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RS Weekly Update - Munger, Berkshire and Stress



June 29, 2011 – Comments (1)

Dear Fools,

Picking up where we left off last week, here is tendency #17 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #17 – Stress-Influence Tendency

Ah stress. We never really seem to get enough of it do we? Kidding of course. I think we are all probably trying to figure out ways to avoid stress, and this quest most likely ends up causing stress in the process.

Munger refers back to Nobel Prize winner Pavlov’s research involving dogs. To be blunt, Pavlov spent much of the rest of his life (after of course his discoveries regarding Pavlovian conditioning) giving stress-induced nervous breakdowns to dogs. The point was to then try to reverse these breakdowns and keep meticulous records all the way through. As a dog lover and owner of two golden retrievers this stresses me out just reading it. But his findings were interesting. He found that:

•  He was able to predict how easily a particular dog would break down;
•  The dogs that were hardest to breakdown were also the hardest to return to their pre-breakdown state;
•  Any dog could be broken down (I found this one particularly fascinating); and
•  The only way to reverse a breakdown was to reimpose stress (OK, maybe I’m more fascinated by this.)

It’s amazing to think that a mental breakdown caused by heavy stress could be cured only by reimposing stress on the subject. But it’s there as a possibility that we can’t ignore. As investors it can be very easy to stress; it’s our money on the line after all. It’s important for us to be able to recognize what causes our stress and realizing that it can lead us down the road to faulty thinking. If for example you hold an uncomfortably large position in a stock, you may be losing sleep at night thinking about what you’ll do if it tanks; now that’s stressful! The solution to that one is very simple though and it’s one that we profess here at The Fool ad nauseam: diversify, diversify, diversify. That’ll help you sleep at night.

Foolish best,

Jason (TMFJMo)

Berkshire Hathaway

Berkshire Beckons:

Activision Blizzard

This could be one of those moves that really makes an impact:

Straight from the Onion

And this was before Anheuser-Busch got bought out. But the student to gun ratio? Yikes!:

Jason owns shares of Activision Blizzard and Berkshire Hathaway

1 Comments – Post Your Own

#1) On June 29, 2011 at 10:51 PM, ikkyu2 (97.96) wrote:

I am not trying to avoid stress, nor do the most successful people I know.  We thrive on it.  It's like a fuel.

Once you're built for that fuel, try running your engine on unleaded.  The wheels will come off. 

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