Anyway, today I'm trying to share with you what I experienced of what I've read. On last week, I saw an article about our mind and our action relation from a magazine and what impressed me is that, it really happened around me for twice a week. I've to believe what the professor wrote is true.
Basically I read an article about how our mind makes sense of things and fool itself, by professor Neil Bearden, who teaches Decision Sciences at business school Insead. According to him, we normally judge the future is more predictable than it really is because our memories of our past forecasts are biased towards what has actually happened than what we though would happen. Hindsight bias fools us into thinking that we knew how the past would unfold, and tricks us into thinking we know how the future will unfold.
There is pros & cons of our brain stored 'wanted' & 'unwanted' memory.
In fact, he talked about the implications for investors, where many people follow on technical analysis based on pattern & past history. Our memory is selective, as what we do remember is not actually what happens. If by chance, we took some investments that worked out, when we try to reconstruct it, we may think we did some significant analysis in order to come out the decision to buy. When the unpredicted happens, they got it wrong.
Just for an example, before the collapse week of Lehman Brothers, people were saying it is a safe bet since Lehman is undervalued and that it is so important, the goverment was sure to save Lehman. It was too big to fail people might think. After the bankruptcy was inevitable, and how it would have been a moral hazard to save it.
Are investments only suitable for people who is hardworking to think & analyze?
However, I'm not trying to discuss about investment for today. I would like to enlighten us for something else, where I think his theory also apply on our daily lifes. Here's 2 real life examples I experienced.
1) I was asleep this morning and I heard the house phone ringing outside my room, but the ringing tone is a little bit different. I felt pissed off because it keep ringing again and again and disturbing my rest. This is not the first time, because I encountered it on last month too. After the fifth time the phone ringing, I finally went out to the room and trying to pick up the phone. Sorry, it was not the house phone, it's another house mate's mobile phone alarm ringing which is not far from the house phone, she left it in the living hall. She sets the alarm but she forgot to bring the mobile into her room.
2) My colleague asked for my help to fix her Microsoft Outlook (Email client) 2 days ago, as she experiencing send email problem. Well, it should be a very easy job as I've been deal with this for more than 7 years. In fact, I've helped her to fix the similar problem for 3 times, and all belongs to the network settings & outgoing SMTP server issue. Right. Without basic diagnostics, I was checking on the similar issues because I thought they were came back again. Unfortunately I couldn't found what is wrong after 10 minutes, or even restart the notebook and digged into services.msc. After a while, she told me someone changed her Outlook settings on last week due to the office new policy. Then I only recalled her Outlook SMTP port were changed! Man, I should diagnose the settings from the basic instead.
See, due to the the past history and what had happened, they had formed a pattern for us to believe what happening is the same as what we encountered and bias toward the decision making. Perhaps that's called experience with lazy thinking? What a lesson!
Prof. Neil Bearden advised us to 'read broadly' & not believe the forecast is right.
The moral of the story, investigate appropriately & think properly before we make any decision, this apply also to stock/forex investment. What do you think?