Monday, October 09, 2006

Flexibility - Another necessity...

Recently somebody said, "Hey, you lost weight," and I said, "Yeah, thirty-five pounds and three and a half billion dollars." So I'm quite a bit lighter and more flexible than I was.
John Malone

Flexibility is a much needed resource in Investing and life in general. People generally fall in love with their ideas, their decisions, their Spouses...

Investors suffer from Inconsistency bias and dissonance when they realize that the stock which they thought had great potential for reward is a lemon or their much valued tip from a stock broker does not stand up to somebody's thorough analysis of the company and it's stock. And then what do they do, they stick to their original choice in spite of logic prompting them to change their minds and sell the stock.

Galbraith said -
“Faced with the choice between changing one's mind and proving there is no need to do so, almost everyone gets busy on the proof.”

Changing one’s mind about an earlier held idea leads to an acute dissonance and most people aren't comfortable with this situation. So, they clam up and stick to their guns. There is another term which describes this condition better - Psychological Denial.

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