Hello book friends, welcome to continue to be a guest in the little book boy's reading circle, today we will continue to talk about this, Kahneman's new book, noise, yesterday we talked about judgment, there must be differences in judgment, because the basis of judgment is experience, different experience, you will naturally have a completely different judgment on a thing, for example, someone has lost money in private placement, then he will tend to think that private placement is all **. In his mind, this inference of guilt is usually made. The two methods of judging and judging are the result and the process, sometimes the process is more important than the result, for example, the author always says, you have made money this year, but the method is wrong, it may be harmful to you, because you will naturally think that this wrong method is effective. Then you keep using this method, and in the end you will go astray, for example, a child cheats and gets a full score, which is the result is correct, but the process is wrong, if you only look at the result and do not look at the process, then he will cheat repeatedly in the future, and eventually go to the point of no return.
Judgment is a science, and evaluation and ** are two different categories. Sexual judgments, such as whether it will go higher next year, and evaluative judgments, such as which wine is better. However, these judgments often diverge due to subjective factors, as is the case with two doctors on a diagnosis. The cause of the error may stem from a lack of skill on the part of the physician, but it can also be affected by noise. Therefore, the first step in a correct evaluation is to measure and eliminate noise.
Deviations in consistency can cause huge losses, especially when it comes to investments. For example, if the underlying data of a model is wrong, then the best results will deviate from the real situation, which is the consistency bias. Also, if there is noise, even in a noise-free environment, your results will not be exactly the same, but there will be a bell curve or a normal distribution, which indicates that there is noise in our system.
The process of removing noise, like pulling out weeds, is time-consuming and laborious, but necessary. We need to eliminate potential noise in a scientific way so that we can get the right results. These results help us make better decisions and improve our quality of life. So get rid of the noise and let us soar freely in the ocean of knowledge.
The author's words are quite meaningful, and remind me of the words of a great wise man: "An experienced craftsman can see the inadequacy of the whole work in one flaw." "In the same way, when evaluating the performance of a listed company, we have to be like a craftsman, to find the smallest details, remove the noise interference, and find the most accurate results. This is the concept of standard deviation, which is a statistical term that tells us that most of the time, the data will be distributed around a central value, as we use height as an example, most people are in the 1Between 5 meters and 2 meters, data beyond or below this range becomes rare. Take 14 meters and 2Set 1 meter as the plus or minus standard deviation, and extend 10 cm to both sides, and the distribution of the crowd will gradually become more even. In this way, we can find the most accurate result by calculating the standard deviation. Here, we learn about the human tendency to think: we are extremely sensitive when it comes to small errors, but indifferent to large differences. As one of the most common examples, the debate over a company's valuation often revolves around a 10x or 12x valuation and ignores the authenticity of its performance. It's like we often say "the opposite of the other", people tend to focus only on the speed of the car, but forget the direction in which it is going. This kind of thinking bias is especially evident in positive and negative judgments. For example, 84% of judgments overestimated the true situation, and 16% underestimated the true situation. This situation shows that we need to correct our judgment system, just like calibrating the crosshair of a firearm, only then can we shoot accurately. On the basketball court, athletes can make a wide range of free throw shots, and occasionally make mistakes, even if they are like Stephen Curry. It's all about a lot of factors, such as psychological stress, the hustle and bustle of the outside world, prolonged physical exertion, injuries, etc., so there are huge variables in the performance of the players. This variable, sometimes like a chaotic sound, makes our bodies appear unstable.
Our bodies are always full of such variability, such as heart rate, blood pressure, knee-jerk reactions, etc., which can cause changes in our bodies, just like the behavior after a broken love, which can become very different in an instant. These small changes can affect how well we perform at work, and even if we are already proficient at a task, there is no guarantee that we will be at the same level the next time.
Therefore, understanding and accepting the uncertainty of this performance is not only a necessary quality for players, but also an attitude that we need when facing various challenges in life. It's like a basketball game, and while we can't control the outcome, all we can do is give it our all, do our job, and take on the unknown. Our teacher once told us that to write a good essay, the handwriting must be neat. You may think it's just a small trick, but in reality, it's about your score. After all, in the eyes of those teachers who read the composition continuously from morning to night, the neatness of the handwriting has become their inherent cognition, and they believe that the author of the neat handwriting must be an excellent student, and the quality of the composition should also be improved. This bias is exactly what causes the scoring noise, and you can't escape it, but you can learn to take advantage of it.
In the world of investment, too, there is noise. These noises are used in all sorts of events, and sometimes they can make you feel incredible, but that's just the way it is. While we can't expect investors to make rational decisions, we can make a profit by identifying and understanding the noise. Of course, this requires a certain amount of wisdom and experience.
In fact, it doesn't have to be a splendid essay to write a good essay, but it is skillful to pay attention to the way you write at the beginning and end, as well as to practice handwriting. Similarly, investing requires a certain amount of skill, but the key is to learn to use noise and identify the real signals of the market to make informed investment decisions. In a certain corner of the world, there is such a force, which can always cut through the layers of fog and uncover the veil of truth. It is not a miracle, it is not a miracle, but a force that is deeply rooted in the hearts of the people, and it is like a beacon that guides us to the right path. That's our value investing.
The unfortunate events of 911 show us the horror of fear. The market crashes in an instant, and everything becomes unrecognizable. However, when we calm down, it is not difficult for us to find that such fears are only temporary and cannot last. When the panic subsides, valuations in the market will quickly recover and things will return to normal.
This fear, like the noise in the market, is stimulating, but it does not really affect the nature of the market. If we are swayed by this emotion, it is like grasping at a straw and forgetting the existence of the entire rice field. We should grasp the essence of investing, not be swayed by emotions, but make decisions based on facts and figures.
In this market, we must learn to look for the truth and not be deceived by the superficial falsehood. Just like when we consume on a daily basis, we prefer to read reviews in order to better understand what the product is really like. In the same way, we need to understand the real situation behind the market in order to make the right investment decisions.
Value investing requires us to have keen insight and firm beliefs. Only when we get rid of the emotional fluctuations in the market can we truly invest rationally. Together, let's be a beacon in the market and light the way forward. Consumption and investment, seemingly unrelated, are in fact inseparable. Unlike spending money, which can sometimes be informative from other people's perspectives, investing is about earning other people's money, so you need to think independently. As the book says, emotions and situations are the ones that cause noise. Our judgments often change dramatically in different states of mind, especially when it comes to investing. On the one hand, long-term holding was once enshrined as the golden rule, but when the risk comes, we will still fall into a panic, look back, and regret. Perhaps we don't know why we panicked so much at the time, but now that we read this book, we will understand that in fact, emotional reactions and situational triggers can lead us to make unreasonable decisions, even irrational. This is not only true in investment, but also in quarrels. Therefore, the only way to eliminate noise is to be calm and break free from bad situations. As the famous saying goes, "If you want to harness a horse, you must first tame it", we must control ourselves before we can truly control the risk. If you can't calm your emotions, the first thing to do is to avoid making big decisions. I noticed that around 4 p.m., there was a noticeable increase in the number of painkillers prescribed by doctors, however, once we thought about it, we understood that the level of pain in this case could not be compared to 9 a.m. This suggests that doctors are already stressed by 4 p.m. because of the large number of patients and the proximity to the closing time of hospitals. As a result, when time is of the essence, doctors are more likely to resort to quick solutions.
This also gives us a revelation. When we are under time pressure, the speed at which we can solve problems is limited. However, successful people tend to plan ahead and prepare. And those who are always chasing things tend to fail the busier they get. When you're Xi to making short-term decisions, you're stuck in long-term problems.
Therefore, we should be prepared for a rainy day, rather than waiting until an emergency has occurred. We need to improve our planning skills and avoid acting blindly so that we can be more prepared in the face of challenges. As the old saying goes, "don't fight a battle for which we are unprepared", and we should always be fully prepared in our lives and work, so that we can act decisively at critical moments. Slowly, we will find that every corner is like a leak, and every day we are mending holes, and our judgment is gradually affected by emotions and becomes more and more confused. Therefore, the author advises everyone to think more about their life plans for the next 5-10 years when they are in a good mood, and record their thoughts one by one. Because this kind of long-term thinking is essential for our future development. As the saying goes: People have no long-term concerns, but they must have near-term worries, and this sentence is really not wrong at all. At the individual level, if you only focus on the immediate benefits, you will ignore the long-term development and end up in a passive situation. And in collective decision-making, the impact of noise can also be exacerbated and can even have catastrophic consequences. For example, when we had a meeting, we carefully prepared a speech, but what would we do if the general manager came up with a completely opposite point of view?Tomorrow, let's take a look at how the noise in group decision-making can be amplified and cause greater harm. 」