Stripped of Emotions

Can we truly decide or act rationally in the truest sense? In other words, can we make decisions stripped of emotions?

A purely unemotional man will be unable to decide given there is more than one solution to a problem.

Damaiso reported that the purely unemotional man was incapable of making the simplest decision. He could not get out of bed in the morning, and fittered away his days fruitlessly weighing his decisions. One cannot make a decision without emotion... Emotions are there to prevent us from temporizing.. Emotions are called "lubricants of reason".

From Fooled by Randomness by Nassim Nicholas Taleb

Economics of Happiness; Recap of What it means to be Happy

This is the commencement speech of Ben Bernanke, US Federal Reserve Chairman, about the economics of happiness. He sums up many points I've known about what it means to be happy so it just seems right that I do some summing up as well.

Key points in the speech are enumerated below. Most, if not all, have related posts already in this blog:

1. If you want to be happy, don't live in a rich neighborhood. Happiness is correlated to wealth, but only up to a certain point. Much like Maslow's heirarchy of needs, a certain degree of wealth covers our basic needs like food and shelter. A rich country provides a high standard of living that takes care of these. It has been shown that richer countries provide a higher rate of happiness among its citizens which proves our point. However, comparing the level of happiness of the same country to several years back shows only a very marginal increase. The reason for this is that we measure our degree of happiness relative to others. This just means we feel happier when we see we are better off than others. It's sad to know we're wired like this but we also need to be reminded that there are most of the time, people worse off than us.

2. Flow. We need to find a hobby or if better, an occupation, that makes time fly for us. When this happens, this means almost all, if not all, of your attention and your talents are being applied to what you do. A passion may be another word for this. Disclaimer: this hobby or activity should not be something easy, otherwise we'd be easily bored in no time. In fact, this should be something that 'engages' our natural strengths and propensities.

3. Family and Community. This proves that no man is an island and that man is a social animal. We are born to connect and the more we nurture our relationships the happier we become. One tip: associate with people that will make you better as a person. See also here and here.

4. It's not the pay, stupid. Somehow related to #2, but only to emphasize that a high pay should not be the aim when finding a job. We should look for a job that engages our abilities and provides meaningful relationships. Man is a resilient being and he will find a sort of equilibrium (where he doesn't feel that sad nor that happy) whatever his present circumstance, so he would eventually adjust to his economic situation. Note to myself: Please remember this. See here, here, and here.

5. Be thankful. Last but unfortunately the most overlooked and taken for granted key to being happy. Guilty of this myself. Fortunately, my parents are there to remind me to always count my blessings.

Karl Popper, Solon and Uncertainty

From Karl Popper, a theory is always waiting to be proven false, if not yet proven false. It is only provisionally accepted.

In applying this to finance, investing: There is really no guarantee a stock will continue to do well.. Finance specialists will always have a model or 'theory' to 'predict' the market but they will always be subject to being proven wrong later.

It thus seems the odds are always stacked against theories because no matter how many times or instances it is proven right, it takes only one 'wrong' instance to take the whole theory down.

This is somehow connected to Solon's observation that we are all servants to uncertainty and that nothing is really permanent, especially one's fortunes.

Nothing is absolute and except change and uncertainty.

We can predict or forecast with confidence on the short term but that still is subject to some degree of uncertainty.



From Fooled By Randomness by Nassim Nicholas Taleb

10 Minute Test for Screening Stocks

A quick test whether a stock is worth buying or investing into:

1. Has the company ever made an operating profit?

2. Does the company generate consistent cash flow from operations?

3. Are Returns on Equity consistently above 10%, with reasonable leverage?

4. Is Earnings Growth Consistent or Erratic?

5. How Clean is the Balance Sheet? (Debt to Equity Ratio less than 1.0)

6. Does the Firm Generate Free Cash Flow?

7. How much "Other" is There? Or no history of taking big charges

8. Has the Number of Shares Outstanding Increased Markedly over the Past Several Years?

From The Five Rules for Successful Stock Investing by Pat Dorsey