I do a deeper dive on investments than most people, but to call what I do a "deep dive" is laughable. More like stomping around in mud puddles. I can reject an idea in less than a minute (right or wrong), and if something gets past my nebulous filters, I have a self imposed 7 day cooling off period, during which I'll do varying degrees of puddle jumping. If I'm still excited after a week of splashing around, I buy. Recent wet spots include Fresenius, Dominos & Roper.

 

Whether in work or investing, jumping around in intuitively understandable puddles is much better than dropping off into unfathomable holes. Heartfelt thanks to all the really smart people who've graciously pointed out where to splash around.

 

Not everything turns out how I expect or intend, but if going with my gut works, am I just lucky?

 

How much of what WEB does, is based on intuitive competence (coupled with industry, of course)?

Conditions-for-Intuitive-Expertise.pdf

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Buffett has a lifetime of experience. The more you do the same process, the faster and easier it gets. Munger has said he's never seen Buffett do a DCF calculation, but likely WEB did enough in college and for Graham, to internalize the patterns, that 2x the growth rate is worth a lot more than 2x the value, etc.

 

When you or I look at a new company, we have to digest it and at first it might not be easy to know what the most important questions are. When WEB sees a new company, he might instantly say, oh, this is just like X & Y, and with the same type of moat as Z, so what I need to focus most on in their annual report is inventory turnover, or capital costs, etc, etc.

 

Investing is a lot easier if it's the only thing you do all day long, if you also have a job you need to squeeze in as much reading as possible in the few hours you have. Which is why I quit masturbation. It's tough to leave behind an activity where your lifetime efforts have made you world-class, but sometimes it takes big sacrifices to make money.

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Guest cherzeca

rules of thumb, or heuristics, are extremely important in all of our endeavors, so of course investing as well.  the best for background on this in our daily lives: Kahneman, Thinking Fast, and Slow.

 

there is no reason not to embrace them, as they are liberating. just to give you an example, and you dont have to agree with it...for a longish while, I thought buying a crappy company cheap was better than buying a great company dear...now through my experience, I have found my better heuristic to be to focus on great companies and if I have to pay up, then dollar cost average.

 

this heuristic has been terrifically liberating for me, and I have done well with it btw...and if I hadn't done well with it, then I would have found another heuristic, but my main point is embrace heuristics, they are gifts...until they stop working and you need to use a modified or replacement heuristic

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rules of thumb, or heuristics, are extremely important in all of our endeavors, so of course investing as well.  the best for background on this in our daily lives: Kahneman, Thinking Fast, and Slow.

 

there is no reason not to embrace them, as they are liberating. just to give you an example, and you dont have to agree with it...for a longish while, I thought buying a crappy company cheap was better than buying a great company dear...now through my experience, I have found my better heuristic to be to focus on great companies and if I have to pay up, then dollar cost average.

 

this heuristic has been terrifically liberating for me, and I have done well with it btw...and if I hadn't done well with it, then I would have found another heuristic, but my main point is embrace heuristics, they are gifts...until they stop working and you need to use a modified or replacement heuristic

 

I agree. Price is what you pay & value is what you get.

 

Being frugal saves on expenses and helps avoid unnecessary purchases, but can lead to the habit of waiting for a deal on everything. Fire sales rarely come with quality investments. Berkshire excluded  ;)

 

That's why I bought Roper & Dominos this week & Fresenius a few weeks ago. They're not bargain basement cheap but they look affordable when viewed with a decade long telescope.

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