Premium Value Investing NewsletterDownload Free Issue

Poke the Box: Face Your Problem…Like that of Being a Bad Investor

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days…

  • Launched The Safal Niveshak Mastermind – one-year course to help your reinvent how your invest, work, and live – and have received a great response so far. So that you don’t miss out on this Course, subscribe before it closes on 25th August. Know more and subscribe here.
  • Recently started a survey on investor psychology, and the results have surprised me! Before I share the results and my analysis on coming Monday, please participate in it by visiting this page.
  • There was a massacre on Dalal Street this week. If you are worried about falling stock prices, first delete you online portfolio tracker :-), and then read this.
  • I have 40 reasons you are a bad investor!
Mental Model of the Week: Contrast Effect

Robert Cialdini, in his book Influence, shares a story of two brothers, Sid and Harry, who owned a men’s tailor shop…

Whenever the salesman, Sid, had a new customer trying on suits in front of the shop’s three-sided mirror, he would admit to a hearing problem, and, as they talked, he would repeatedly request that the man speak more loudly to him. Once the customer had found a suit he liked and had asked for the price, Sid would call to his brother, the head tailor, at the back of the room, “Harry, how much for this suit?”

Looking up from his work — and greatly exaggerating the suit’s true price — Harry would call back, “For that beautiful all-wool suit, forty-two dollars.” Pretending not to have heard and cupping his hand to his ear, Sid would ask again. Once more Harry would reply, “Forty-two dollars.” At this point, Sid would turn to the customer and report, “He says twenty-two dollars.”

Many a man would hurry to buy the suit and scramble out of the shop with his “expensive = good” bargain before Poor Sid discovered the “mistake”.

Well, Sid and Harry made their moolah even as the customer thought he got a ‘great’ deal! 🙂

Now look at this image below. The black dots you see are fleeting, and any individual dot will turn white as soon as you focus on it. Clearly, all the dots are actually white, yet at a glance we still perceive some of them as being black.


This is due to a principle in human perception, called the “contrast effect”, which affects the way we see the difference between two things that are presented one after another.

The contrast affect also works when we are studying physical appearances of people. Research investigating attractiveness reflects the importance of physical appearance.

Despite common phrases such as ‘beauty is only skin deep,’ there is no longer any doubt that being attractive has its benefits.

Attractive individuals are consistently treated significantly better than their unattractive counterparts. Additionally, attractive adults are judged more positively in work-related competence than unattractive counterparts, and are perceived as higher in social appeal and interpersonal abilities.

These results hold true even when familiarity is taken into account. Not only are opinions influenced by attractiveness, but behavior towards attractive children and adults echo the importance of being physically attractive.


So if you are talking to a beautiful woman at a party and are then joined by an unattractive one, the second woman will strike you as less attractive than she actually is.

Just look at how big accounting scams are created.

Here is what Ramalinga Raju’s aides at Satyam must have told him before the scam came to light – “If we slowly and gradually over time manipulate the numbers, the auditors won’t notice it.”

Incidentally, in this case, even the auditors were involved! But the Satyam scam did not come to light till Raju confessed of riding a tiger.

You see, contrasts may blind us to change until it’s too late. For example, we often don’t notice the bad behavior of others (like we ignore “small” accounting manipulations at companies) if it goes sour gradually over time. Often we see reality as constant, although it gradually changes.

It is, after all, the small, gradual, invisible changes that harm us the most.

Book Worm
I recently bought Rolf Dobelli’s The Art of Thinking Clearly on the suggestion of Prof. Sanjay Bakshi. And I haven’t put it down ever since.

Here is what Dobelli has written about the Contrast Effect…

When we encounter contrasts, we react like birds to a gunshot: we jump up and get moving. Our weak spot: we don’t notice small, gradual changes. A magician can make your watch vanish because, when he presses on one part of your body, you don’t notice the lighter touch on your wrist as he relieves you of your Rolex.

Similarly, we fail to notice how our money disappears. It constantly loses its value, but we do not notice because inflation happens over time. If it were imposed on us in the form of a brutal tax (and basically that’s what it is), we would be outraged.

The contrast effect can ruin your whole life: a charming woman marries a fairly average man. But because her parents were awful people, the ordinary man appears to be a prince.

Stimulate Your Mind
Here’s some amazing content I read during the week gone by…

  • Sad to see this all around me, but from park swings to medical seats, competition to outsmart others and squeeze through the system starts early for the Indian child.
  • India’s capitalistic companies continue to believe in deal-making with the ‘babus’ than following the rules of the game ethically. Maybe, deal-making is what they consider a rule!
  • Leo Babauta of Zen Habits on why you must simplify your life and let go of your crutches.
  • Jana Vembunarayanan, a Safal Niveshak tribesman, writes on the five elements of effective thinking on his amazing blog.
Poke of the Week – Appreciate Your Problem

“That which opposes produces a benefit.” ~ Heraclitus

There was a time when I was slightly overweight and combined with the rigorous daily travel, suffered from a very bad backache. I didn’t feel in control of my health, because I couldn’t give enough time to improve it.

Or maybe the lack of time was just an excuse to not consider my health a priority. Thinking about my deteriorating health made me feel horrible, so I didn’t want to even think about it!

It was a downward spiral, and really hard to stop.

Most of us don’t like the problems, conflicts, and challenges we face in our lives, because these seem like roadblocks in the path of what we are trying to do.

But Heraclitus, as he writes in the above comment, invites us to consider how these problems — the headwinds we face or things that are moving against us — can benefit us.

If you are an investor in the stock market, your current portfolio of stocks may seem like a big problem to you achieving your financial goals, especially given that stocks across the board are falling like ninepins (and those talked about on Safal Niveshak are falling even faster :-))

So, as a result, one of the following might happen:

  1. You eliminate the problem by selling duds from your portfolio even while suffering the losses but avoiding permanent loss of capital;
  2. You find a few other stocks that are much better businesses and are available cheap after the crash;
  3. You question whether you really want to stress out speculating in stocks and would rather learn the rules of sensible investing that will earn you lower short-term return than speculation, but much higher return per unit of stress.

In short, the problem you think you are facing currently can lead you to stop and re-think what you were doing all this while, and thus lead you to something good.

Think about it: the history of discovery and invention is filled with people whose routines were interrupted and who were forced to come up with alternative solutions.

Even America was discovered as a by-product of the Europeans’s search for pepper!

So, think of the biggest problem you are facing currently and positive things you can discover in seeking the solution?

Like, ask yourself this question now – “What would I have been doing if money was not a problem?”

Then, just do it!

Idea Source: Creative Whack Pack

Well, if you haven’t done it already, sign up here to receive Poke the Box in your email…and get ready for stimulating Saturday mornings.

Keep poking.

Appreciate your problem.

Subscribe to Mastermind. 🙂

And please watch Bhaag Milkha Bhaag!

Till next weekend…

Vishal Khandelwal
Chief Poker – Poke the Box

Print Friendly
About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Bhaag Milkha Bhaag is an awesome movie the story, the guys grit, the failings as a human and then getting up and fighting back. The job is very well done by the actors.
    Agree, you must watch it.
    It is about 3 hours long but worth it.

  2. Jana’s blog is very interesting.

  3. This reminds me of a quote;
    “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.”
    Warren Buffett
    Well that sums it for me also as to why I am here!

Speak Your Mind

*