Summary
To be an independent thinker and increase your chances of being right, you need to perform your own due diligence. It means not immediately accepting what you hear or read in the media which are often biased. You need to do following to succeed in life:
- Find the right data to analyze. Good decisions are based on good data
- When enough data is available, form a preliminary conclusion, and then validate
- Act on what you know
- When there is no data available, use instinct or intuition
- Learn. Do. Become
Related Topics
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- How To Be Successful in Life
- My Name is Mr. Globalization PhD, and I Just Took Your Job!
- Saving the Next Generation from Financial Disaster
Media and Human Bias
In today’s media, specifically social media, news can be whatever! Given social media’s influence, anyone can be a news outlet! One can simply create blog entries and post their articles on Facebook and Twitter – I guess like mine, and if enough people like them, they become the voice.
Many blogs are opinions, with limited facts to support their arguments, or they are sometimes presented with false data! But, since many of them entertain and feed into their readers’ personal preferences and preconceived notions, they become the truth. In other words, when you “preach to the choir” enough, what you say, though not true, becomes the “truth!”
Warrant Buffett’s quote “…what the human being is best at doing is interpreting all new information so that their prior conclusions remain intact” is spot on. In the world of scientific research, this is knowns as confirmation bias. This means that when we have a theory, we only look for data or information that supports that theory. We cherry pick! Little do we notice that our views become narrower. And as a result, we can neither see the truth nor apply common sense.
Stumbling Blocks
The movies or music we stream also proliferate these closed thinking. Observe your Facebook feed. You will find that the information or ads suggested to you are based on articles or feeds you have previously liked on Facebook. Observe your Netflix dashboard. The new movies recommended to you are based on movies you previously watched and after that gave 5-star ratings.
There are definitely arguments for why we prefer to listen or watch things we are interested in, but to be an independent thinker and have a balanced point of view of the world we live in, we need to listen to ideas and arguments of both sides. I heard someone said, that if you cannot argue both sides of the equation means you have not yet earned your opinion. It’s hard to find common ground and establish trust if you only see your perspective.
What to do
When one is confronted with differing opinions, it’s always helpful to look at the data. And when you look at the data, do not blemish it, meaning that do not cherry pick the data that only supports your position. It is very helpful to listen to opposing views, why they see things differently. Then, weigh what others say against your understanding of the data.
You can also consult with people you trust, people who have good control of the subject matter and have them poke holes through the differing opinions. Then, when these ideas have been stress-tested; hence, you feel good about them, then, act!
Easier said than done, of course. But, in reality, it’s hard to do this given the human ego involved. The human ego is a big stumbling block to getting us to the right answer. It is often this pride that makes us stick to an old position even if it is evident that we are wrong!
When confronted with this situation, think that it is not about who is right, but what is right. It does not matter who gets the credit because by getting to the correct answer, it elevates everyone to a higher ground. Everyone benefits.
Oil supply & demand case
I had many experiences where I applied independent think. And I was rewarded. Back in 2009-10 when the price of oil per barrel was ~$50, everyone said to sell energy related investments. Majority of the analysts said the crisis destroyed the demand and will last a long time.
As I looked at the data provided by the US Energy Agency and International Energy Agency, however, I noticed that the forecasted demand for oil was strong and supply of oil then was low (shale revolution was just starting). So, I went against the herd and bought the S&P500 Energy Index (XLE).
A couple of years later, oil prices went from $50 to $100/barrel. For people who didn’t do their own research or just listened to the soundbites, they missed the opportunity. This happened again in 2014 until now when oil prices went from $100 to $28 to $50.
The current sentiment is we may see this oil price for an extended period. However, in reviewing the data again, I believe the Shale revolution, which has provided so much supply, has been sustained by two factors: massive drilling in the Permian basin and borrowed money.
At some point, drilling will slow down, funding will freeze, Middle East will continue to have turmoil, and these will cause a supply reduction thereby prices will increase again. I don’t know the timing of when it will do so, and I can be patient with time. One just needs to be patient which is a virtue in investing.
This is my suggestion on how we should form opinions on important issues of our time. We should think clearly, research, stress-test, and act. We may not be able to see everything clearly as we all learn from experience, but at least we have done our diligence and not just regurgitate what we have heard from others. Doing so balances faith and myths with facts.
Into the Unknown
What happens when you become a trailblazer? What happens when there is no more data to be gathered? In these instances, I follow my instinct in making decisions. I usually meditate, clear my mind, and listen to my heart. Sometimes, our past experiences provide us with instincts that tell us what we need to do.
My experience is that when I have these promptings and not delay in acting upon them, the results are often proven to be the right course of action. Delaying to follow the prompting invites rationalization, personal fear, and often leads to a less favorable outcome.
Note on Emotions
Emotions cloud our judgment especially in investing. I don’t want to make an impression that while I was doing this oil investment that there were no ups and downs. There were many, and a part of the challenge of investing is controlling one’s emotions.
Decisions made while emotionally charged, are usually impaired. The saying goes that when you are mad at someone, count 1 to 10 before responding. This advice can be applied in so many aspects of our life especially when we are making important decisions. I am not saying it is terrible to be emotionally involved because there are times and circumstances where freely expressing emotions are needed. It helps when a child is coping with stress. It helps with understanding a co-worker or a family member who is going through a divorce. However, when it comes to matters of major life decisions, it pays to be rational, and analytical.
Action Items
I would be interested in hearing your thoughts, opinions, experiences on how you process information and what made you independent in thinking. When we borrow ideas, it’s hard to back them up. But when we own our ideas and experiences, we stand firm despite the noise we hear. Please share your thoughts.