Thursday, March 21, 2019

"The Intuitive Investor: Non-Attachment Is the Key Intuition Skill"

A repost from September 2014.

Buffett, Bogle and the Buddha walk into a Dairy Queen...and...wait...sorry...
that's the set-up to the "Make me one with everything" joke. Is this thing on?

So Buffett says "You want change? Change comes from within." and Bogle is all "Yo, Siddartha, I'll show you passive" and something about Smells Like Teen Spirit and then...

From the CFA Institute:
In my last column I promised to share how to bring intuition more into your conscious awareness and how to translate it into something useful. Recall that in “The Intuitive Investor: A Simple Model of Intuition,” I said intuition is sensory stimulus followed by interpretation. I also said that if intuition fails an investor, it is usually because of poor awareness and poor interpretation, which are admittedly hard to overcome.

It is my belief that awareness of intuition is made difficult by the many intellect- and emotion-based biases introduced in the interpretation phase. This is largely due to a lack of cultural appreciation for intuition and consequently a lack of structure and resources to help you improve. For most, intuition remains serendipitous rather than a tool. So before I can share some of the skills needed to increase awareness of intuition, we need to focus on the interpretation part of the equation since it is the primary obstacle. To that end:
The key intuition skill is non-attachment.

What Is Non-Attachment?
Non-attachment is another way of saying “having a minimum of bias.” Non-attachment also means you are indifferent to the sensations provided by your intuition. Attachment to your intuitive sensations, by comparison, means that you care very much about your sensory experience. An example is “I always trust my gut,” or “I never trust my gut.” This is attachment because the words “always” and “never” are judgments made in advance of your sensation. Ideally you experience your intuition without preferring an outcome, such as: “I need some sort of insight about whether to buy this stock or not considering that my model does not provide a definitive answer.”

When Does Attachment Happen Most?
Attachment arises much more frequently in the interpretation phase of intuition. This is because interpretation requires a judgment and it is very difficult not to invoke mental models or be blinded by behavioral biases. Non-attachment is also not detachment, with which it is frequently confused. This is because, similar to attachment, detachment is an active mindset, whereas non-attachment is neither active nor passive — it is simply the observation of what is happening.

An unfortunate case of attachment from early in my career was buying an initial position of shares in a company (International Rectifier: $IRF) because I had recently been promoted to portfolio manager and wanted to have an immediate effect on the returns of the fund I managed. This ran counter to my intuition, which indicated that the market’s skepticism for the company was appropriate. My poor choice occurred because I was predisposed to buy shares independent of my intuition in order to fulfill a biased mandate. Put another way, if there is attachment you can torture your financial models to generate any outcome you desire....MORE

I'm not sure what was going on that day but the post immediately preceding the above was: