Thinking and biases

I am reading The Art of Thinking Clearly by Rolf Dobelli. The author has compiled a pretty comprehensive list of biases (99 in total) that effect our decision-making and often lead to incorrect decisions. The biases are explained using meaningful and sometimes quite humorous stories which is useful in retaining the stuff. Quite an entertaining and useful read in my opinion, particularly because many of them can be related to the investment profession.

It is however a coincidence that I started reading this book around the same time as another personal project. That project involves looking back at the mistakes I made as an investment analyst and trying to reduce those mistakes.

One of the mistakes I identified is ‘not thinking enough’. An analyst not thinking enough!!! Let me clarify.

I actually feel that the daily routine goals, the chaos, the deadlines etc does not really leave much time for focused thinking on its own unless we try actively to make time. This is the kind of thinking where we can forget everything else, clear our minds and think about potential investment decision. Most (not all) of my conclusions in the past were drawn quite instantly while I was working on the financial models or interviewing company management. In my opinion this is an inferior method and even though our brain is constantly working at back of our minds, it does make sense to have some dedicated times for thinking.

Dobelli and other people who have written on biases and particularly biases related to investment decisions agree that however hard we try we cannot completely get rid of them. It’s the same case where we happen to be great at giving others, great relationship advice but suck when it comes to our own lives. This is where my second suggestion (to myself) comes handy. Since we can never be bias free, it makes sense to share ideas and conclusions with few others (preferably one or two good honest friends or colleagues) who can give their views.

For now try out these two suggestions (Have more time for thinking and have some devil’s advocate around you). I will write about my other mistakes in another post.

Asif Khan, CFA

Asif Khan is presently a Research Analyst (Financial Sector) for Exotix which is a frontier market focused investment bank. He has more than 6 years of work experience as equity analyst in both buy and sell side roles across Asian frontier markets. Asif is a CFA Charterholder and has a dual major in Finance & Economics from North South University.

4 thoughts on “Thinking and biases

  1. You can also listen to a lecture titled ‘The Psychology of Human Misjudgment’ by Charlie Munger. For one entire week, that was all I listened to and by the time I was done, I realized I was making almost all the errors he talked about.

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