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RS Weekly Update - Munger, Denial & Earnings



May 11, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #11 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #11 – Simple, Pain-Avoiding Psychological Denial

Being that we lived in Cairo, Egypt for a time, whenever I tell my daughters that “de-nial” is not just a river in Egypt, they kind of get what I’m referring to. From the simplest of things to the most tragic of events, denial has a way of working its way in our lives either through ourselves or those we care about.

Munger mentions the three outcomes denial tends to be most involved with as love, death and chemical dependency; that sounds about right too. We’ve all felt love at some point in our lives, we’ve probably all had to deal with death as well, and chances are decent you know someone whose life has been affected by chemical dependency in some way, shape or form.

In love and in death, it seems like denial is often more acceptable. “Just give them some time to cope and deal and they’ll come around” is probably a pretty popular thought or statement. Chances are that most of the time they will come around too. Only in the most extreme of cases will someone need to seek professional help to deal with the situation. Chemical dependency is a bit different though as many times time itself will only make things worse. The addicted person will think that they have a grip on the situation and can control it. Only when things spin out of control and they themselves recognize that they need help can the denial be overcome. Even then a positive outcome is nowhere close to guaranteed.

So how does denial come into play in investing? Maybe one of the simplest forms is to deny that your stock “has a problem” and needs to be ousted from your portfolio. Maybe management continues to fail consistently and you continue to give them “just one more chance.” Maybe management themselves are in denial about the condition of the business. It behooves us as investors to remain detached enough from our investments to be able to look at them objectively. Peter Lynch once said something to the effect of (and I’m paraphrasing here) never fall in love with a stock as it doesn’t know that you own it. I agree wholeheartedly.


Jason (TMFJMo)

The Watchlist

I wouldn’t be at all surprised to see one or more of these added to the portfolio sooner or later:


Higher One:

White Mountains:

Activision Blizzard:

Houston Wire and Cable Company:

Straight from the Onion

The stresses that come with the job:

Jason owns shares of Activision Blizzard

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