First impressions last, you know. It doesn't matter how many times your mom told you to think things through -- the first two seconds of any new situation still set the stage for the whole thing.
That's one of the lessons you'll learn from Malcolm Gladwell's Blink. In fact, it will be hammered home in the first chapter. Then Gladwell spends much of the rest of the book exploring how these first impressions can help or hurt us, and what we can do to make them work in our favor.
Fellow Fool and Champion Funds head analyst Shannon Zimmerman mentioned the book briefly last year. In Shannon's opinion, "It's a tool that can serve investors remarkably well, a no-muss, no-fuss way of doing an end-run around distractions that, all too often, simply cloud our judgment." Today, I'd like to expand on how to do that: thin-slicing for fun and profit.
Paulie had a wonderful system for garlic ...
Gladwell calls the first-impressions mechanism "thin-slicing" -- cutting up what's happening into minuscule time slices that can be analyzed by your subconscious at lightning speed. A properly trained or tuned slicing machine can do astounding things: immediately notice a fake artwork that scientific instruments say is real, for example, or separate an Oreo cookie into 90 attributes of taste, texture, and appearance.
Think about Jim Cramer for a second. The guy is known for his "lightning round" of stock picks, instantly giving you an informed opinion on whatever obscure stock ticker his callers might mention. Sure, he taps out a few bars of mambo on a nearby computer while he's talking, but that ticker sets off a cascade of thin-sliced sparks under that polished scalp of his. Our tracking of his results in CAPS says that he's remarkably successful. Cramer's overall CAPS score is currently just below 80, the cutoff that defines an all-star player.
Jim wasn't born that way. His years of training as a stock broker, analyst, and TV personality have instilled in him a sense of what to look for in investment opportunities. It's a great example of Gladwell's blink-thinking.
On a more personal level, I started fiddling with Sudoku puzzles a few months ago. Over the course of a few hundred games, I've worked out a few simple rules that help me place the numbers, to the point where they've become almost instinctive. Nowadays, the right number simply pops into place most of the time, with no conscious, deep analysis needed -- and I'm disappointed if I can't finish a medium-difficulty Sudoku in less than four minutes.
Don't get me wrong
You can't trust every first impression you get, even in your particular fields of expertise. Gladwell talks about how symphony orchestras changed their auditions to an anonymous, faceless process. And they started hiring female trombonists right away, which was unheard of. Warren Harding looked presidential, and one glance persuaded millions of voters to put him in the White House. But he wasn't that great of a politician, and he's now widely considered one of the worst presidents ever.
And you wouldn't buy or sell stocks on just a Cramerian lightning blurb, would you? Of course not. His rapid-fire opinions make for great starting points to serious research, but they don't tell the whole story.
Likewise, the Sudoku skills recently implanted in my brain stem work great for easy, medium, and hard puzzles. On the "evil" level, though, something's missing. That's where I can't just sleepwalk through the numbers in a few minutes.
Keep it simple
Furthermore, you can absorb too much information sometimes. One of the most poignant chapters in Blink is a rundown of the failed war games of 2002, in which the Pentagon pitted its traditional, data-intensive military management systems against roguish commander Paul Van Riper. The crafty gunslinger didn't do what the attacking team thought he would, and he sunk 16 imaginary ships before his opponent fired a single round.
It was a case of paralysis by analysis -- Van Riper relied on his own hard-earned military intuition, and invited commodity traders to swap strategies with his generals. His opponents gathered all the data they could, which was a ton, but failed to see what was really happening. Game over.
For an investor, that's the equivalent of reading an entire Berkshire Hathaway
Blink like an investor
So Gladwellian investors would simplify, simplify, simplify their models. Sit down and figure out what you want from a company before buying its stock. Whether it's dependable dividend growth, or a deeply discounted stock price, or a revolutionary business model, it's something you can learn to recognize at a glance when looking over a press release or a financial statement.
The dividend hunter might ignore revenue growth and inventory levels in that first sifting, just looking at the dividend history and cash flow numbers. The true rebel would pooh-pooh financial data altogether at this stage, and just look for great products and experienced management teams. Only companies that pass that first screen get the full deep-diving treatment of corporate history, balance sheets, and proxy statements. Of course, we have a few Foolish newsletters to help you with this step, no matter what you're looking for.
That's the biggest investing takeaway from Blink: Tune up your investing radar, use it to scan for promising stocks, and then bring in the cavalry -- a conscious analysis effort -- to finish the job.
Foolish finale
Of course, Gladwell drops a few other useful Foolish tidbits as well. You'll see an explanation of why the Pepsi
It all ties back to the power of first impressions, and how they can be manipulated. Gladwell gives us a double whammy here; we learn how to make our investment research more efficient, and we gain some useful insight into branding power.
Blink would be highly recommended reading even without these investing lessons. It's a fast and fun read, a brilliant piece of prose jam-packed with interesting anecdotes and eyebrow-raising insights. Best of all, it can help us make money, too.
Further Foolishness:
- The Taser Story That Wasn't
- Foolish Book Review: "Freakonomics"
- Foolish Book Review: "The Black Swan"
- Buzzing About Buzz
Kraft is a Motley Fool Income Investor pick. Coca-Cola and Berkshire Hathaway are Motley Fool Inside Value recommendations, and Berkshire is also a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters free for 30 days.
Fool contributor Anders Bylund is a Coke shareholder but holds no other position in any of the companies discussed here. His medium Sudoku record is 2:45, or 3.2 seconds per entry. That was done in a trance, half asleep at 3 a.m., which should be a testament to the power of thin-slicing. You can check out Anders' holdings if you like, and Foolish disclosure makes a great first impression -- blink and you'll miss it.