Warren Buffett's trading psychology (IV)

Delaying investment decisions where possible, and avoiding all impulsive decision-making actions, should be an effective way to remain rational and wise.


From an objective point of view, human nature, such as intuition and following the crowd, is not an absolute flaw; our subjective experience constitutes human nature, which is the source of human feelings about art and music, friendship, and love, mystery, and religious experience. However, it must be acknowledged that the aforementioned human natures can lead to delusional thinking, misjudgment, and misbehavior, a phenomenon that is fully manifested in investment activities. The core of Buffett's law is not the 12 investment rules he founded, any so-called investment sutra will fail with time, only the real principles and laws behind it will be eternal, Buffett's investment activities to overcome and exploit the psychological weaknesses of human nature is precisely this eternal law and logic. Human nature is called human nature because it originates from itself and is difficult to overcome, but there is still a way to deal with it. People can practice themselves from the four dimensions of attitude, reflection, trial and error, and time to overcome their human weaknesses and obtain satisfactory investment returns.


First of all, the right attitude is the basis for overcoming psychological weaknesses.


We should face up to and acknowledge the fact that human beings have limitations, and this kind of humility and doubt about human capabilities are at the heart of science and religion. David Myers, a social psychologist, has beautifully put it, "Science also involves the interplay of intuition and rigorous testing. The search for reality from illusion requires open curiosity and a cool head. The following perspectives have proven to be the right attitude toward life: critical without cynicism, curious without blindness, open without manipulation." Establishing this attitude is also crucial in investment activities, which requires maintaining a middle ground and avoiding extremes. If you can not maintain curiosity and open-mindedness: you can not maximize access to information related to investment decisions, and can not early detection of environmental changes, and can not seize the fleeting investment opportunities; and if you can not treat all information with a critical attitude, it is easy to be manipulated by others, thus falling into numerous investment traps.


Second, reflection is the way to overcome psychological weaknesses.


As Socrates' proverbial saying goes, "An unexamined life is not worth living." Reflection and stocktaking are a source of human progress and an important way to enhance the success of investment activities and investment decisions. The French philosopher Pascal recognized that "no single truth is sufficient, because the world is complex. Any truth that is separate from the truth that complements it is only a partial truth." There is no such thing as absolutely right, before making any investment decision, do not be preconceived and overconfident, be sure to think from the point of view of the opposition to this investment decision, try to put forward the rationale and reasons for the opposition, or consult the views of other investors, paying particular attention to the opposing views, this reflection and multiple thinking will greatly improve, enrich and amend your investment decision, and improve the quality of investment decisions.


Again, trial and error is a means to overcome psychological weaknesses.


Human beings are limited and rational, while the investment market is complicated and constantly changing, it is impossible for people to exhaust all the information and rules needed for investment decision making, so the means to effectively test the correctness of investment decision making is trial and error, to try out investment methods and objects, and to put investment methods and methods to the test in practice. The criticism of trial and error may be based on two points, one is that the cost of trial and error is too high, and the other is the timeliness of the investment, when the investment opportunity is found, the opportunity has been lost. The response to the first criticism is that the trial-and-error chips will be lowered and a large investment will be made when the validity of the investment decision is confirmed; the response to the second criticism is that the trial-and-error test is not about the choice of a specific investment object (e.g., a specific stock), but about the laws and philosophy of investing (e.g., the laws of investing in high-tech stocks).


Finally, mastering the timing of investment decisions is a complement to overcoming psychological weaknesses.


Human psychological nature is extremely time-sensitive, and in the struggle between rationality and emotion, emotionality tends to grow from strength to strength over time, and rationality tends to grow from weakness to strength. Most human mistakes occur in impulsive situations, and people often do certain actions on the spur of the moment and then regret them afterward. This is mainly because people exaggerate the factors that cause things to happen when they first happen, while ignoring the importance of other factors, resulting in biased thinking and poor decision making. It happens commonly in human investment activities. Both upside and downside will greatly stimulate people's nerves and mobilize people's emotions, causing people to have the impulse to buy and sell. Therefore, when possible to delay the investment decision time, to avoid all the impulsive circumstances of decision-making action, should be to maintain a rational and wise effective method.