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A Dozen Things I’ve Learned About the Psychology of Investing

Posted by nexvucapital on July 6, 2013

Regular reading for those who wish to think…

25iq

  1. “The best example of narrow framing that I can think of is the use of pro forma earnings. Essentially this is a company turning up and saying, hello I’m lying to you, these are the earnings I didn’t make, but I’d be jolly grateful if we could all just pretend I did.”  (Framing bias) James Montier  http://www.investmentpostcards.com/2010/03/11/interview-james-montier-on-value-investing/  Our brains only have so much cognitive capacity so humans suffer from in-attentional blindness. If we are told to focus on the basketball going back and forth we can miss a gorilla that appears in the video being viewed. When people are told to focus on EBITDA (A.K.A. “bullshit earnings”), they often don’t see a lack of genuine profit and awful cash flow.
  2. “Denial Ain’t just a River in Egypt.” (Denial bias) Mark Twain. Charlie Munger writes “sometimes reality is too painful to bear, so you just distort it until…

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