Observations On Expectations

A story of expectations met and unmet, in two parts.

Part the first. I spoke in front of a group of students at a local continuation high school this morning. The original topic was my career (what do I do? what do I like/dislike about it? etc.) and my career path (what’s my background? education? how’d I get to where I am?) but I never quite got there. I mostly ended up talking about economics as I was speaking to an economics class, nominally, and the program coordinator kept prompting me on that subject.

I introduced two economic concepts to the assembled: TNSTAAFL/opportunity cost, and subjective value theory. I tried to apply them to “real life” to make them tangible and interesting to the audience. I talked about how everyone got suckered into the Housing Bubble, which cost a lot of people their homes, their personal finances, their jobs and sometimes more. I suggested that a person who understood that TNSTAAFL wouldn’t have gotten suckered in because he would’ve recognized the bubble for what it was and played it safe as he could. Subjective value theory I used to explain why we have an economy and why people work jobs, to serve each other’s subjective needs. I encouraged the class to think about their own values and to pursue them, and recognize that when people tell them what to do they’re simply telling them they should follow subjective values other than their own. I tried to highlight the role opportunity cost plays in pursuing subjective values, for example, people often get into traps such as pursuing money to provide for their families in such a way that they don’t get to spend time with their families. This opportunity cost is forgotten or ignored.

I also covered time value of money and the function of credit during a brief tangent, prompted by the program coordinator emphasizing the importance of personal finance principles.

The instructor goaded the students into applauding me before I had even spoke, as some kind of polite welcome for someone who had taken the time to stand before them and pontificate on a subject they cared little about. I said, “We’ll see if you still feel like applauding me at the end” and then began my talk. At the end of it, as the students rose to leave at the sound of the Pavlovian bell, one of the young men closest to me in the front of the room turned to his classmate and said in a quite intentionally audible way, “Thank GOD that is over!”

The morning’s events completely met my expectations and as a result, I was satisfied with myself when I myself left. I had entered a prison, whose inmates were being held against their will, by force of law, who had been assembled before me because they had no other choice save punishment and who had little to no interest in the subjects I had been invited to speak about before them. You certainly can’t blame a person in such circumstances for being disengaged, melodramatic and at times downright hostile.

If you put me in a cage I’d be uncomfortable and not in a friendly mood, either.

I didn’t expect to touch anyone, change a life or spark a fire or interest in anyone for the subjects I spoke about (economics, careers, my career, me) and if I happened to do that despite my intentions, that’s fine. I expected to go in there, treat the poor beasts with respect and maybe a bit of sympathy, having once been caged in a similar manner myself, and deliver my thoughts as articulately and coherently as I could. I expected to get practice speaking before an audience and trying, not necessarily succeeding, at making a foreign subject engaging or relatable for them.

In this, I met my expectations and so I believe I succeeded and thus I felt satisfied.

Part the second. For some time now I have watched in despair as a previously favorite blog of mine has gone into seemingly terminal decline. What was once a source of original thinking, unique coverage and respectable ideological consistency has in time become a haven for hacks and simpletons, its content hollowed-out and refocused on a few topics I just don’t have much interest in. The purveyor of the site has taken numerous opportunities, on his blog and his new webcast radio show, to demonstrate qualities of his personality I’ve found surprising, disappointing and at times reprehensible.

My distress with this reached a fever pitch early this week when a long-awaited debate on the subject of “intellectual property” was joined by the purveyor and another popular blogger on the subject. While the purveyor’s behavior leading up to the discussion gave me no reason to believe it’d be an intelligent, objective attempt at sussing out the truth by the two parties, but rather much evidence that it would be a battle of wills and ego characterized by willful blindness of reason and savage emotional assaults on each respective victim, the final product was so shockingly extreme in terms of all the undesirable qualities I suspected it would contain that I almost couldn’t believe these two adults had allowed themselves to be recorded, their outrage to be shared in front of a public audience of strangers.

I found myself so disappointed with the whole thing. It was anti-intellectual and truly uncivilized, the kind of stuff blood feuds at made of (gusto about sacred honor and the like that can never be satiated by way of reasonable argument). I knew both men were capable of a bit of underhandedness, but at least in the past the underhandedness seemed to have some kind of productive point. This time, after I finished sitting through two and a half hours of two middle-aged men calling each other names and screaming at one another, waiting for a point, I realized too late that there was none beyond sharing pure hate and distrust.

Who was to blame for my dissatisfaction in this instance? Initially, I found myself disgusted with these two people for subjecting me to this idiocy. “How dare they!” Then I thought about it some more. They are who they are. Their current skills and capabilities with regards to interpersonal communication and intellectual reasoning are aspects of their identity that exist as they do, whether I find them appealing or satisfying or not. I expected them to work hard to please me in their debating efforts (despite, I should add, much evidence that they were capable of no such thing) and when they didn’t live up to my expectations, I was disappointed.

Not by them, but by myself. For expecting people to live to serve my intellectual and emotional needs.

In the first part, I participated in something that could easily be seen as a disastrous waste of everybody’s time. Yet, I walked away from it in a positive state of mind. In the second part, I witnessed a true social tragedy and felt depressed and upset. Both circumstances were undesirable, but my reaction was different each time because my expectations were different.

Expectations can glorify our existence or cast the light of our lives down a dark abyss. I hope to remind myself of this fact more often.

Review – Influence: The Psychology Of Persuasion

Influence: The Psychology of Persuasion

by Dr. Robert B. Cialdini, published 1984, 2006

Another study in the motivations underlying human behavior

Originally published in 1984, Cialdini’s “Influence”  has gone through several updates and reprints since. The book outlines 6 categories of persuasion, most of which we encounter on a daily basis (frequently by someone who wants us to buy something, but not always), and most of them are so ingrained in us that we barely even notice ourselves complying with them anymore.

Now this is not to say that you won’t recognize the 6 categories, in fact you’ll know them all too well, but the genius of the book lies in describing how each one of these methods is currently used unbeknownst to us, you’ll start recognizing them being used the second someone’s using them, which helps to ignore them if you want.

The 6 categories of influence

  1. Consistency & Commitment – continuing a course of action to be consistent with your previous actions (e.g. you subscribed to our cable service last year, so why not this year?)
  2. Reciprocation – feeling obligated to give something in return just because someone gave you a gift (e.g. take these free mailing labels, can you make a donation to the Children Need _________ Fund?)
  3. Social Proof – when there is a lack of objective, 3rd party evidence, people typically use what other people are doing as a guide for their actions, which is acceptable in most situations, but also horribly unacceptable in many others (e.g. Buy this product because these people did! )
  4. Authority – ever done something just because someone was wearing a uniform? It’s easy to put a lot of stock into what someone says just because they’re wearing a $20 uniform or have a title in front of their name.
  5. Liking (Similarity) – ever agreed with someone just because they seemed to be like you, and people like you are agreeable, therefore what they say makes sense right? Erm…sometimes it doesn’t…
  6. Scarcity – this one is ingrained in us like the need to eat and sleep. When we feel there is the potential for there to be less of something in the very near future, we automatically value it more (e.g. But don’t wait, call now before we run out!)

Truth runs deep beneath the surface

The average person can grasp these concepts with ease, but that’s not to say they’re simplicity prevents them from being profound. In fact, the truth is that these things go much, much deeper.

  • Have you ever continued on a path you knew was silly just because you’d already committed to it?
  • Have you ever had difficulty resisting what other people are doing simply because so many people were doing it?
  • Have you ever agreed with someone for the moment simply because you felt similar to them, only to realize after the fact that you don’t really agree with them at all?

I have absolutely done all of these things, and as you get older most people become less susceptible to the weak forms of these strategies (but this book certainly helped me leap frog my previous understanding of them). These strategies of influence are not inherently bad, but knowing when they’re being used will allow you to step back from the persuader, realize the strategy being used, and assess whether you want to continue your current course of action.

And the implications of these forms of influence go further than just understanding how marketing or advertising messages work. Think about the investment markets– how many investors put their money into something because they heard someone else they respect is doing it (similarity), they’re concerned there isn’t enough to go around such as in an IPO (scarcity), because the government said they’re backstopping it (authority) or because they were caught up in a bubble and everyone else was doing it (social proof).

Guilt-Free Research: Why I’m Not Scared To Steal People’s Ideas Anymore

I’ve thought a lot about doing my own research in the sense of sourcing ideas.

When it comes to idea-generation, there are essentially two extremes:

  • “Old school Buffett”
  • Index investing

“Old school Buffett” is the investor equivalent of a music DJ “digging in the crates”– a tireless, thorough examining of every idea possible. Sifting, examining, turning over every rock. Buffett’s claim that he started with the A’s in the Moody’s Manuals.

Index investing is the opposite. Index investing is the admission, “I have no ideas.” It is resignation. It is buying everything, instead of buying something.

Most investors’ idea-generation process lies somewhere on the continuum between the two extremes.

I do believe that, especially because I am learning a lot right now, it is best for me to “do my own research” and to come up with as many ideas as I can on my own. To hang closer to the rock-turning end of the spectrum. I also believe that you should always be able to understand and vet an idea on your own that you receive from someone else (no “Investment From Authority”).

However, I have also come to realize that:

  • The greatest investors borrow liberally from others
  • Time is scarce

The second part is probably more important than the first; the first is about soothing a guilty-conscience, the second is about embracing a meaningful constraint of reality and not hanging oneself by a determination to be completely original.

In consideration of these facts, this the value I see in reading good investment blogs– they are chock full of ideas and they’re almost all being given away for free. A lot of the hedge fund guys profiled in “More Money Than God” (review coming) were notorious for getting ideas from others (mostly brokers) and learned to pay for the best ideas and thereby cultivate a network of hard-working, reliably intelligent investors who were creating actionable ideas for them all of the time. Following investor blogs is kind of similar except you don’t pay for the ideas you get. You look for people with styles you agree with, who demonstrate competent analytical skills, then you just follow them and pick off the ideas you like best.

You could also do the same with newsletters. For example, why should I spend hours and hours picking through net-nets on my own (aside from the exercise and practice) to come up with most likely the exact same ones that Geoff Gannon is giving away in his GuruFocus newsletter? Geoff Gannon is fucking smart (and I use the expletive to connote a certain level of emphasis, enthusiasm and awe, here) and if anyone is going to pick net-nets well, it’s probably him.

For $289/yr, I can have Geoff Gannon pick net-nets for me and spend that time digging up other ideas. I also get two other newsletters (the Buffett-Munger one sounds interesting and Gannon might write that, too, the Magic Formula one I am less interested in but still could have value) and a premium stock screener. That could end up paying for itself pretty easily over time. He picks 1 NCAV a month, so it’s essentially $25 an idea. It’s like paying a few extra commissions at Scottrade on each order.

I think I will continue to do a lot of “original” research early on and overall as my life as an investor goes on. But I think there are creative, low-cost ways to get smart people to do a lot of the heavy lifting for you which can free you up to spend precious time and brainpower on other problems/opportunities. I think smart investors learn to leverage themselves that way.

Until recently, it used to really bother me that I might take an idea I got from a good blog and put money into it. It didn’t seem “right” to make money that way. I was even tempted to purposefully NOT invest in the good ideas I found there, believing them to be “tainted” merely by the fact that they weren’t my ideas and I hadn’t come up with them.

But, I feel I’ve faced that guilt and banished it from my investor conscience, now. A fellow investor at CreditBubbleStocks.com reminds me that there is no credit for originality in investing; only in being right by having the best judgment.

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