Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger

There is no better way to set the stage for this book than by providing you with one of my all time favorite quotes:

History doesn’t repeat itself, but it does rhyme.

– Mark Twain

crashesOne book that gives detailed proof of this statement is the classic Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger. As explained by the subheading, the book is a collection and review of all financial crises that this world has experienced. Moreover, the book provides a very good overview of the stages and the common threads of these crises but also the lessons that can been drawn from them.

Although I’m not a top-down investor, staying away from macroeconomic analysis and forecasting, I still consider Manias, Panics, and Crashes one of the most important books to read as an investor. This is especially true if you have little or no real life experience of being an investor during a crises. As many times before, my thoughts about this subject has been influenced by one of my favourite investors, Howard Marks. Therefore, in connection to reading this book I urge you to read his memo ‘You Can’t Predict. You Can Prepare.‘ and especially note the following two paragraphs:

In my opinion, the key to dealing with the future lies in knowing where you are, even if you can’t know precisely where you’re going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent and shape of the next cyclical move. And so we’d better understand all we can about cycles and their behavior.

So forecasts are unlikely to help us foresee the movements of the economic cycle. Nevertheless, we must be aware that it exists and repeats. The greatest mistakes with regard to the economic cycle result from a willingness to believe that it will not recur. But it always does – and those gullible enough to believe it won’t tend to lose money.

– Howard Marks

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Worldly wisdom’s from the book


“The thesis of this book is that the cycle of manias and panics results from the pro-cyclical changes in the supply of credit; the credit supply increases relatively rapidly in good times, and then when economic growth slackens, the rate of growth of credit has often declined sharply. A mania involves increases in the prices of real estate or stocks or a currency or a commodity in the present and near-future that are not consistent with the prices of the same real estate or stocks in the distant future. The forecasts that the price of oil would increase to $80 a barrel after the earlier increase from $2.50 a barrel at the beginning of the 1970s to $36 at the end of that decade was manic. During the economic expansions investors become increasingly optimistic and more eager to pursue profit opportunities that will pay off in the distant future while the lenders become less risk-averse. Rational exuberance morphs into irrational exuberance, economic euphoria develops and investment spending and consumption spending increase. There is a pervasive sense that it is ‘time to get on the train before it leaves the station’ and the exceptionally profitable opportunities disappear. Asset prices increase further. An increasingly large share of the purchases of these assets is undertaken in anticipation of short-term capital gains and an exceptionally large share of these purchases is financed with credit.”

(p. 12)


“ Financial arrangements need a lender of last resort to prevent the escalation of the panics that are associated with crashes in asset prices. But the commitment that a lender is needed should be distinguished from the view that individual borrowers will be ‘bailed out’ if they become over-extended. For example, uncertainty about whether New York City would be helped, and by whom, may have proved just right in the long run, so long as help was finally provided, and so long as there was doubt right to the end as to whether it would be. This is a neat trick: always come to the rescue, in order to prevent needless deflation, but always leave it uncertain whether rescue will arrive in time or at all, so as to instill caution in other speculators, banks, cities, or countries. In Voltaire’s Candide, the head of a general was cut off ‘to encourage the others.’ A sleight of hand may be necessary to ‘encourage’ the others (without, of course, cutting off actual heads) to participate in the lender of last resort activities because the alternative is likely to have very expensive consequences for the economic system.”

(p. 23)


“A follow-the-leader process develops as firms and households see that others are profiting from speculative purchases. ‘There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich.’ Unless it is to see a nonfriend get rich. Similarly banks may increase their loans to various groups of borrowers because they are reluctant to lose market share to other lenders which are increasing their loans at a more rapid rate. More and more firms and households that previously had been aloof from these speculative ventures begin to participate in the scramble for high rates of return. Making money never seemed easier. Speculation for capital gains leads away from normal, rational behavior to what has been described as a ‘mania’ or a ‘bubble.’”

(p. 29)


“Yet euphoric speculation with insiders and outsiders may also lead to manias and panics when the behavior of every participant seems rational in itself. Consider the fallacy of composition when the whole differs from the sum of its parts. The action of each individual is rational—or would be if many other individuals did not behave in the same way. If an investor is quick enough to get in and out ahead of the others, he may do well, as insiders generally do. Carswell quotes a rational participant on the South Sea Bubble:

“The additional rise above the true capital will only be imaginary; one added to one, by any stretch of vulgar arithmetic will never make three and a half, consequently all fictitious value must be a loss to some person or other first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.”

‘Devil take the hindmost,’ ‘sauve qui pent,’ ‘die Letzen beissen die Runde,’ (‘dogs bite the laggards’), and the like are recipes for a panic. The analogy is someone yelling fire in a crowded theater. The chain letter is another analogy; because the chain cannot expand infinitely, only a few investors can sell before the prices start declining. It is rational for an individual to participate in the early stages of the chain and to believe that all others will think they are rational too.”

(p. 47-48)


“Speculative manias gather speed through expansion of money and credit. Most expansions of money and credit do not lead to a mania; there are many more economic expansions than there are manias. But every mania has been associated with the expansion of credit.”

(p. 64)

The Teachings of Don Juan: A Yaqui Way of Knowledge by Carlos Castaneda

donThe expression “take it with a grain of salt” is relevant for most of the content in the book
that I have collected todays worldly wisdoms from. ‘Mumbo Jumbo’ and pure fiction is how I would describe the book. However, this book also has a number of worldly wisdoms that in my opinion is truly fantastic and something you won’t find in your typical everyday book. The worldly wisdoms that I present today comes from the book The Teachings of Don Juan: A Yaqui Way of Knowledge that was published by the University of California Press in 1968 as a work of anthropology. It was written by Carlos Castaneda and submitted as his Master’s thesis in the school of Anthropology.

In short, the book is a collection of notes from events and conversations that took place during an apprenticeship with a self-proclaimed Yaqui Indian Sorcerer, Don Juan from Sonora, Mexico between 1960 and 1965. Whether these events and conversations actually took place or the book is pure fiction has continuously been debated. Nonetheless, when you read the worldly wisdoms I present below I think you will find them magnificent and applicable to both how you approach investing and your everyday life. At least I did.

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Worldly wisdoms from the book


“There is nothing wrong with being afraid. When you fear, you see things in a different way.”



“A man goes to knowledge as he goes to war, wide-awake, with fear, with respect, and with absolute assurance. Going to knowledge or going to war in any other manner is a mistake, and whoever makes it will live to regret his steps.”

(p. 19)


The second worldly wisdom is a whole conversation, so bear with me, between the apprentice and Don Juan regarding ‘enemies’ of  a ‘man of knowledge’. 

“When a man starts to learn, he is never clear about his objectives. His purpose is faulty; his intent is vague. He hopes for rewards that will never materialize, for he knows nothing of the hardships of learning. He slowly begins to learn – bit by bit at first, then in big chunks. And his thoughts soon clash. What he learns is never what he pictured, or imagined, and so he begins to be afraid. Learning is never what one expects. Every step of learning is a new task, and the fear the man is experiencing begins to mount mercilessly, unyieldingly. His purpose becomes a battlefield. And thus he has tumbled upon the first of his natural enemies: Fear! A terrible enemy – treacherous, and difficult to overcome. It remains concealed at every turn of the way, prowling, waiting. And if the man, terrified in its presence, runs away, his enemy will have put an end to his quest.”

“What will happen to the man if he runs away in fear?”

“Nothing happens to him except that he will never learn. He will never become a man of knowledge. He will perhaps be a bully or a harmless, scared man; at any rate, he will be a defeated man. His first enemy will have put an end to his cravings.”

“And what can he do to overcome fear?”

“The answer is very simple. He must not run away. He must defy his fear, and in spite of it he must take the next step in learning, and the next, and the next. He must be fully afraid, and yet he must not stop. That is the rule! And a moment will come when his first enemy retreats. The man begins to feel sure of himself. His intent becomes stronger. Learning is no longer a terrifying task. When this joyful moment comes, the man can say without hesitation that he has defeated his first natural enemy.”

“Does it happen at once, don Juan, or little by little?”

“It happens little by little, and yet the fear is vanquished suddenly and fast.”

“But won’t the man be afraid again if something new happens to him?”

“No. Once a man has vanquished fear, he is free from it for the rest of his life because, instead of fear, he has acquired clarity – a clarity of mind which erases fear. By then a man knows his desires; he knows how to satisfy those desires. He can anticipate the new steps of learning, and a sharp clarity surrounds everything. The man feels that nothing is concealed. And thus he has encountered his second enemy: Clarity! That clarity of mind, which is so hard to obtain, dispels fear, but also blinds. It forces the man never to doubt himself. It gives him the assurance he can do anything he pleases, for he sees clearly into everything. And he is courageous because he is clear, and he stops at nothing because he is clear. But all that is a mistake; it is like something incomplete. If the man yields to this make-believe power, he has succumbed to his second enemy and will fumble with learning. He will rush when he should be patient, or he will be patient when he should rush. And he will fumble with learning until he winds up incapable of learning anything more.”

“What becomes of a man who is defeated in that way, don Juan? Does he die as a result?”

“No, he doesn’t die. His second enemy has just stopped him cold from trying to become a man of knowledge; instead, the man may turn into a buoyant warrior, or a clown. Yet the clarity for which he has paid so dearly will never change to darkness and fear again. He will be clear as long as he lives, but he will no longer learn, or yearn for anything.”

“But what does he have to do to avoid being defeated?”

“He must do what he did with fear: he must defy his clarity and use it only to see, and wait patiently and measure carefully before taking new steps; he must think, above all, that his clarity is almost a mistake. And a moment will come when he will understand that his clarity was only a point before his eyes. And thus he will have overcome his second enemy, and will arrive at a position where nothing can harm him any more. This will not be a mistake. It will not be only a point before his eyes. It will be true power. He will know at this point that the power he has been pursuing for so long is finally his. He can do with it whatever he pleases. His ally is at his command. His wish is the rule. He sees all that is around him. But he has also come across his third enemy: Power! Power is the strongest of all enemies. And naturally the easiest thing to do is to give in; after all, the man is truly invincible. He commands; he begins by taking calculated risks, and ends in making rules, because he is a master. A man at this stage hardly notices his third enemy closing in on him. And suddenly, without knowing, he will certainly have lost the battle. His enemy will have turned him into a cruel, capricious man.”

“Will he lose his power?”

“No, he will never lose his clarity or his power.”

“What then will distinguish him from a man of knowledge?”

“A man who is defeated by power dies without really knowing how to handle it. Power is only a burden upon his fate. Such a man has no command over himself, and cannot tell when or how to use his power.”

“Is the defeat by any of these enemies a final defeat?”

“Of course it is final. Once one of these enemies overpowers a man there is nothing he can do.”

“Is it possible, for instance, that the man who is defeated by power may see his error and mend his ways?”

“No. Once a man gives in he is through.”

“But what if he is temporarily blinded by power, and then refuses it?”

“That means his battle is still on. That means he is still trying to become a man of knowledge. A man is defeated only when he no longer tries, and abandons himself.”

“But then, don Juan, it is possible that a man may abandon himself to fear for years, but finally conquer it.”

“No, that is not true. If he gives in to fear he will never conquer it, because he will shy away from learning and never try again. But if he tries to learn for years in the midst of his fear, he will eventually conquer it because he will never have really abandoned himself to it.”

“How can he defeat his third enemy, don Juan?”

“He has to defy it, deliberately. He has to come to realize the power he has seemingly conquered is in reality never his. He must keep himself in line at all times, handling carefully and faithfully all that he has learned. If he can see that clarity and power, without his control over himself, are worse than mistakes, he will reach a point where everything is held in check. He will know then when and how to use his power. And thus he will have defeated his third enemy. The man will be, by then, at the end of his journey of learning, and almost without warning he will come upon the last of his enemies: Old age! This enemy is the cruelest of all, the one he won’t be able to defeat completely, but only fight away. This is the time when a man has no more fears, no more impatient clarity of mind – a time when all his power is in check, but also the time when he has an unyielding desire to rest. If he gives in totally to his desire to lie down and forget, if he soothes himself in tiredness, he will have lost his last round, and his enemy will cut him down into a feeble old creature. His desire to retreat will overrule all his clarity, his power, and his knowledge. But if the man sloughs off his tiredness, and lives his fate through, he can then be called a man of knowledge, if only for the brief moment when he succeeds in fighting off his last, invincible enemy. That moment of clarity, power, and knowledge is enough.”

(p. 35-37)


Anything is one of a million paths. Therefore you must always keep in mind that a path is only a path; if you feel you should not follow it, you must not stay with it under any conditions. To have such clarity you must lead a disciplined life. Only then will you know that any path is only a path, and there is no affront, to oneself or to others, in dropping it if that is what your heart tells you to do. But your decision to keep on the path or to leave it must be free of fear or ambition. I warn you. Look at every path closely and deliberately. Try it as many times as you think necessary. Then ask yourself, and yourself alone, one question. This question is one that only a very old man asks. […] I will tell you what it is: Does this path have a heart? All paths are the same: they lead nowhere. They are paths going through the bush, or into the bush. In my own life I could say I have traversed long, long paths, but I am not anywhere. Does this path have a heart? If it does, the path is good; if it doesn’t, it is of no use. Both paths lead nowhere; but one has a heart, the other doesn’t. One makes for a joyful journey; as long as you follow it, you are one with it. The other will make you curse your life. One makes you strong; the other weakens you.



The fourth worldly wisdom is a follow-up conversation between the apprentice and Don Juan regarding how to find a path with “heart”, presented in the third worldly wisdom.

“But how do you know when a path has no heart, don Juan?”

“Before you embark on it you ask the question: Does this path have a heart? If the answer is no, you will know it, and then you must choose another path.”

“But how will I know for sure whether a path has a heart or not?”

“Anybody would know that. The trouble is nobody asks the question; and when a man finally realizes that he has taken a path without a heart, the path is ready to kill him. At that point very few men can stop to deliberate, and leave the path.”

“How should I proceed to ask the question properly, don Juan?”

“Just ask it.”

“I mean, is there a proper method, so I would not lie to myself and believe the answer is yes when it really is no?”

“Why would you lie?”

“Perhaps because at the moment the path is pleasant and enjoyable.”

“That is nonsense. A path without a heart is never enjoyable. You have to work hard even to take it. On the other hand, a path with heart is easy; it does not make you work at liking it.”

(p. 71-72)

Narrative and Numbers: The Value of Stories in Business by Aswath Damodaran

In today’s world of finance and business valuation there is one person at the absolute center of knowledge, theoretical and practical development. He is a professor of at the Stern School of Business at New York University, author of several highly regarded books and academic articles and the person behind the famous blog Musing on Markets. Yes of course, it’s Aswath Damodaran that I’m talking about!

What I really like about Aswath is his humble personality and bounteous attitude towards learning and sharing knowledge. Musing on Markets is one evidence of that statement, but then we have his webpage at Stern as well. There you can find material and webcasts to all his classes, links to his writings and all kinds of other useful data and tools (lots of excel spreadsheets). The best part is that all of his high quality material is available and free for everyone.

nbWhen I found out that Aswath was releasing a new book I was excited from that fact alone. But what got me really excited was the title and the description of his new book, ‘Narrative and Numbers’. This book is not a hardcore theoretical valuation bible that you might expect if you have read some of Aswath’s earlier work (if you are interested in that I recommend reading his book ‘Damodaran on Valuation’). I would say that Narrative and Numbers is mainly a book about understanding and connecting the two types of investor-species that the world/market consist of; the storytellers and the number crunchers, into an improved one. In other words, the books is about connecting the two endpoints of valuation; the qualitative and the quantitative factors and how to combine them in order to end up with a good business valuation. Also, Narrative and Numbers is about those on “the other side”, the founders and managers of companies, and how they use numbers and stories in different ways and with different purposes.

If you want more of Aswath I have one more final tip before I present the worldly wisdoms from his book Narrative and Numbers. Go listen to this episode of Masters in Business with him as a guest, it’s awesome!

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdoms from the book

Much as we love stories, though, most of us are also aware of their weaknesses. For the storytellers, it is easy to wander into fantasyland, where the line between good stories and fairy tales gets crossed. That may not be a problem if you are a novelist, but it can be a recipe for disaster if you are building a business. For those listening to stories, the danger is a different one. Since stories tend to appeal to the emotions rather than to reason, they also play on our irrationalities, leading us to do things that do not make sense but feel good, at least when we do them. In fact, as con men through the ages have discovered, nothings sells better than a good story. (p.2)

As a novice to storytelling, there are three thoughts that come to mind as I look at the long and well-researched history of storytelling. The first, and most humbling, is the realization that much of what is offered as good business storytelling practice has been known for centuries, perhaps going back to primitive times. The second is that good storytelling can make a huge difference in the success of a business, especially early in its life. To be a successful business, not only do you have to build a better mousetrap, but you have to tell a compelling story about why that mousetrap will conquer the business world to investors (to raise capital), to customers (to induce purchases), and to employees (to get them to work for you). The third is that storytelling in business come with more constraints than storytelling in novels, since you are measured not just on creativity but on being able to deliver on your promises. The real world is very much a part of your story, and much as you would like to control it, you cannot. (p.3)

So why are we drawn to numbers? In a world of uncertainty, numbers offer us a sense of precision and objectivity and provide a counterweight to storytelling. That precisions is often illusory, and there are uncountable ways in which bias can find its way into numbers. Notwithstanding those limitations, in investing and finance, as in many other disciplines, the number crunchers or “quants” have essentially used the power of numbers to both inform and intimidate. The crisis of 2008 was a cautionary note to those who would let common sense be overwhelmed by complex mathematical models” (p.4)

In The Little Prince, a children’s book, the Price visits an asteroid and meets a man who counts the stars, insisting that if he were able to count them all, he would own them. The children’s tale has resonance, since many people seem to feel that measuring something or putting a number on it will allow them to control it better. Thus, even though a thermometer can only tell you that you have a fever and a blood pressure monitor provides a reading of your blood pressure at the time you take it, both seem to give you a sense of control over your health(p.39)

If you invest primarily in mature companies, with established business models, this i perhaps the state of play for you, and your intrinsic value will follow the smooth path that value schools assume is a universal one. Is this good or bad for investors? While at first sight it seems like a blessing to have stable stories and values, there is a downside, at least from an investing standpoint. The market prices for these stocks will also reflect this stability in story line and will be less likely to wonder away from values. In the language of value and price, the gap between price and value will be smaller at these companies. Since investors make money from exploiting the gap, it stands to reason that you will find fewer and smaller market mistakes with stable companies than with younger and more unstable companies that are exposed to narrative breaks and changes. That is the reason why I prefer to spend my time and resources valuing companies on what I term the “dark side”, where there is significant uncertainty about how narratives will evolve in the future” (p.179-180)

The Aggressive Conservative Investor by Martin J. Whitman & Martin Shubik

The Aggressive Conservative Investor by Marty Whitman and Martin Shubik is a classic book in the value investing field. First published in 1979 the latest version is dated 2005. If you haven’t read it and you are a fan of the Intelligent Investor or Security Analysis you are going to like this one for sure. Whitman is in my opinion one of the most influential, successful and best adaptive investors to the classic asset focused value investing philosophy laid out by Benjamin Graham in the above mentioned books. If you don’t take my word for it here is a short video where Whitman tells you all about it:

The book is structured around four characteristics for outside investors and what makes an attractive equity investment. This is know as the financial-integrity approach:

  1. The company ought to have a strong financial position, something that is measured not so much by the presence of assets as by the absence of significant encumbrances.
  2. The company ought to be run by reasonably honest management and control groups.
  3. There ought to be available to the investor a reasonable amount of relevant information.
  4. The price at which the equity security can be bought ought to to be below the investor’s reasonable estimate of net asset value.

In addition to the four essential characteristics, the authors write about supplementary factors that can make an equity security attractive. These factors are structured under three subheadings—going-concern factors (e.g. increasing profitability or dividend), stock market factors (e.g. cooperative valuation and macroeconomic variables) and asset-conversion factors (e.g. refinancings, mergers and acquisitions, liquidations, changes in control and large-scale distributions to common stock holders).

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdom’s from the book

It has been our observation that the most successful activists have had much the same approach to investing that the most sophisticated creditors have had toward lending. Essentially, these people approach a transaction with two attitudes, the first having to do with their order of priorities. In looking at a transaction, the single most important question seems to be, What have I got to lose? Only when it seems that risks can be controlled or minimized does the second question come up: How much can I make? The second attitude has to do with a basic feeling that risk—how much one can lose—is essentially measured internally, not externally. The possibilities of unsatisfactory results from an investment or loan are to be found internally in the performance of the underlying business and the resources in the business, not externally in the market prices at which a company’s securities might trade. Successful activists and creditors, while not unmindful of the “value messages” that are delivered by markets, tend not to be overly influenced by such messages. Their attitude is, As far as my objectives are concerned, I know much more about the situations in which I invest or in which I lend than the stock market does. (p.17-18)

The wherewithal to weather a temporary setback is particularly important for the investor who believes, as we do, that he can know more about an issue than the market does. It is an important condition for investors following the financial-integrity approach. It is suicidal to ignore the general market unless you have the resources and inclination to sit tight, or can actively influence the business. Any approach that minimizes market factors can give only a margin of safety in terms of investment risk. We do not know how an outside investor can guard against stock-price fluctuations unless he has the resources to ignore them. (p.75-76)

Astute financial people do not measure potentials simply by reference to the risk–reward ratio. It is not sufficient to calculate that, say, there is five times as much chance that the investment will appreciate from one to twenty points as there is that it will depreciate from one to twenty points. Such a calculation reflects only odds. The astute person examines consequences as well as odds. For example, consider the situation where the odds are five to one that an investment will appreciate, but that if it fails to do so, the investor will become insolvent. He might well conclude that the consequences of disappointment are so dire that the particular investment is unattractive, notwithstanding the favorable odds. (p.76-77)

The standard of investment behavior for passivists as well as activists should be, Don’t worry about the investments you did not make. Rather, concentrate your worries on the ones you made, but which you should not have made. The only people who logically ought to worry about investments they did not make are total-return traders who are attempting to maximize or beat the market. This book is not directed to them. (p.166)

Most people who trade common stocks (as opposed to those who hold common stocks) seem to be more interested in the near-term outlook than in anything else. They will not purchase a security if the near-term outlook seems bad or uncertain, regardless of the price at which it is selling. An investor who is able to take positions based on other factors increases his chances of finding outstanding long-term bargains, since there is a relative lack of competition in the market in which he is buying. Given that market values will be determined by future earnings, and given also that most investors rely primarily on the past earnings record of a company in predicting future earnings, a good past earnings record will probably be reflected in a high market price. However, although they may also be an indicator of good future earnings, large high-quality asset values will probably not be reflected in a high market price for the stock. Thus, by placing primary weight on present asset value rather than on past earnings, an investor should be able to realize higher appreciation potential and lower risk of loss in the long term. (p. 202-203)

Influence: The Psychology of Persuasion by Robert B. Cialdini

Influence: The Psychology of Persuasion by Robert B. Cialdini is a book structured around 6 key principles of influence: reciprocity, commitment and consistency, social proof, authority, liking and scarcity. It is one of those books that has stood the test of time and one that gives you new wisdom every time you read it. The book has sold well over three million copies since it was published in 1984 and has been endorsed by non other than Charlie Munger. The most evident and in depth endorsement by Munger can be found in famous 1995 speech at Harvard University on The psychology of human misjudgment. In my opinion, reading the book and listening to the speech is one of the most valuable combinations of worldly wisdoms regarding human psychology that exists. I can’t recommend it enough.

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdom’s from the book

Weapons of influence

The advantage of such shortcut responding [fixed-action patterns] lies in its efficiency and economy; by reacting automatically to a usually informative trigger feature, an individual preserves crucial time, energy, and mental capacity. The disadvantage of such responding lies in its vulnerability to silly and costly mistakes; by reacting to only a piece of the available information (even a normally predictive piece), an individual increases the chances of error, especially when responding in an automatic, mindless fashion. The chances of error increase even further when other individuals seek to profit by arranging (through manipulation of trigger features) to stimulate a desired behavior at inappropriate times. (p.17)

Commitment and Consistency

Psychologists have long recognized a desire in most people to be and look consistent within their words, beliefs, attitudes, and deeds. This tendency for consistency is fed from three sources. First, good personal consistency is highly valued by society. Second, aside from its effect on public image, generally consistent conduct provides a beneficial approach to daily life. Third, a consistent orientation affords a valuable shortcut through the complexity of modern existence. By being consistent with earlier decisions, one reduces the need to process all the relevant information in future similar situations; instead, one merely needs to recall the earlier decision and to respond consistently with it.” (p.95-96)

Social proof

Social proof is most influential under two conditions. The first is uncertainty. When people are unsure, when the situation is ambiguous, they are more likely to attend to the actions of others and to accept those actions as correct. In ambiguous situations, for instance, the decisions of bystanders to help are much more influenced by the actions of other bystanders than when the situation is a clear-cut emergency. The second condition under which social proof is most influential is similarity: People are more inclined to follow the lead of similar others.” (p.140)


The scarcity principle holds for two reasons. First, because things that are difficult to attain are typically more valuable, the availability of an item or experience can serve as a shortcut cue to its quality. Second, as things become less accessible, we lose freedoms. According to psychological reactance theory, we respond to the loss of freedoms by wanting to have them (along with the goods and services connected to them) more than before.” (p.231)

Instant influence

Modern day visionaries—like Bill Gates, chairman of Microsoft—agree with Macrae, asserting that we are creating an array of devices capable of delivering a universe of information “to anyone, anywhere, anytime” (Davidson, 1999). But notice something telling: Our modern era, often termed The Information Age, has never been called The Knowledge Age. Information does not translate directly into knowledge. It must first be processed—accessed, absorbed, comprehended, integrated, and retained. (p.237)


The Worldly Wisdom Project #2

The book Benjamin Graham on Investing is an anthology of out of print articles that the father of value investing wrote for The Magazine of Wall Street during the years 1917-1927. These articles were in other words written early in his investment career and well before the publication of his two famous books, Security Analysis and The Intelligent Investor. I have enjoyed reading the book and especially in connection with the introduction and commentary to each article by David M. Darst. (CFA at Morgan Stanley Wealth Management and author).

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdom’s from Benjamin Graham on Investing: Enduring lessons from the father of Value investing

According to Warren Buffett, Benjamin Graham (1894–1976) said that he wished every day to do “something foolish, something creative, and something generous.”(p.3 )

[S]tandard, popular issues are rarely exceptionally attractive; and, conversely, the best bargains are usually found far off the beaten track. For how long can an issue sell substantially below its minimum intrinsic value after everybody knows all about it?(p. 249)

The bargain-hunter keeps his nose to the grindstone of established facts. He analyzes recent balance-sheets and past income accounts. His idea of the future is obtained chiefly by averaging the past. He holds aloof from the hue and cry of the market; popularity means little to him for he generally buys the unpopular. He is a plodder—unimaginative and perhaps shortsighted; but he averages an excellent return on his capital and sleeps well at night.” (p. 340)

Bargain opportunities are rarely, if ever, undisputable and obvious. We cannot expect to find issues which are exceptionally attractive from every point of view, including their price. Most bargains exist both because and in spite of some unfavorable feature, which upon analysis is found to be (a) imaginary; or (b) over emphasized; or (c) important, but far outweighed by elements of strength. (p. 340)

All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value. The worth of a business is measured not by what has been put into it, but by what can be taken out of it. So much is this true that many an unprofitable company sells in the market for less than the working capital alone—less than the liquid assets, which presumably could be readily turned into cash if the business were discontinued. Such companies, and they are by no means rare, are worth more dead than alive. Even cash assets, therefore, are not a dominant factor in market value, unless there are distinct possibilities of a special distribution therefrom. (p. 362)

The Worldly Wisdom Project #1

Below I present what I consider to be the five most insightful and unique worldly wisdom’s from the book Sapiens. A book that I have truly enjoyed to read and that has been endorsed by Barack Obama, Daniel Kahneman and Bill Gates to name a few.

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdom’s from Sapiens: A Brief History of Humankind by Yuval Noah Harari

That spectacular leap from the middle [of the food chain] to the top had enormous consequences. Other animals at the top of the pyramid, such as lions and sharks, evolved into that position very gradually, over millions of years. This enabled the ecosystem to develop checks and balances that prevent lions and sharks from wreaking too much havoc. As lions became deadlier, so gazelles evolved to run faster, hyenas to cooperate better, and rhinoceroses to be more bad-tempered. In contrast, humankind ascended to the top so quickly that the ecosystem was not given time to adjust. Moreover, humans themselves failed to adjust. Most top predators of the planet are majestic creatures. Millions of years of dominion have filled them with self-confidence. Sapiens by contrast is more like a banana republic dictator. Having so recently been one of the underdogs of the savannah, we are full of fears and anxieties over our position, which makes us doubly cruel and dangerous. Many historical calamities, from deadly wars to ecological catastrophes, have resulted from this over-hasty jump. (Harari, 2015, p.16-17)

[A]n imagined order cannot be sustained by violence alone. It requires some true believers as well. Prince Talleyrand, who began his chameleon-like career under Louis XVI, later served the revolutionary and Napoleonic regimes, and switched loyalties in time to end his days working for the restored monarchy, summed up decades of governmental experience by saying that ‘You can do many things with bayonets, but it is rather uncomfortable to sit on them.’ A single priest often does the work of a hundred soldiers far more cheaply and effectively. (Harari, 2015, p.99)

Most people do not wish to accept that the order governing their lives is imaginary, but in fact every person is born into a pre-existing imagined order, and his or her desires are shaped from birth by its dominant myths. Our personal desires thereby become the imagined order’s most important defenses. (Harari, 2015, p.102)

Every point in history is a crossroads. A single travelled road leads from the past to the present, but myriad paths fork off into the future. Some of those paths are wider, smoother and better marked, and are thus more likely to be taken, but sometimes history – or the people who make history – takes unexpected turns. (Harari, 2015, p.205)

History cannot be explained deterministically and it cannot be predicted because it is chaotic. So many forces are at work and their interactions are so complex that extremely small variations in the strength of the forces and the way they interact produce huge differences in outcome. (Harari, 2015, p.206)