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RS Weekly Update-Munger, Social Proof & Leaders

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June 08, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #15 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #15 – Social-Proof Tendency

No matter how young or old, Social-Proof Tendency can rear its ugly head when we least expect it. It would seem logical that the older we get the more immune we become to it (by virtue of maturity, knowledge, etc.), but this is not always the case. For sure plenty are subject to it all the time and don’t even realize it.

As your parents more than likely asked at one point or another in your life, “Well if your friends jumped off a bridge, would you do it too?” Smartass that I was when I was a kid, when my parents asked I usually just answered, “Yep.” Of course I knew I wouldn’t really, and so did my parents (I think). But the point got across that I needed to be able to think and act for myself. And this applies in virtually everything in life that we do.

The most common triggers for this tendency are stress and puzzlement or some combination of the two. When we are stressed or bewildered, it’s very easy to simply go along with the crowd. It seems the rational thing to do and why would so many do something that could harm them? It’s a quick solution. In order to fight this societies need to stop any bad behavior before it gets out of hand and also foster and foment good behavior at all times. Prison (or the threat of it) is a good example of attempting to stop bad behavior. Do something bad and your freedom is taken away; pretty simple. It doesn’t always work, but it does a pretty good job at keeping the majority of society decent. And as parents, we raise our children to be good people and to treat others as they would like to be treated. For the most part that works too.

How about in investing? Is it worth it to just go along with the crowd? In most cases, no it isn’t. Many investors (myself included) will say that you need to be able to go against popular opinion in order to be truly successful over the long-haul. We call this being a contrarian. Make no mistake, being a contrarian for the sake of just being a contrarian could get you in a world of trouble. But if you’ve done your homework and have a viewpoint that’s different, it can often lead to investing success.

I’ll conclude with a quote from the late Benjamin Graham that is echoed by Warren Buffett and investors everywhere today:

“You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."

These are seriously words worth remembering.

Foolish best,

Jason (TMFJMo)


Rajeev Peshawaria

I had a tremendous opportunity to conduct an interview with Mr. Peshawaria, author of the book Too Many Bosses, Too Few Leaders. Here are parts one and two; look for part three on Friday.

Part one: http://bit.ly/lrQYkV

Part two: http://bit.ly/m7E4Co

Activision Blizzard

In case you missed it, here’s a quick video take on Activision Blizzard’s new Call of Duty Elite subscription model and the upcoming E3 show in L.A.: http://bit.ly/klkNMi

Straight from the Onion

Serious competition: http://onion.com/kUsWrw

Jason owns shares of Activision Blizzard

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