Buffet on IQ and independent thinking

http://money.cnn.com/2008/05/05/news/companies/buffet.pm.wrap/index.htm?section=money_latest

In response to a question on how to control emotions in investment:

“… You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently…It doesn’t make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business,” he opined.

“You should be able to write down on a yellow sheet of paper, ‘I’m buying General Motors at $22, and GM has [566] million shares for a total market value of $13 billion, and GM is worth a lot more than $13 billion because _______________.” And if you can’t finish that sentence, then you don’t buy the stock. [Note: Buffett mentioned GM for illustrative purposes only.] All this requires some temperamental detachment from other people’s behavior. Both Charlie and I have a natural instinct in that direction. We value our opinions more than others’ — perhaps to an extreme!”

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Genetic Influences on Economic Preferences

http://swopec.hhs.se/hastef/abs/hastef0679.htm

Cesarini David et el

Abstract: We use the classical twin design to provide estimates of genetic and environmental influences on experimentally elicited preferences for risk and altruism. Our estimates provide strong prima facie evidence that economic preferences are heritable. Approximately 30 percent of the variation in behavior is explained by genetic effects in the best-fitting models. The results suggest a modest role for common environment as a source of phenotypic variation. Based on the findings, we encourage economists to move beyond a black-box treatment of preference formation and suggest that the further study of the codetermination of preferences by genes and environment will lead to a more comprehensive economic science.

Warren Buffett and critical thinking

These days the stock market is always in the local news. Warren Buffett is of course a great investor (and I think even more admirable as a philanthropist), but it is nice to hear that he sees critical and independent thinking as the basis of his success:

From http://www.gurufocus.com/news.php?id=4388

I asked Buffett about the state of the securities markets in the U.S. going forward and how they will compare to the period in which he operated and how he could make 50% or more per year…

Buffett : “It’s a structural issue…yes, with a small sum like a million dollars, I could make 50% or more a year. The key is rationality. There are always going to be times when humans act irrational and this is time to make your money. I’ve made a career of cashing in when people act irrational.”

More choices might not be better

From this blog

“When Choice is Demotivating: Can One Desire too Much of a Good Thing?” Iyengar, S. S., & Lepper, M. Journal of Personality and Social Psychology, 79, 995-1006. (2000).

This paper explored the phenomena of “choice overload.” Here is what they did.

They created two displays of gourmet jams. One display had 24 jars. The other had 6. Each display invited people to try the jams and offered them a discount coupon to buy the jam. They alternated these displays in a grocery store and tracked how many people passed the displays, how many people stopped and sampled the jams, and how many subsequently used the offered coupon to buy the jam.

The results were surprising.

* 24 jar display: 60% of the people passing the display sampled the jam, 3% purchased jam.
* 6 jar display: 40% of the people passing the display sampled the jam, 30% purchased jam.

Economics and ugly packaging

Supermarkets such as ParknShop and Welcome in HK have their own range of products which usually have ugly packaging. Apparently there is an explanation. Seems plausible to me.

Link: The mystery of the “short” cappuccino. – By Tim Harford – Slate Magazine.

The British supermarket Tesco has a “value” line of products with infamously ugly packaging, not because good designers are unavailable but because the supermarket wants to scare away customers who would willingly spend more. “The bottom end of any market tends to get distorted,” says McManus. “The more market power firms have, the less attractive they make the cheaper products.”

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