Always trust your gut feeling. Especially when making investments.

Based on Dr. Gigerenzer’s book “Gut Feelings: The Intelligence of the Unconscious”. He is the director of the Max Planck Institute for Human Development in Berlin, is known in social science circles for his breakthrough studies on the nature of intuitive thinking.

What is a gut feeling

Gut feeling is brains ability to heed important clues and ignore all other unnecessary information.

When a person relies on their gut feelings and uses the instinctual rule of thumb “go with your first best feeling and ignore everything else,” it can permit them to outperform the most complex calculations.

Takeaway 1: Always trust your gut feeling

Intuition vs stock picking.

Ordinary investors will frequently pick a company they’ve heard of before. It is called the “recognition heuristic,” and it basically means “go with what you know.” Is this effective?

In the 1990s, Gigerenzer interviewed 360 pedestrians in Chicago and Munich. He asked if they were familiar with the names of German and American corporations traded on the stock exchange. Using the names of the most frequently recognized companies, they then made up investment portfolios.

After six months, the high-recognition portfolios, on average, gained more value than the Dow and DAX markets and some big-name mutual funds. The high-recognition portfolios did better than a portfolio we created from randomly picked stocks and another made up of low-recognition stocks. Over the years, they repeated this experiment twice, in different ways. Each time, the intuitive wisdom of the semi-ignorant outperformed the calculations of the experts.

Takeaway 2: Gain more background/general knowledge and go startup way — GO OUT OF THE BUILDING ☺ (c) S.Blank

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