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.