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RS Weekly Update - Munger, Higher One & Leaders

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July 06, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #18 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #18 – Availability-Misweighing Tendency

It’s pretty easy to place more value in what is near us at the time. Actually I think that the reference Charlie uses at the beginning of this one paints the picture nicely. He goes back to a song that says, “When I’m not near the girl I love, I love the girl I’m near.” Laziness probably has something to do with this (sorry ladies no offense meant; it could just as easily be a guy).

The best way to fight this tendency is through the use of checklists. Munger is a checklist kinda guy for sure. Actual physical checklists and mental ones, anything that can provide a rationale and steps can help. It can also be helpful to seek disconfirming evidence. We do that all the time here at Fool HQ when we lob stock ideas each other’s way. The best ideas come from those that are contested and truly put through the wringer.

As such, we also try to make sure to discount those ideas that seem so vivid and strong. In other words, underweight them so they don’t completely take over. We do this for example when attempting to value companies based on cash flows. What looks robust today may not be sustainable, so we discount the rosy picture to give a potentially more realistic scenario.

Do you think that something is worth more because it’s yours? If you come up with a killer stock idea that nobody else has gotten to yet, don’t you place a higher value on that idea? I think many do and that’s totally reasonable; there’s a sense of ownership there. But be careful as this can really impair judgment. I’ll close with the actual closing of this passage in the book as I think it sums it up perfectly: “An idea or a fact is not worth more merely because it is easily available to you.”

Foolish best,

Jason (TMFJMo)


Higher One

Here’s my latest video take on what the Durbin Amendment could mean for Higher One: http://bit.ly/nvxmq4

Rajeev Peshawaria

Being a leader is way better: http://bit.ly/pqOWNf

Straight from the Onion

Hey don’t I know you? http://onion.com/pEwzUs

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