Clear Thinking

In my early twenties I use to spend way too much time at a local bar since, at the time, my roommate owned it.  After work,we’d spend our time talking and drinking the night away.  He had a game that he liked to play whereby he would predict what people would drink. Since he spent so much time at it, he became an expert in human behavior via what they ordered to drink. It was great fun to watch and I always got a laugh out of it.

Our Bias

For example, if someone came in for a beer, my friend could predict which beer they would pick. It almost became eerie how good he was at it.  I finally asked him to give me his drink picking prowess. He said, “I look at who the advertisers target and then I can tell what those types will order. I never believed those stupid commercials worked but I know now that they do.” Given that the bar was full of mostly twenty somethings, and their biases not yet or less formed, the advertisements seemed to have a greater effect on their opinions.

Here are some of the drinks and the character traits of the people that ordered them:

  • Johnny Walker Black whiskey was ordered by brooding types.
  • Heineken beers were ordered by successful yuppies.
  • White Russians were ordered by young women from Long Island.
  • Budweisers were ordered by the twenty something college sporty type.
  • Tequila was ordered after three or four drinks by young urban professionals who wanted to drink to excess.

As human beings, we all understand the notion of free will. Yet, here were a group of people basing their drink orders on the commercials that ran on T.V.  My friend’s predictive powers got me to thinking about the whole notion of advertising and the many ways we are subtly influenced.

Advertisers spend billions of dollars a year on advertising because they know it works. The biggest payday for the year in advertising is the Superbowl because of the sheer number of people who tune in. Yet, these same people (a/k/a consumers) look at the commercials…laugh… and think none of it has any impact upon them personally.

Naturally, we all think we’re immune to the sway and power of the media. We think it can only affect “them” and never us; but, I’m not so sure. Robert Cialdini, in his famous book called Influence, documented the many subtle, and not so subtle, ways we can all be influenced. One of his most famous stories is about the Hare Krishnas and their ability to raise money. One day, at the airport, he noticed Hare Krishna followers picking up flowers from the garbage and giving them to people.  The followers would ask travelers to take a pamphlet and a flower. Most of the travelers didn’t want the flower or the flyer, but the Hare Krishnas were insistent they take the flower as a gift. The gift of the flower was a way to create an obligation for the other party, thereby causing the receiver of the gift to give a donation. Most of the travelers upon receiving the gift would throw it away just a few yards down the terminal. That’s where the Hare Krishnas would take those same flowers out of the bin and start the process all over again. The Hare Krishnas knew the people did not want flyers or flowers; but, they knew the small gift of the flower would bring them money.

I believe Cialdini’s writings prompted Wall Street to change many of the industry’s norms. Buy side accounts (mutual funds) today no longer accept any gifts, no matter what the size from sell side accounts. They know any gift received implies an obligation upon the other party. Asset managers need to make decisions based on the best investments available, not one based upon an indebtedness. Cialdini’s main point in “Influence,” and on advertising in general,  is that there are subtle pulls on our psyche all day long that influence us in ways not readily perceived.

I struggled with this in my own life when I studied at length with a linguist. A linguist is someone who deconstructs your language so that you take ownership of the words and language that you use. The linguist I worked with focused on my sentence structure and my choice of words. Most of my bad habits stemmed from the fact that I was not conscious of the words I was using. I had absorbed most of my language structure from my parents, as we all do. However, in order for me to fully own my narrative, I had to break those habits.

I trained with her once a week for three years. During that time, it was not unusual for me to measure out each word I spoke so that my “new language” became part of my new persona. The results during that time were phenomenal! My sales sky rocketed. The point is that had I not taken ownership for the language I used, I would have been unknowingly influenced for the rest of my life by the language my parents had used. I would have been following a script given me… all the while not fully understanding what had occurred.

Gene Simmons, the lead front man for the rock group Kiss, changed his legal name as a way to take ownership of his life. His parents had divorced when he was a child and he grew up in poverty. He discussed at length, in his books and writing, the importance of needing to forge his identity lest outside influences shape him. He carefully chose each part of his life and what he wanted out of it. He changed his name to reject that image of  a poor, unwanted child and to create the image of a wealthy rock star. Although I am not suggesting we need to change our names, it is instructive to see the lengths Gene Simmons went to mold the life and image he wanted and reject outside influences.

The only way to forge and own are identities is to continually chose who we want to be. Given the way the media and advertisers manipulate, lie and distort the truth…it is more imperative than ever to take ownership and decide who want to be and what we think.  The alternative is that we end up on the dumping end of the whims of advertisers and psychological tricksters, forever manipulating us with their jedi machinations.

To be truly alive and conscious is to realize we are susceptible to, and influenced by, what we “consume.” With media present in every aspect of our waking lives, the old adage of “garbage in/garbage has never been more apt.  So be careful what you watch, who you listen to and what you read.

Its all grist for your mill but remember: it’s your mill and you get to sift out what goes and decide what does not.


Think The Opposite

A few years back I was applying to business school and I had to take the G.M.A.T  test as this was one of the prerequisites for applying.

Doing The OppositeI started to read the book and take the practice test and I never scored that well on it and came to the conclusion that given the scores I was getting I would not get in to any decent school…that is until I came across the Princeton Review.

The Princeton Review is a testing company that helps test makers pass the various entrance exams that schools require from the S.A.T  to the L.S.A.T. and they are quite good helping students getting better test scores. After I took the class, I improved enough to get into the school that I wanted and so I can attest their process works.

What I found fascinating about the Princeton Review was their philosophical bent on test taking and for that matter life in general. Here is the summary:

  • On most tests you can expect to get 50% of the answers correctly. Since these are usually the easiest questions you should do well in the section
  • The next 25% of the questions are significantly harder and someone of average intelligence will only get a few of these answers correctly.
  • For the last 25% of the test, you should expect to get all of them wrong, since by definition and mathematics most people are of average intelligence.
  • So by knowing that you are of average intelligence you should score higher.. huh?
  • If during the test you encounter  a hard question and if you think you know the answer, that is a clue that you are probably wrong. And since it is a multiple choice test, look at the answer that you probably would never have picked and pick that one.
  • By picking the questions that you normally would not pick on the hardest questions, you will be right more often than not and get a higher score.

When I use to work at trading the same principles that applied to successful test taking applied to trading as well as it was called fighting your natural bias an inclination.

Here is how fighting your natural bias works:

  1. If you see the market going up and you are bullish you should buy.
  2. But since you are of average intelligence and everybody else is thinking the same way as you do, the market can’t go up any more.
  3. So you fight your natural inclination to buy and actually start selling.
  4. Traders make money doing the opposite of what everyone else is doing.

What I found interesting is that even on Wall Street where everybody thinks they are smart understand and know their limitations- that in reality they are probably of average intelligence and need to be careful in their basis when betting money.

I always found this concept fascinating in doing the opposite of the herd as the key to life. As many of times the real joys and success in life are found in doing the opposite.  For example look at some of the snippets below and how thinking the opposite can help your life.

  • Walt Disney went bankrupt but later made a fortune when he created his theme parks with only one exit and entry. He knew that by creating altered and brand new worlds and by funneling people in a systematic way, real money could be made.
  • Henry Ford also went bankrupt but later made a fortune by mass producing automobiles at a reasonable price point. Previosuly autos were only used by the wealthy.
  • Richard Branson  got into the airline business with Virgin Airlines after seeing how poorly they treated their passengers. He made a fortune by giving the customer a world class experience.

As in everything else, real money and happiness can really only be found by doing the opposite.