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How to Generate Stock Ideas: An Unusual Lesson from a 1939 Book

One of the best books I read before starting on my journey of building Safal Niveshak was James Webb Young’s A Technique for Producing Ideas, originally published in 1939. After all, I was trying to build my idea bank for things I wanted to do in life then.

In this book, Young lays out with brilliant simplicity the five essential steps for a productive creative process. Explaining how the production of ideas is largely a result of process than talent, he writes –

The production of ideas is just as definite a process as the production of Fords; that the production of ideas, too, runs on an assembly line; that in this production the mind follows an operative technique which can be learned and controlled; and that its effective use is just as much a matter of practice in the technique as is the effective use of any tool.

My limited experience in investing suggests that what is most valuable to know about idea generation is not just where to look for a particular idea, but how to train the brain in the method by which all ideas are produced and how to grasp the principles which are at the source of all ideas.

Anyways, the five steps for generating ideas Young outlined in his book are –

1. Gathering the raw material

Gathering raw material in a real way is not as simple as it sounds. It is such a terrible chore that we are constantly trying to dodge it. The time that ought to be spent in material gathering is spent in wool gathering. Instead of working systematically at the job of gathering raw material we sit around hoping for inspiration to strike us. When we do that we are trying to get the mind to take the fourth step in the idea-producing process while we dodge the preceding steps.

2. Digesting the material

What you do is to take the different bits of material which you have gathered and feel them all over, as it were, with the tentacles of the mind. You take one fact, turn it this way and that, look at it in different lights, and feel for the meaning of it. You bring two facts together and see how they fit. What you are seeking now is the relationship, a synthesis where everything will come together in a neat combination, like a jig-saw puzzle.

3. Unconscious processing

It is important to realize that this is just as definite and just as necessary a stage in the process as the two preceding ones. What you have to do at this time, apparently, is to turn the problem over to your unconscious mind and let it work while you sleep.

When you reach this third stage in the production of an idea, drop the problem completely and turn to whatever stimulates your imagination and emotions. Listen to music, go to the theater or movies, read poetry or a detective story.

4. A-ha moment

Out of nowhere the Idea will appear.

It will come to you when you are least expecting it — while shaving, or bathing, or most often when you are half awake in the morning. It may waken you in the middle of the night.

5. Idea meets reality

It requires a deal of patient working over to make most ideas fit the exact conditions, or the practical exigencies, under which they must work. And here is where many good ideas are lost. The idea man, like the inventor, is often not patient enough or practical enough to go through with this adapting part of the process. But it has to be done if you are to put ideas to work in a work-a-day world.

Do not make the mistake of holding your idea close to your chest at this stage. Submit it to the criticism of the judicious.

When you do, a surprising thing will happen. You will find that a good idea has, as it were, self-expanding qualities. It stimulates those who see it to add to it. Thus possibilities in it which you have overlooked will come to light.

Overlooked but Highly Important – Unconscious Processing
I believe that one of the easiest, but one of the most important steps, in Young’s idea generation process is the third. Once he was sure he had thoroughly considered the problem, he would “drop it.” He would go to bed, take a walk or move on to some unrelated task. What this step does is that it allows your unconscious to go to work.

In Thinking, Fast and Slow, renowned psychologist Daniel Kahneman synthesizes his many years of research and makes a strong case for understanding our two systems of thinking –

  • System 1, which is fast, intuitive and emotional; and
  • System 2, which is slower, more deliberate and logical.

Kahneman explains that we rely too heavily on System 1, need to engage System 2, and we need to understand the impact of both on decision-making. Young’s third step – when you drop the problem and shift your mind somewhere else – allows your more creative system 2 to come up with an idea without the interference of the self-critical system 1.

In this third step, Young stresses the importance of making absolutely “no effort of a direct nature.” To re-quote him –

It is important to realize that this is just as definite and just as necessary a stage in the process as the two preceding ones. What you have to do at this time, apparently, is to turn the problem over to your unconscious mind and let it work while you sleep.

When you reach this third stage in the production of an idea, drop the problem completely and turn to whatever stimulates your imagination and emotions. Listen to music, go to the theatre or movies, read poetry or a detective story, or simply go for long walks.

Noted German physician Helmholtz said –

So far as I am concerned, they [ideas] have never come to me when my mind was fatigued or when I was working at my working table.

American psychologist Rollo May believed that –

…inspiration comes from sources in the unconscious that are stimulated by conscious ‘hard work’ and then liberated by the ‘rest’ that follows.

Here I can also connect what Maria Konnikova wrote about Sherlock Homes in her brilliant book Mastermind: How to Think Like Sherlock Holmes

One of the most important ways to facilitate imaginative thinking is through distance. In ‘The Adventure of the Bruce-Partington Plans,’ a case that comes quite late in the Holmes-Watson partnership, Watson observes:

One of the most remarkable characteristics of Sherlock Holmes was his power of throwing his brain out of action and switching all his thoughts on to lighter things whenever he had convinced himself that he could no longer work to advantage. I remember that during the whole of that memorable day he lost himself in a monograph which he had undertaken upon the Polyphonic Motets of Lassus. For my own part I had none of this power of detachment, and the day, in consequence appeared to be interminable.

Forcing your mind to take a step back is a tough thing to do. It seems counterintuitive to walk away from a problem that you want to solve. But in reality, the characteristic is not so remarkable either for Holmes or for individuals who are deep thinkers. The fact that it is remarkable for Watson (and that he self-admittedly lacks the skill) goes a long way to explaining why he so often fails when Holmes succeeds.

Psychologist Yaacov Trope argues that psychological distance may be one of the single most important steps you can take to improve thinking and decision-making. It can come in many forms: temporal, or distance in time (both future and past); spatial, or distance in space (how physically close or far you are from something); social, or distance between people (how someone else sees it); and hypothetical, or distance from reality (how things might have happened). But whatever the form, all of these distances have something in common: they all require you to transcend the immediate moment in your mind. They all require you to take a step back.

In essence, psychological distance accomplishes one major thing: it engages System Holmes.

Consider how does Holmes go about his reasoning. First of all, he took a step back, quite literally distancing himself from the scene of the investigation. Note that he distanced himself both in –

  • Space – by changing location and removing himself from the scene of the investigation entirely, and in
  • Time – by giving himself a day to reflect on the events.

The technique is an important one to remember whenever you try to form a broad picture of something or gain perspective on a choice, however specific it may be.

While dealing with his cases, as Konnikova writes in her book, Holmes did not keep banging his head against the same wall. Instead, in one instance he smoked several pipes and in others, he played his violin, meditate, or take walks.

Now, distance from the case is not what benefits only the detectives. In reality, a change of activity can lead to moments of powerful insight any field of activity.

Consider investing for instance. When you act in the heat of the moment or come to rash judgments, which often happens during the extreme period of hype or fear, you increase the chances of mixing information that is crucial to your decision-making with information that is just incidental.

Even more dangerous is the fact that, during such heady times, you are more likely than not to overweigh the incidental over the crucial and so make a choice that is far from ideal.

Consider as recent a period as November 2016 when the Indian government announced demonetization of Rs 500 and Rs 1000 currency notes. The stock markets went into a tizzy. A poll of equity ‘strategists’ and brokers suggested widespread downgrades to Sensex’s target for end 2016 and 2017. In the heat of that moment, I found a lot of investors I know going berserk and selling their stocks because “the outlook was negative.”

When the need of the hour was to pause, step back, and avoid panic, a lot of investors did just the opposite.

Blaise Pascal’s thought that all of humanity’s problems stem from man’s inability to sit quietly in a room alone, came to light once again.

We are sailing in a similar boat again, though this time a high tide has lifted our boat and a lot of investors consider the future to be brighter than ever. Valuations that have crossed reasonable levels across the board are being justified with higher corporate earnings in the future.

Don’t get me wrong here. I am not suggesting that one should sell stocks and wait for the markets to fall to buy again. I am not selling my stocks either. But what such a situation demands from me – like demonetization did – is to pause instead of going with the flow, step back a little, and let the insights come to me (this is considering that I have already done some hard work in trying to identify new stock ideas, which seem hard to come by these days).

You see, that’s really hard for many of us – to pause and step back – because we don’t trust that this process CAN work or WILL work for us on our problem or issue. That strikes me as normal and human and yet, because I have a hard time with this too.

A few ways I try to overcome this is to go for long walks, take long travels, and regularly keep some sort of meditation habit in force which just helps me calm the part of my mind that doesn’t believe in benevolence of the universe.

And it is here that I remember Paulo Coelho’s words from The Alchemist –

When you really desire something from the heart and soul, all the universe conspires you to achieve it.

Just that, apart from doing the work, you must often pause, step back, and let the universe offer you its benevolence through moments of insights.

Treat Decision Making as a Puzzle
Maria Konnikova wrote in a wonderful piece in Scientific American –

You can think of the exercise as a large, complicated puzzle: the box has been lost, so you don’t know what exactly you’re putting together, and pieces from other, similar puzzles have gotten mixed in over the years, so you’re not even sure which pieces belong. How do you go about solving it?

You’ll never know how the pieces fit together unless you have a sense of the puzzle as a whole. Even though you may not have the benefit of the picture on the box to start, some pieces jump out right away: the corners, the edges, colors and patterns that obviously go together. And before you know it, you have a clearer sense of where the puzzle is heading, and where and how the remaining pieces should fit. You can now easily throw out the pieces of those pesky other puzzles that somehow got mixed in and focus on filling in the important missing details of the one you’re working on.

But you’ll never solve it if you don’t take the time to lay the pieces out properly, identify those telling starter moves, and try to form an image in your mind of the picture as a whole. Trying to force individual pieces at random will take forever, cause needless frustration, and perhaps lead to your never being able to solve the thing at all.

So listen to Holmes … and make a habit of taking a breath, stepping back, and assessing everything from a distance – or from a number of distances. Only then can you begin to separate the crucial from the incidental.

Charlie Munger said – “The way to win is to work, work, work, work and hope to have a few insights.”

I would modify it a bit thus – “The way to win is to work, work, work, pause, step back, and hope to have a few insights.”

Also Read –

P.S. I got the idea of this post on a family holiday, while away from work.😊

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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.


  1. Awesome! Will consciously keep a lookout for these points when I look for investment options.

  2. Marketinsider says:

    Very nice idea keep it up


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