Listen But Don't Trust: Your Instincts
Sometimes we make bad decisions and when we make those decision we are rarely thinking, rather we are using past experiences to determine a future outcome on the spot. Think back to when you were a child for the first time you saw people playing pokemon, you saw them laughing and smiling. You knew that from past experiences that kids laughing and smiling signified people having a good time. Automatically you wanted to spend the next 12 months of allowance from your parents on pokemon cards.
...Flashforward 20-30 years...
"Dude, you have to get a pair of these shoes?!?" said one middle aged dad to another "I don't know man, they look pretty lame." said the other middle aged dad "Not the fanciest but they are like work slippers, I can do anything in them, every other guy I know has a pair." Said the other middle aged
dad that was wearing a pair of shoes called CROCS (NASDAQ: CROX). The third middle aged dad was standing by eves dropping and heard the name "CROCS" and "everyone is getting them" his wife just so happened to tell him that we should start thinking about investing for retirement. He googled CROCS and found out he could purchase shares in their company in hopes to build a future for his family. With the popularity of CROCS the third dad thought he was making a great buy and snagged CROCS at $27.34 on April 27th of 2007 (a bit over a year after going public).
Middle aged dad went with his instincts, he knew from past experiences that popular things usually do quite well (Pokemon). In a split second his instincts told him that Crocs would be a great investment. However what that middle aged man didn't know was that it wasn't, or there were just better options out there. What You See Is All There Is (WYSIATI), a term created by Nobel Laureate Daniel Kahneman to explain how the human mind makes decisions. We make decisions based off of only what we know from life all the way up to that point and rarely spend the time to gather further information, this is an Instinctual Decision (gut decision). While instinctual decisions have their place for circumstances like heavy traffic or wet floors (life or death situations), they have no place in investment decisions. Investment decisions have good or bad long term consequences, but to ensure that the majority of them become good consequences you must make an Informed Decision.
Informed decisions are exactly what they sound like, they contain information, information that you do not yet know of but need to know in order to make the correct decision. To make these decisions you must go in search of the information that will help you come to a conclusion, and not necessarily the one that you want, more so the one that you need.
While he made the right decision in putting money into the stock market he made the wrong decision in which stock he chose. He based his decision off of what he knew at the time, the shoes were comfortable and everyone was getting them, he also knew that popular things usually do well so he bought into the stock. But he didn't know alot of things about Crocs as a company and it's industry of fashion retail. He didn't know that it was a fad that was growing at amazing rates but would eventually fall very hard. With a little bit of digging he would have found that fashion retail is a very poor industry to invest in when compared to others, and that CROCS was a poor company to invest in when compaired to other fashion retail companies.
The stock market is a good neighborhood to invest in, but CROCS is not a good house to entrust your future in, there are literally about 4000 other actively traded companies that you can choose from. While you should not ignore these instinctual decisions you rather should question them. Questioning them will bring about new factual evidence that will either refute or defend your first gut feeling. And if you end up being correct (and bought the stock) then you can rejoice in earnings and almost more importantly a correct decision. But whatever you do, do your own research before you decide, because what you see (or have seen) is sometimes not all there is.
dad that was wearing a pair of shoes called CROCS (NASDAQ: CROX). The third middle aged dad was standing by eves dropping and heard the name "CROCS" and "everyone is getting them" his wife just so happened to tell him that we should start thinking about investing for retirement. He googled CROCS and found out he could purchase shares in their company in hopes to build a future for his family. With the popularity of CROCS the third dad thought he was making a great buy and snagged CROCS at $27.34 on April 27th of 2007 (a bit over a year after going public).
Middle aged dad went with his instincts, he knew from past experiences that popular things usually do quite well (Pokemon). In a split second his instincts told him that Crocs would be a great investment. However what that middle aged man didn't know was that it wasn't, or there were just better options out there. What You See Is All There Is (WYSIATI), a term created by Nobel Laureate Daniel Kahneman to explain how the human mind makes decisions. We make decisions based off of only what we know from life all the way up to that point and rarely spend the time to gather further information, this is an Instinctual Decision (gut decision). While instinctual decisions have their place for circumstances like heavy traffic or wet floors (life or death situations), they have no place in investment decisions. Investment decisions have good or bad long term consequences, but to ensure that the majority of them become good consequences you must make an Informed Decision.Informed decisions are exactly what they sound like, they contain information, information that you do not yet know of but need to know in order to make the correct decision. To make these decisions you must go in search of the information that will help you come to a conclusion, and not necessarily the one that you want, more so the one that you need.
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| Sometimes fads aren't just fads |
The stock market is a good neighborhood to invest in, but CROCS is not a good house to entrust your future in, there are literally about 4000 other actively traded companies that you can choose from. While you should not ignore these instinctual decisions you rather should question them. Questioning them will bring about new factual evidence that will either refute or defend your first gut feeling. And if you end up being correct (and bought the stock) then you can rejoice in earnings and almost more importantly a correct decision. But whatever you do, do your own research before you decide, because what you see (or have seen) is sometimes not all there is.
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