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Friday, April 5th, 2024
| Time | Event |
| 8:00a | Nobel Prize-Winning Psychologist Daniel Kahneman (RIP) Explains the Key Question Every Investor Must Ask, and Why It’s a Fool’s Errand to Pick Stocks
This past week, the influential psychologist and economist Daniel Kahneman passed away at age 90. The winner of the 2002 Nobel Prize in Economic Sciences, Kahneman wrote the bestselling book Thinking, Fast and Slow where he explained the two systems of thinking that shape human decisions. These include “System 1,” which relies on fast, automatic and unconscious thinking, and then “System 2,” which requires attention and concentration and works more slowly. And it’s the interplay of these two systems that profoundly shapes the quality of our decisions in different parts of our lives, including investing. In the interview above, Steve Forbes asks why individual investors persist in believing that they can pick stocks successfully over time, despite ample evidence to the contrary. Drawing on his research, Kahneman describes the “illusion of skill,” where investors “get the immediate feeling that [they] understand something,” which is much “more compelling than the knowledge of statistics that tells you that you don’t know anything.” Here, System 1 creates the “illusion of skill,” and it overwhelms the slower analytical thinking found in System 2—the System that could use data to determine that stock picking is a fool’s errand. When Forbes asks if investors should ultimately opt for index funds instead of individual stocks, Kahneman replies “I am a believer in index funds,” that is, unless you have very rare information that allows you to pick stocks successfully. Later in the interview, Kahneman touches on another important subject. In his mind, the first question every investor should ask is not how much money should I plan to make, but rather, “How much can I afford to lose.” Every investor should assess their risk tolerance, in part so that you can handle turbulence in the market and stick with your initial investment plan. If you are not aware of your risk tolerance, “when things go bad, you will want to change what you are doing, and that’s the disaster in investing… Loss aversion can kill you.” He continues, “Emotions are indeed your enemy. The worst thing that could happen to you … is to make a decision and not stick with it, so that you bail out when things go badly, so that you sell low and buy high. That is not a recipe for doing well in the stock market, or anywhere.” Ideally, you should figure out upfront how much you want to put in the stock market, and how much you want to keep out, so that you can psychologically manage the ups and downs of investing. From here, Kahneman comes to his most important piece of advice for investors: Know yourself in terms of what you could regret. If you are prone to regret, if investing makes you feel insecure and lose sleep at night, then you should adopt a “regret minimization strategy” and create a more conservative portfolio to match it. Read more about that here. Also see Chapters 31 (Risk Policies) and 32 (Keep Score) in Thinking, Fast and Slow where Kahneman talks more about investing. This post originally appeared on our sister/side-project site, Open Personal Finance. Related Content on Open Personal Finance: Essential Advice for Any Investor from Jack Bogle, the Founder of Vanguard Warren Buffett Explains the Power of Compound Interest
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| 9:01a | 17 Minutes of Charles Schulz Drawing Peanuts
Anyone can learn to draw the cast of Peanuts, but few can do it every day for nearly half a century. The latter, as far as we know, amounts to a group of one: Charles Schulz, who not only created that world-famous comic strip but drew it single-handed throughout its entire run. He was, as a nineteen-sixties CBS profile put it, “a one-man production team: writer, humorist, social critic.” That clip opens the video above, which compiles footage of Schulz drawing Peanuts while making observations on the nature of his craft. “When you draw a comic strip, if you’re going to wait for inspiration, you’ll never make it,” he says. “You have to become professional enough at this so that you can almost deliberately set down an idea at will.” Schulz’s dedication to his work may have been an inborn trait, but he didn’t find his way to that work only through his particular abilities. His particular inabilities also played their part: “I studied art in a correspondence course, because I was afraid to go to art school,” he says in a later BBC segment. “I couldn’t see myself sitting in a room where everyone else in the room could draw much better than I.” With better writing skills, “perhaps I would have tried to become a novelist, and I might have become a failure.” With better drawing skills, “I might have tried to become an illustrator or an artist. I would’ve failed there. But my entire being seems to be just right for being a cartoonist.” In drawing, he also found a medium of thought. “The really practical way of getting an idea, when you have nothing really to draw, is just taking a blank piece of paper and maybe drawing one of the characters in a familiar pose, like Snoopy sleeping on top of the doghouse,” he says. Then, you might naturally “imagine what would happen if, say, it began to snow. And so you’d doodle in a few snowflakes, something like that. Perhaps you would be led to wonder what would happen if it snowed very hard, and the snow covered him up completely.” If you continue on to draw, say, Snoopy’s loyal friend Woodstock being similarly snowed in, you’re well on your way to a complete strip. Now do it 17,897 times, and maybe you’ll qualify for Schulz’s league. Related content: Charles Schulz Draws Charlie Brown in 45 Seconds and Exorcises His Demons Umberto Eco Explains the Poetic Power of Charles Schulz’s Peanuts Hergé Draws Tintin in Vintage Footage (and What Explains the Character’s Enduring Appeal) Cartoonists Draw Their Famous Cartoon Characters While Blindfolded (1947) The Enduring Appeal of Schulz’s Peanuts — Pretty Much Pop: A Culture Podcast #116 Based in Seoul, Colin Marshall writes and broadcasts on cities, language, and culture. His projects include the Substack newsletter Books on Cities, the book The Stateless City: a Walk through 21st-Century Los Angeles and the video series The City in Cinema. Follow him on Twitter at @colinmarshall or on Facebook. |
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