This article falls in perfectly to the reading I've done recently - a lot of reading on things which tend to hit on human psychology and I think it's probably #1 in significance of the major academic disciplines. Certainly it has to rank very highly in the realm of investment. Munger for one places great emphasis on the psychology of human misjudgments, and the mental short cuts that we are prone to. Indeed one half of Munger's two-track analytical approach is to examine his own psychology as a sort of double-check on rationality. Cialdini gives great examples of how humans can easily be misled into doing irrational things. Our minds are prone to take psychological "head-fakes" from our external inputs. Investing is an activity where such things have enormous impact and likewise where control or mastery over these things can be extremely rewarding. Easier said than done. At the risk of relating something that may seem very unrelated to this board and to investing in general I will tell a little experience related to human psychology as I have observed it. Become a Complete Fool
All of this reading on psychology reminds me of my early military experiences. The military I think provides a tremendous opportunity to observe human behavior � it is a veritable cauldron of psychology � much of it documented and annotated. In my case you can add "passionately observed" to those first two. Those of you who have watched "An Officer and a Gentleman" (Richard Gere) will have a vague idea of what Officer Candidate School (OCS) is like. I will relate some of my experience in Army OCS in order to relate a bit on my personal observances in human psychology.
I arrived at Army OCS (Ft. Benning GA) in the winter of 1987 � full of determination, idealism, and apprehension for what awaited. As the candidates (as we were called) signed in we had the opportunity to "hang out" and get to know each other before the fun began. I remember being so impressed by everyone I met � all seemed like the proverbial physical and mental stud. My random sample of my soon to be competition quickly showed a Yale honor grad, an all-American linebacker, a successful entrepreneur who was already a millionaire, two Army Rangers who had so impressed their commanders that they were put in for OCS, a private pilot, and a successful lawyer. Everyone I spoke to was a success. I happened to be from the lower rung - one of several "college-ops" as we were called � straight out of my fraternity loving, beer drinking, liberal arts, multi-disciplinary campus at The College of Wooster. Everyone I met was composed, intelligent, physically prepared, and seemingly ready for the challenge which lay ahead. I knew going in that about half of us would be eliminated � yes it was to be an extreme case of Darwinian survival.
Enter the US Army onto our unseemly collection of human talent. My class of 240 was split into platoons of 30 each. Each platoon would go through the ordeal as one � but each individual trying to survive the cuts. My platoon seemed to have more than its fair share of studs so I concluded that if the secret to success is weak competition then I was doomed � there would have to be another way. We signed in to the company and were given a pillow, a blanket, and assigned a room and a roommate. The thirty of us had a wonderful first evening getting to know each other. The fun ended abruptly at 1AM by the clanging sound of garbage can lids, screaming and whistles. "Get up!!!!!!!!!!! CAN'T -I- DATES" ... As we scrambled around the scene was one of shock and disbelief � this for a group who were expecting difficult times. Two guys threw up..... "YOU!!!! You'd better WIPE that vomit splash off my BOOT!! MAGGOT!!" And on it went � for days, nights and weeks. The Army controlled everything about our external environment � our calories (2,000), our sleep (3-4 hours), the time we had to eat (5 minutes), our fluid intake, our exercise (grueling), our phone calls (none), and most importantly our mental stress. After an all-night ordeal of push-ups and running we were marched to classes on various topics � land navigation, leadership, statistics etc. and then tested at the end of the week on the material. These series of tests formed our academic average, which over time was juxtaposed to our physical average (# of pushups, situps, 2 mile runs) and our leadership scores. Leadership scores came from a variety of activity such as leading a patrol through the swamp at night or setting an ambush and delegating authority or what have you. Every candidate had to rank each platoon member from top to bottom (#1 to #30) and then probably the toughest was to conduct a face-to-face "counseling" of the bottom five on why they were ranked on the bottom. Over time, a consistent showing in the bottom five was a rapid ticket to exile.
When one is deprived of sleep, food, comfort, and sanctuary it is unbelievable how quickly the stress on the human system can build and accumulate over time. At key points when the real misery index was at its peak we would be force-marched at high speed for 15 to 18 miles carrying fifty to seventy pounds of gear � it was not uncommon to see a bunch of bloody feet at the end but the price for falling out was to be "bottom-fived" and dropped from the course. At the tenth week of the fourteen-week course there were 16 of us left. The commander called me in and told me I was "too opinionated." The next week was the worst. Nothing I did passed muster and I was then subsequently released from the class for "failure to adapt to military culture" which is a classification I now wear with some degree of pride. After my rapid demise I insisted on going through the course again which I think was a bit of a shock to the sycophants in the front office � this time with the promise to keep my mouth shut about all the "stupid" stuff we were doing. It was a painful though temporary adaptation to an otherwise severe environmental shock but it would be necessary for survival. It worked. At the end of the second ordeal there were 15 of us left - 50% attrition.
The crux of the experience was psychological misjudgment on all sides. The one thing which really struck me and I'll never forget � the people who survived to the end of the course were NOT the people who I had pegged as the toughest competition. They tended to not be the ones with the impressive credentials and resumes. False bravado was quickly exposed for what it was. Imagine the ego blow it must have been to the All American linebacker to be averaged in the bottom five. He couldn't handle it and quit. Another candidate was sent to the psych-ward babbling to himself nonstop about the fact that they couldn't make him do anything (never saw him again). It dawned on me that I had been given a lifetime through all my schooling and societal reinforcement of what a "successful" person was supposed to look like and act like. Once the mental thumb-screws got cranked it didn't much matter which university you attended, or how much money you had, or who your daddy was, or how physically impressive you were. All of that useless baggage (noise) couldn't buy you a damn phone call or an extra 10 minutes of sleep. It's not that the above is perfect by any means � mistakes are made � but I think that all in all it's a decent filtering process. What it all have to do with investing?
In the Darwinian experiment from hell I had the distinct opportunity to examine this psychological cauldron two times � there was a definite consistency on what it took to "survive." Survival was largely determined by one's ability to adapt to severe and constant external stress (adaptability is probably not the first word which comes to mind when one thinks of Army officers). And the only way that one can successfully adapt to an external shock or environment is to have what I'll call self-mastery. You can't adapt if you don't know what you're adapting from or trying to control. I firmly believe that the same themes I saw in OCS run through investing as well. I absolutely MARVEL at the mental discipline which Buffett and Munger possess. This despite all of the external noise and intermittent external stress which is placed on that environment. They exude an extreme consistency in the application of their craft that can only be derived by one very very important fact � mastery of self and one's own psychology. Munger especially is a master at knowing and understanding the root of human weakness and because he knows he can control his own. Therein lies what I think is his true brilliance and this endeavor (self mastery) just so happens to be exceptionally rewarded financially in the investment realm.
The author of this piece concludes that he can not compete against the market and I think that self-admonition and ego-swallow are admirable. Perhaps it is an exercise in self-delusion to think that one can beat the market and all of the unseen information over time. I firmly disagree with that but I very much agree that the largest risk is indeed one's lack of self-mastery.
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.
This article falls in perfectly to the reading I've done recently - a lot of reading on things which tend to hit on human psychology and I think it's probably #1 in significance of the major academic disciplines. Certainly it has to rank very highly in the realm of investment. Munger for one places great emphasis on the psychology of human misjudgments, and the mental short cuts that we are prone to. Indeed one half of Munger's two-track analytical approach is to examine his own psychology as a sort of double-check on rationality. Cialdini gives great examples of how humans can easily be misled into doing irrational things. Our minds are prone to take psychological "head-fakes" from our external inputs. Investing is an activity where such things have enormous impact and likewise where control or mastery over these things can be extremely rewarding. Easier said than done. At the risk of relating something that may seem very unrelated to this board and to investing in general I will tell a little experience related to human psychology as I have observed it.