Author Topic: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)  (Read 9074 times)

LongHaul

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This will be the last Bias I am posting.  I appreciate everyone's comments and input I think we have all
had an additive learning effect.  Steel sharpens steel.


Psychology of Misjudgment Bonus Bias:  The Dangers of Ideology 

"Charlie Munger on the Dangers of Ideology and How to Form Intelligent Opinions"

ďAnother thing I think should be avoided is extremely intense ideology, because it cabbages up oneís mind. Youíve seen that. You see a lot of it on TV, you know preachers for instance, theyíve all got different ideas about theology and a lot of them have minds that are made of cabbage.

But that can happen with political ideology. And if youíre young itís easy to drift into loyalties and when you announce that youíre a loyal member and you start shouting the orthodox ideology out what youíre doing is pounding it in, pounding it in, and youíre gradually ruining your mind. So you want to be very careful with this ideology. Itís a big danger.

In my mind I have a little example I use whenever I think about ideology, and itís these Scandinavian canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools in the Grand Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into and I think the same is true about a really deep ideology.

I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another. And that is I say ďIím not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it. I think that only when I reach that stage am I qualified to speak.Ē Now you can say thatís too much of an iron disciplineÖ itís not too much of an iron discipline. Itís not even that hard to do.Ē

ó Charlie Munger
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2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.
I personally think these ideologies turn people's brains into BOILED CABBAGE.
All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.


DooDiligence

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #1 on: November 18, 2020, 03:32:15 PM »
Truth
AFL // BRK.B // CLB // EW // GPC // MO // NVO // PSX // TPL // VDE // VLGEA // WFC

Investable cash 22.9% + 25 months of survival ca$h

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Chopin's Opus 28, Prelude 4, in e minor is the bombdiggity (Zevonís Werewolves is pretty fun too)

samwise

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #2 on: November 18, 2020, 07:48:40 PM »
Do you consider value investing to be an ideology?

cherzeca

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #3 on: November 18, 2020, 07:55:26 PM »
growing up, one got dinged as having a kapusta brain if you did not think something through.   kapusta=cabbage
« Last Edit: November 19, 2020, 09:15:15 AM by cherzeca »

rb

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #4 on: November 18, 2020, 08:01:42 PM »

2020 has been an amazing year of learning.  The Ideology bias was very apparent this year where people's extreme ideologies prevented them from seeing the truth on many issues.
I personally think these ideologies turn people's brains into BOILED CABBAGE.
All one has to do is look at the history of collective ideologies and see the extreme damage that can result.  Communism comes to mind.
While I agree with most of you just said. I think you picked the wrong example at the end with communism. While communism is certainly an ideology, there were very few communist ideologues during communism.

Cigarbutt

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #5 on: November 18, 2020, 08:21:12 PM »
Do you consider value investing to be an ideology?
That's interesting and tricky to answer so here's Li Lu's answer:
"Iím not ideologically opposed to anything. I am against any ideology."  :)
It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

rb

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #6 on: November 18, 2020, 08:46:50 PM »
Do you consider value investing to be an ideology?
Probably not directed at me but I would say that hell yeah value investing is an ideology.

I also disagree to some extent that ideology turns your brain into cabbage. I think a lot of what's talked about ideology these days has to do with politics and its messy discourse. But ideology is really a base of ideas and that can be very good. In my opinion it's the theory built on top of the ideology that boils the boils the cabbage. For example: Ideology: freedom is good. That is a very good ideology. But the theories on top of that, i.e. how do you achieve freedom can go very wrong and can very well boil the cabbage.

To the original question. Value investing ideology: buy something for less than what its worth. That is an ideology, it is a very good one, and it is self evident. However if the theory built on that is that value investing is practiced by picking cigar butts that can lead to bad outcomes and boil the cabbage as you loose your mind looking for those butts. You have to be able to critically analyze the theories on top of the ideology. That's where Munger has been very successful. He's clinged to the ideology buy rationally switched from theory to theory when it was warranted. Hell he probably invented them.

Finally since Longhaul brought up communism. Communism is certainly an ideology and it had some theories on top. When communism was actually implemented it was implemented with a different set of theories than initially designed but kept the ideology. Now the ideology is certainly flawed - it lacks free markets and competition which leads to inefficiency. But then it wasn't even those flaws that were the big problem that did it in. There are certainly in this world countries that are more efficient than others and they both do ok. What did it in was developing a theory of nationalism and starting a bunch of trade wars. This theory had absolutely nothing to do with the communist ideology. But this was the one that boiled the cabbage and let to its demise.

In the end I guess there's nothing inherently wrong with ideology. Like everything in life is the implementation that bites you in the ass. Commitment bias, unwillingness to think critically and shift gears when warranted, and ultimately and mostly ego that's what boils the cabbage.

samwise

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #7 on: November 18, 2020, 08:51:35 PM »
Do you consider value investing to be an ideology?
That's interesting and tricky to answer so here's Li Lu's answer:
"Iím not ideologically opposed to anything. I am against any ideology."  :)
It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

True and a reasonable answer. I meant it more as an exploration of my/our own blind spots as value investors. That is usually unnerving and unwelcome but more productive in realtime than mocking scandanavian rowers with hindsight.

There have been many articles and postings about how value investors have suffered because they stayed to close to their "ideology". I wonder if there is any truth in that?

rb, agreed. E.g. one of Munger's better known friends used to buy only asset value discounts, but he changed. Is there a change required now?

rb

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #8 on: November 18, 2020, 09:18:07 PM »
Do you consider value investing to be an ideology?
That's interesting and tricky to answer so here's Li Lu's answer:
"Iím not ideologically opposed to anything. I am against any ideology."  :)
It seems Mr. Munger meant to stay away from 'extreme' or 'intense' ideology.

True and a reasonable answer. I meant it more as an exploration of my/our own blind spots as value investors. That is usually unnerving and unwelcome but more productive in realtime than mocking scandanavian rowers with hindsight.

There have been many articles and postings about how value investors have suffered because they stayed to close to their "ideology". I wonder if there is any truth in that?

rb, agreed. E.g. one of Munger's better known friends used to buy only asset value discounts, but he changed. Is there a change required now?
Your question that I've bolded is the problem. Change is not required now or at a point in time. Change is required always.

I wrote a bigger post on theories layered on ideologies. Munger's friend was anchored to asset value discounts which was a theory. Nothing prevented him from investing in discounted intangible assets before his "change". I'm sure Coke, P&G and Wrigley traded at discount before the 1980s as well. Similarly I am sure there are better ways to do value today than cigar butts and GARP. The ideology is intact but you must always evolve and be flexible about theory/implementation.

LongHaul

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Re: Psychology of Misjudgment Bonus Bias: The Dangers of Ideology (Last one!)
« Reply #9 on: November 19, 2020, 06:59:19 AM »
Do you consider value investing to be an ideology?


i∑de∑ol∑o∑gy
noun
1. a system of ideas and ideals, especially one which forms the basis of economic or political theory and policy.

I suppose Value investing is an ideology.   More time please....