Saturday Serendipity

Quote, Mental Model, Twitter Thread, Thoughts.

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Quote

“There is nothing mind can do that cannot be better done in the mind's immobility and thought-free stillness.

When mind is still, then truth gets her chance to be heard in the purity of the silence.”
― Sri Aurobindo

Mental Model

Incentive-caused bias:

Incentive-caused bias is when you have a bias towards something because your incentives are aligned for you to have that bias. Or to simplify it refers to a cognitive bias where an individual's judgment is influenced by the incentives they are offered. This is a video of a Coca-Cola executive who has a bias towards Coca-Cola.

The manager here defends a drink which is unhealthy for everyone simply because his salary depends on it. This has been the case with many executives who run companies that manufacture harmful things for the public. Some cigarette ads are truly shocking when you see them now but in the past when they were allowed to advertise this is what they would do and to us right now it seems INSANE to say the least.

Sorry for so many videos. I won’t bore you now let’s get to the point. There are many situations when we do wrong things just because our incentives tell us to do so. Especially in the investing community. Brokers sell stocks which are bad only to earn a high commission. They know it is bad but they don’t care because they are making money. Financial advisors, Traders, Wealth managers, Politicians, etc. All of these people have incentive-caused bias. This is why the power of incentives is really important. Sometimes these people don’t even realise what they are doing. They do it unknowingly. People who wish well for you and work as a broker might tell you to buy a certain stock which you know is bad but he does not realise it is bad because he has made most of his money from it.

Remedy

The only remedy for incentive-caused bias is financial independence. Now when I say financial independence it does not mean you have to be very wealthy. Many people are millionaires but want more money. Financial Independence is when you are satisfied with the amount of money you have and anything you do now is not for the money it is for happiness. If everyone is working for their happiness and not chasing money they won’t do these things. If you have all the money you need why will you sell and promote cigarettes? (Exceptions for certain people but I am speaking for most people here)

Conclusion

Incentive-caused bias should be scary because when you look into it you find out that people who you listen to like politicians, doctors, etc. all have this bias. We need to be able to identify which people have this bias. To end here is a quote you should always keep in your head.

“Never ever think about something else when you should be thinking about incentives.” ~ Charlie Munger.

Twitter Thread

Sanjay Bakshi on second-order thinking

Thoughts

This time I am not going to speak about investing I am going to speak about cricket. In cricket, there is one thing that I appreciate a lot and always will remember. No matter how well you played the last game the next game you start from 0. I might have scored a 100 last game but the next day that 100 is worthless. I need to remember that. The same applies to when you get out for 0. As soon as a game is over you need to forget about your last game’s score. Simply move on. Whether it is good or bad. Every sport is similar. You move from game to game. If I apply this to Investing it might be good. Let’s say you pick a company and it turns out your decision was right. The next time you make a decision the last choice has no validity. The process has to be repeated and the outcome is something you cannot control.

That’s it for this week! Enjoy your weekend!