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RS Weekly Update - Munger's Deprival and More



June 01, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #14 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #14 – Deprival-Superreaction Tendency

When I first read Fooled By Randomness by Nassim Taleb a year ago the concept of losses hurting about twice as much as gains fascinated me. At first I didn’t know that I actually bought into it. But the more I think about it the more it makes sense to me. It’s not just a money thing either. People generally react more strongly to losing (or even the threat of losing) something that they care about (or even love) than when they gain.

Munger refers to an interesting example of this tendency he has seen in many of the Berkshire Hathaway shareholders he knows. Even after they have achieved phenomenal gains from holding the stock, they still won’t sell or gift their shares otherwise; they simply cannot not have them. Now Munger attributes this kind of behavior sometimes to three tendencies including Reward-Superresponse (Tendency 1): “status quo bias” from the Inconsistency-Avoidance Tendency (Tendency 5); and the “endowment effect” from the Excessive Self-Regard Tendency (Tendency 12). But for the most part he believes it is a result of this Deprival-Superreaction Tendency. In other words, they simply can’t grasp the idea of parting with their shares. They don’t want to miss out on any potential future gains for one. But even more, they identify themselves (at least in some small part) through the ownership of those shares.

Is this rational? That of course depends on your perspective. If you can say that you are holding shares to be a part of future gains, well that’s rational as long as you’ve done your research and can provide a rational argument for why the shares should continue to appreciate in value. But if it’s because you somehow identify yourself via ownership of the shares, well then I think you need to take a step back and reassess the situation. That pretty much qualifies with loving the stock in my book. Not cool.

Foolish best,

Jason (TMFJMo)

Activision Blizzard

Call of Duty is going subscription; kinda Netflix-y don’t ya’ think?:


Emerging markets are going to be a huge market for Starbucks as they continue their push:

Watchlist Stocks

It was interesting to see mention of Masimo and RealPage as top 10 holdings in the Baron Opportunity Fund. I may have to really look at building an opportunity fund of my own starting with these two holdings:

Mind Bogle-ing

Robert Pozen had some nice things to say about investing legend John Bogle:

Straight from the Onion

Not to make light of any of these, but man it sure feels this way sometimes doesn’t it?:

Jason owns shares of Activision Blizzard and Berkshire Hathaway

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