Book Marks:
4 Books About How to Think Better

Categories Author: Patrick O'Shaughnessy

“Summer” is over for many of us, sorry to say, and TMI1 has left our brains prone to being led astray over the past couple of months. If you’ve already read through the Summer Reading List prescribed in this post, here are some books that help us think in ways that make us less prone to errors — and/or hasty decisions — as we begin to wind down 2017.

Happy Reading,
— Patrick


Drunk Tank Pink: And Other Unexpected Forces that Shape
How We Think, Feel, and Behave
by Adam Alter
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The title refers to a remarkable phenomenon: if you expose men to the color pink for prolonged periods, they get weaker, calmer, and generally more sedated. When this effect was first discovered, the color “drunk tank pink” became a popular tool. Holding cells, for example, were painted pink to calm prisoners. This book is chock full of interesting and useful examples of subconscious behavioral triggers, including several specific to the stock market. You’ll learn how more pronounceable ticker symbols (e.g., OPEN, HOG) result in better IPO performance, and how seeing a yin-yang symbol can affect our investing decisions.


Thinking in Systems by Donella Meadows

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I’ve read this book twice within a 2-week period. Hey, I might even start reading it again. If you want a new way to think about yourself, your business, the market, or any other system of parts and interactions, this is the book for you.

The elements, the parts of systems we are most likely to notice, are often (not always) least important in defining the unique characteristics of the system—unless changing an element also results in changing relationships or purpose…look beyond the players to the rules of the game. The human mind seems to focus more easily on stocks than on flows. On top of that, when we do focus on flows, we tend to focus on inflows more easily than on outflows.

Think about stocks: we focus so much on operating cash flows, but we often neglect financing cash flows — financing cash flows can be equally, if not more, useful for stock selection. In business, our focus is on sales, even though expenses can be a much more effective point of leverage:

We sometimes miss seeing that we can fill a bathtub not only by increasing the inflow rate, but also by decreasing the outflow rate.

I have 118 highlights and 19 long notes in this book. Buy it!


The True Believer: Thoughts on the Nature of Mass Movements (Perennial Classics)
by Eric Hoffer

coverThis book is applicable to just about everyone. It is simultaneously a book on history, psychology, influence, and salesmanship. I found so many great insights into the human mind and ideas for spreading GOOD messages (even though the book details lots of BAD mass movements, the framework is the same).

Hoffer’s book (without intending to, I don’t think) also gives food for thought for entrepreneurs and innovators. To boil down the strategy: Find the frustrated people and provide them with a hope that they can change their source of frustration — and change it very soon (not at some distant point in the future; a very important distinction!). By focusing on the disaffected, you can find those ready and willing to act. I’m using this framework to think about how I can better motivate young people to invest sooner — a tall order given that their retirement is so far away. Some passages:

An effective technique of conversion consists basically in the inculcation and fixation of proclivities and responses indigenous to the frustrated mind… Hence it is that people with a sense of fulfillment think it a good world and would like to conserve it as it is, while the frustrated favor radical change.

Though the disaffected are found in all walks of life, they are most frequent in the following categories: (a) the poor, (b) misfits, (c) outcasts, (d) minorities, (e) adolescent youth, (f) the ambitious (whether facing insurmountable obstacles or unlimited opportunities), (g) those in the grip of some vice or obsession, (h) the impotent (in body or mind), (i) the inordinately selfish, (j) the bored, (k) the sinners.

There is a hope that acts as an explosive, and a hope that disciplines and infuses patience. The difference is between the immediate hope and the distant hope. A rising mass movement preaches the immediate hope. It is intent on stirring its followers to action, and it is the around-the-corner brand of hope that prompts people to act.


Incognito: The Secret Lives of the Brain
by David Eagleman

coverUnderstanding one’s own behavior (driven by the brain) is the first step towards investing success. This is one of my favorite books on the brain and the bizarre things it makes us do. So much of our processing goes on behind the scenes. Consciousness just plays catch up — by explaining/justifying behavior after the fact rather than making decisions as though it were some little rogue commander in the brain.

As Carl Jung put it, “In each of us there is another whom we do not know.” As Pink Floyd put it, “There’s someone in my head, but it’s not me.”

The crux of the question is whether all of your actions are fundamentally on autopilot or whether there is some little bit that is “free” to choose, independent of the rules of biology. This has always been the sticking point for both philosophers and scientists. As far as we can tell, all activity in the brain is driven by other activity in the brain, in a vastly complex, interconnected network. For better or worse, this seems to leave no room for anything other than neural activity—that is, no room for a ghost in the machine. To consider this from the other direction, if free will is to have any effect on the actions of the body, it needs to influence the ongoing brain activity. And to do that, it needs to be physically connected to at least some of the neurons. But we don’t find any spot in the brain that is not itself driven by other parts of the network. Instead, every part of the brain is densely interconnected with—and driven by—other brain parts. And that suggests that no part is independent and therefore “free. Reading this book further reinforced my belief that humans should be removed from the investing process—there are simply too many biases and quirks baked into the brain to make consistent decisions through time (at least for the vast majority of investors).


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  1. TMI: Too Much Information. Synonym: “Information Overload”…