Getting past mental BLOCKS especially regarding investments?

[DTEJD1997]

Hey all:

 

I've started thinking about "mental blocks", my own, and those of others.

 

For example, I've been in several "heated" discussions with family members regarding the value of real estate.  They absolutely believes that real estate in the Detroit area generally goes down in value as time progresses.  They admit that there are ups & downs...but it is like picking up pennies in front of a steam roller.  They have been right from THEIR EXPERIENCE (for the most part).  They simply will NOT change their view, no matter the evidence or discussion presented to them.

 

Since about 2009, prices have been going up, sometimes as much as 10X.  Is it all going to collapse again?  Maybe?  I most certainly think that prices will go down at some point, but not by 50%+ (in most cases).  I also think that if you buy it right, you can do OK.  I will admit that I used to think this way, but I've done a lot of looking, A ton of research, and even some buying and think you can make $ in real estate if you do it right.  I am skeptical, and very cautious, but will buy & work with real estate.  Contrast that to my family members, they won't own anything OTHER than their houses.  They have a mental block regarding real estate.  I know that they are not the only ones...So these mental blocks can lead to an inefficient market.

 

On a slightly different tack, I've bumped into some people that simply WILL NOT invest in the auto industry.  No way, no how.  Some of these guys are ESPECIALLY that way on FCAU.  Chrysler could pay a 50% dividend, trade for a 1 P/E, trade at 25% of book value, WITH NO DEBT, and it would be too risky for them.  I suspect that those that hold this view either lost money in the past, OR were shocked by FCAU's big blow ups in the past.  They are so jaded by what happened in the past, they won't deal with it in the present or future.

 

So certain areas of the market may be somewhat inefficient (warped?) due to mental blocks of investors.  I suspect that is the case of the auto industry.

 

Anybody else have examples of mental blocks?

[sjh]

I would say people are just wired in different ways. I also don't buy every stock just because it's cheap, I need to feel comfortable with the investment and be able to sleep well. For example I usually have a problem with large caps, because there is just lots of news around them and I like it quiet, so probably I miss a lot of good opportunities because of that. In any case this is a long term game so going out of your comfort zone is almost always a bad idea.

[Rod]

Hey all:

 

I've started thinking about "mental blocks", my own, and those of others.

 

For example, I've been in several "heated" discussions with family members regarding the value of real estate.  They absolutely believes that real estate in the Detroit area generally goes down in value as time progresses.  They admit that there are ups & downs...but it is like picking up pennies in front of a steam roller.  They have been right from THEIR EXPERIENCE (for the most part).  They simply will NOT change their view, no matter the evidence or discussion presented to them.

 

Since about 2009, prices have been going up, sometimes as much as 10X.  Is it all going to collapse again?  Maybe?  I most certainly think that prices will go down at some point, but not by 50%+ (in most cases).  I also think that if you buy it right, you can do OK.  I will admit that I used to think this way, but I've done a lot of looking, A ton of research, and even some buying and think you can make $ in real estate if you do it right.  I am skeptical, and very cautious, but will buy & work with real estate.  Contrast that to my family members, they won't own anything OTHER than their houses.  They have a mental block regarding real estate.  I know that they are not the only ones...So these mental blocks can lead to an inefficient market.

 

On a slightly different tack, I've bumped into some people that simply WILL NOT invest in the auto industry.  No way, no how.  Some of these guys are ESPECIALLY that way on FCAU.  Chrysler could pay a 50% dividend, trade for a 1 P/E, trade at 25% of book value, WITH NO DEBT, and it would be too risky for them.  I suspect that those that hold this view either lost money in the past, OR were shocked by FCAU's big blow ups in the past.  They are so jaded by what happened in the past, they won't deal with it in the present or future.

 

So certain areas of the market may be somewhat inefficient (warped?) due to mental blocks of investors.  I suspect that is the case of the auto industry.

 

Anybody else have examples of mental blocks?

 

I think what you’re describing is called the recency effect. Any asset that has been down and out for years can be affected by it. It’s almost always better to prospect for investments in the bombed out areas. So I think you are on the right track. I’ve also found that when nobody likes your idea and thinks “You’d have to be crazy to buy ____” you should get excited. But you still have to do the work. You need to be different and right, not just different.

[SHDL]

I’ve found that in many regions around the world people generally tend to shun the stock market as either “dangerous” or “speculative.”  Their concerns are warranted to some extent though given the general state of corporate governance and such in their local economies. My personal theory is that it’s partly a self-fulfilling prophecy.

[flesh]

The lesson is to figure out why you also have them. See what happens when you hold yourself to a high standard with regards to blocks.

[SharperDingaan]

For most people, buying individual stocks/bonds is a dumb idea. They know that it is well outside their 'wheelhouse', they will be lambs to slaughter, and that they will almost certainly lose.  Hence their money goes into paying off their mortgage, and then primarily 'toys' - that they can sell later if they get into trouble. At least 'get' something for your money, versus just piss it away.

 

'Real Estate', around the world, has long been a subsitute for a pension plan. Look around the ethnic neighbourhoods in your community, who owns the real-estate?, and why? When you're old the rents are your monthly pension, and if you suddenly need cash you simply re-mortgage a property. But it's a step 'up', and a different mindset.

 

Most retail investors are really 'gambling', buying 'story/momentum' stocks to sell on at a higher price - to a 'patsy'. Of course, the 'patsy' is never them - and those times when it is 'them'; everything else is blamed, but them. It's industry 'XYZ' that is a dog, dead-money, too hard, a rip-off, etc .....

 

If you do something materially different to 'the crowd' you're the 'tall poppy'; and 'tall poppies' get cut down - because they disturb the social order. 'You're not one of us', 'you think you're better than us', you're socially isolated ... and pressured to conform, because your ability to 'question', and act on it, have made you dangerous. Make a lot of money when everyone around you is losing theirs .. and you will feel 'pressure' - especially if you made the wrong people, 'look stupid' ;)

 

There's an old adage that wealth often goes from rags to rags in 3 generations. The more you can think for your self, and act on it, the closer you are to the 1st generation versus the 3rd. The more of a 'bastard' you are, the bigger the stash.

 

SD

 

 

 

 

 

[Spekulatius]

Hey all:

 

I've started thinking about "mental blocks", my own, and those of others.

 

For example, I've been in several "heated" discussions with family members regarding the value of real estate.  They absolutely believes that real estate in the Detroit area generally goes down in value as time progresses.  They admit that there are ups & downs...but it is like picking up pennies in front of a steam roller.  They have been right from THEIR EXPERIENCE (for the most part).  They simply will NOT change their view, no matter the evidence or discussion presented to them.

 

Since about 2009, prices have been going up, sometimes as much as 10X.  Is it all going to collapse again?  Maybe?  I most certainly think that prices will go down at some point, but not by 50%+ (in most cases).  I also think that if you buy it right, you can do OK.  I will admit that I used to think this way, but I've done a lot of looking, A ton of research, and even some buying and think you can make $ in real estate if you do it right.  I am skeptical, and very cautious, but will buy & work with real estate.  Contrast that to my family members, they won't own anything OTHER than their houses.  They have a mental block regarding real estate.  I know that they are not the only ones...So these mental blocks can lead to an inefficient market.

 

On a slightly different tack, I've bumped into some people that simply WILL NOT invest in the auto industry.  No way, no how.  Some of these guys are ESPECIALLY that way on FCAU.  Chrysler could pay a 50% dividend, trade for a 1 P/E, trade at 25% of book value, WITH NO DEBT, and it would be too risky for them.  I suspect that those that hold this view either lost money in the past, OR were shocked by FCAU's big blow ups in the past.  They are so jaded by what happened in the past, they won't deal with it in the present or future.

 

So certain areas of the market may be somewhat inefficient (warped?) due to mental blocks of investors.  I suspect that is the case of the auto industry.

 

Anybody else have examples of mental blocks?

 

I think what you’re describing is called the recency effect. Any asset that has been down and out for years can be affected by it. It’s almost always better to prospect for investments in the bombed out areas. So I think you are on the right track. I’ve also found that when nobody likes your idea and thinks “You’d have to be crazy to buy ____” you should get excited. But you still have to do the work. You need to be different and right, not just different.

 

Bombed out is not enough to warrant an investment. I would always assume that anything that is down and out for a long time, is down for very good reasons. If you invest in these assets you need to see something the crowd doesn’t see and you need to be right within a given time period.

 

Also, one should distinguish between a mental block and a heuristic. A heuristic is based on experience and is different than a mental block. The human brain is lazy and probably doesn’t want to look into areas that have proven to be minefields before when there seem to be simpler ways to accomplish the same thing. I admit of having a bias towards tanker stocks, E&P, mining stocks etc. I don’t think it’s a mental block, I just don’t feel it’s worth spending time on to turn stones around in areas where you need to be right or get wiped out or vastly underperform. It’s a heuristic and to some extend a circle of competence thing.

[james22]

Perhaps a couple broader lessons I've learned: first, to try to do a better job of overcoming my natural aversion to ideas that are popular. For example, Interactive Brokers (IBKR) has been a perennial favorite among small-cap investors focused on quality businesses, and in retrospect, I probably should've been more open to the idea several years ago.

 

One of the mental blocks for me was - "if everyone loves this so much, how can it still be a great value?" (No position now or previously.) Going forward, I'm trying to do a better job of focusing more on an idea's merits and tuning out who likes or doesn't like it.

 

Second, and similarly, I've realized that it's internally inconsistent to A) believe that I have no edge in interpreting near-term price action, and B) prefer buying securities that have fallen over the near to medium-term past than securities that have skyrocketed. Although a large portion of my gains are undoubtedly due to averaging down, I've also found that averaging up can be profitable if the fundamentals are improving faster than the valuation.

 

Similarly, some of my worst picks have been companies whose share prices have fallen dramatically, while some of my good ones have been companies whose share prices had risen meaningfully. As with the previous item, I'm now trying to focus more on the "signal" - i.e. the idea's fundamental merits - and less on the "noise" - i.e. whether it's recently up, down, or sideways.

 

https://seekingalpha.com/article/4229722-small-cap-bear-next

 

Both of these ring very true.