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Warren Buffett's trading psychology (III)

Besides, Buffett insists on investing in industries he knows well, admitting that he does not invest in high-tech companies because of his inability to understand and evaluate them. At Berkshire Hathaway's 1998 annual meeting he said, "I have great admiration for Andy Grove and Bill Gates, and I hope to translate that admiration into action by supporting them financially. But when it comes to Microsoft and Intel, I don't know what the world will look like ten years from now, and I don't like to play that game where the other side dominates. I spend all my time thinking about technology, but I'm still probably the 100th,1000th, or even 10,000th smartest person to analyze this industry. There are indeed people who can analyze this industry, but not me."

Crowd polarization

Not only does he insist on independent thinking in his investment decisions, but he also relies on operators in his portfolio companies who resist industry inertia.

Crowd-sourcing is when people are influenced by others to change their behavior and beliefs. A classic example of crowd following is the lemming, a small Arctic animal that commits suicide by jumping into the sea end masse whenever its population reaches a certain level of reproduction. Humans have also shown a strong tendency to follow crowds in experiments conducted by social psychologists.

Crowds can trigger a group polarization effect, where the interaction of group members can reinforce the initial views and beliefs of group members. There are two reasons for the group polarization effect: firstly, the group member tends to maintain consistent behaviors and beliefs with other members to gain group recognition and a sense of belonging; secondly, when the group member is uncertain about the events that require decision making, it is often safe to imitate and conform to the behaviors and beliefs of others.

Rational judgments based on sound data and logic, never moved by the opinions of others; he only invests in industries and companies that he understands, does his own research on companies, and never relies on the judgment of others. He compares investment activities to playing baseball, he believes that investing is easier than playing baseball, playing baseball is no choice to hit every ball pitched, while investing only needs to choose to hit the most confidence to hit the ballon it before the right ball is pitched you just need to lie down and rest. It can be said that Buffett is one of the few people who had the rationality and courage to climb out of the cave of false information to gain rational light.

The Information Cave and the Truth

He never reads Wall Street's supposedly authoritative stock analysis, nor does he go around collecting gossip about what's affecting the stock market.

Investors are the typical information cavemen. In the investment market, there are stock exchanges, major shareholders and management of listed companies, public and private funds, securities companies, ordinary shareholders, investment consulting agencies, the media, banks, lawyers and auditing firms, and other subjects active, forming a huge ecosystem. Publishing, creating, exaggerating, or distorting information. As a result of information publishers "tailoring" the content of information, many people are manipulated by false or one-sided information and make wrong investment decisions. A typical example is a collusion between the executives of listed companies and bankers to produce financial data and release false information with the bankers' manipulation of stock prices, which ultimately damages ordinary retail investors. In addition, the average investor is more likely to be fooled by the lack of professional knowledge to identify the vast array of information. 

Buffett is well aware of information unsymmetric. He never read the so-called authoritative securities analysis of Wall Street, not keen to collect the impact of the stock market gossip, also not stare at the movement of the market. All the above make his investment work easily. Buffett can stay at home to enjoy the family, while the day the U.S. stock market collapsed in the late1980s. Buffett only believes in himself.

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