August 2017

Delayed Gratification, Marshmallow test, Long term investing

Delayed Gratification ~ The Marshmallow test !!! ~ The one quality must for success…

👉Weekend good fabulous short video …

👉 DELAYED GRATIFICATION , or deferred gratification, is the ability to resist the temptation for an immediate reward and wait for a later reward.

👉40 Years of Stanford Research Found That People With This One Quality Are More Likely to Succeed

👌🏼The following popular short video experiment of MARSHMALLOW TEST test has over 5M+ views ….

❓What were the results of the experiment The researchers followed each child for more than 40 years and over and over again, the group who waited patiently for the second marshmallow succeed in whatever capacity they were measuring.

⭐⭐In other words, this series of experiments proved that the ability to delay gratification was critical for success in life.

👉 Show it to children .. they would love this video

👌🏼Some excellent pointers towards a better thought process and attitude – #investwise

May 2017

Behavioural finance, Behavorial finance, Outcome Bias, Investing

Never Judge a Decision by Its Outcome: Outcome Bias

Never Judge a Decision by Its Outcome: Outcome Bias

A quick hypothesis: Say one million monkeys speculate on the stock market. They buy and sell stocks like crazy and, of course, completely at random. What happens? After one week, about half of the monkeys will have made a profit and the other half a loss. The ones that made a profit can stay; the ones that made a loss you send home. In the second week, one half of the monkeys will still be riding high, while the other half will have made a loss and are sent home.

And so on.

After ten weeks, about one thousand monkeys will be left—those who have always invested their money well. After twenty weeks, just one monkey will remain—this one always, without fail, chose the right stocks and is now a billionaire.

Let’s call him the success monkey.

How does the media react?

It will pounce on this animal to understand its “success principles.” And they will find some: Perhaps the monkey eats more bananas than the others. Perhaps he sits in another corner of the cage. Or maybe he swings headlong through the branches, or he takes long, reflective pauses while grooming. He must have some recipe for success, right?

How else could he perform so brilliantly? Spot-on for two years—and that from a simple monkey? Impossible!

The monkey story illustrates the outcome bias: We tend to evaluate decisions based on the result rather than on the decision process. This fallacy is also known as the “historian error.”

A classic example is the Japanese attack on Pearl Harbor. Should the military base have been evacuated or not? From today’s perspective: obviously, for there was plenty of evidence that an attack was imminent. However, only in retrospect do the signals appear so clear. At the time, in 1941, there was a plethora of contradictory signals. Some pointed to an attack; others did not. To assess the quality of the decision, we must use the information available at the time, filtering out everything we know about it post attack (particularly that it did indeed take place).

Another experiment: You must evaluate the performance of three heart surgeons. To do this, you ask each to carry out a difficult operation five times. Over the years, the probability of dying from these procedures has stabilized at 20 percent. With surgeon A, no one dies.

With surgeon B, one patient dies.

With surgeon C, two die. How do you rate the performances of A, B, and C?

If you think like most people, you rate A the best, B the second best, and C the worst. And thus you’ve just fallen for the outcome bias.

You can guess why: The samples are too small, rendering the results meaningless. You can only really judge a surgeon if you know something about the field, and then carefully monitor the preparation and execution of the operation. In other words, you assess the process and not the result.

Alternatively, you could employ a larger sample: one hundred or one thousand operations if you have enough patients who need this particular operation. For now it is enough to know that, with an average surgeon, there is a 33 percent chance that no one will die, a 41 percent chance that one person will die, and a 20 percent chance that two people will die. That’s a simple probability calculation. What stands out: There is no huge difference between zero dead and two dead. To assess the three surgeons purely on the basis of the outcomes would be not only negligent, but also unethical.

In conclusion: Never judge a decision purely by its result, especially when randomness and “external factors” play a role.

A bad result does not automatically indicate a bad decision and vice versa. So rather than tearing your hair out about a wrong decision, or applauding yourself for one that may have only coincidentally led to success, remember why you chose what you did.

Were your reasons rational and understandable?

Then you would do well to stick with that method, even if you didn’t strike it lucky last time.

* Source: The Art of Thinking Clearly by Rolf Dobelli

More reading on Outcome Bias here at :


December 2012

Who Pays for your coffee ~ Bargaining Power ~ Ricardian Model ~ Economics

Ricardian Model , Undercover Economist, Who pays for your coffee, Economics & Value Investing, Bargaining Power, Scarcity, Premiums, Marketing , Branding

I was reading the article  Who Pays for Your Coffee? the other day, an interesting take on the concepts of scarcity and bargaining power.

We learn the reasons behind why people pay premium price for the coffee in the morning trip (American Morning’s …that is…)… Interesting .. Ricardian Model of rents, scarcity, bargaining power and pricing… Read on..

A resource (which could be land, brand , car..or for that matter stocks etc..)  which is in demand and which is also scarce will have the bargaining power and get a high premium.

The author uses the example of coffee bars located at stations having huge volume of commuters to drive home the point of the power and the strength of scarcity of resources and the bargaining power of the resource owners.

The exclusive coffee bar at the station is scarce. And so is the station location. The coffee bar has bargaining power over customers for high coffee prices. The station owners have bargaining power over coffee bars for high rent. 

However, the Bargaining Power does not come by just owning the resource. It comes because of scarcity. This viewpoint forms the crux of the article. If the scarcity shifts so does the bargaining power.

Businesses which hold the bargaining power today due to a combination of owning resources, demand and scarcity may go out of favor in future if there is a shift in scarcity which could be because of changing economic environments, changing customer tastes, rapid technological shifts or competition. An important factor to consider in investing, is to not only keep an eye on the past performance of a business / sector but to have vision to sense the future direction as well.

However, in real life the shifts in bargaining power and relative scarcity are often very slow. These shifts also have profound impact on lives of people. And most of the analysts miss this completely.

 In economics, Basic principles and patterns that operate behind seemingly complex subjects can be used as models. These models have been used to explain other complex phenomena in real life.

The article goes on the explain Ricardo’s model of meadowland which expounds on the concepts of scarcity of resource, bargaining power and shifts in bargaining power. It also explains the concept of relative value pricing and marginal land.

For example, although common sense says that the high rent causes the high prices coffee, the application of Ricardo’s model reveals that It is actually the willingness of customers to pay high prices for coffee which sets up the high rent and not the other way round.

The economists try to focus on underlying process, understand the patterns of scarcity in order to unearth developing shifts of bargaining power.

Would be interesting to look at investing in stocks from this angle as well

November 2012

The Illusion of prediction ~ Hindsight Bias

The Illusion of prediction , Hindsight Bias, Financial Pundits, Predicting the stock markets, Stock trends

Everything makes sense in hindsight, a fact that financial pundits exploit every evening as they offer convincing accounts of the day’s events.  

And this Illusion that we understand the past fosters overconfidence in our ability to  predict the future. The idea that the future is unpredictable is undermined every day by the ease with which the past is explained. This is especially true in the financial markets.

Value Investing