How Warren Buffet’s Sense of Humour Made Him Rich

In everyday language you’d say someone “can’t see the wood for the trees”. More formally, Behavioral Economists use the term “Confirmation Bias” to describe someone doggedly gathering and focusing on evidence to confirm a view, while somewhat blindly ignoring other information. Whatever we call it, the end mistake is the same: by over-focusing on the details of a side issue, you can miss the bigger picture altogether.

So, test yourself with this quick little video, The Amazing Colour Changing Card Trick. Watch carefully now…..

Good investors like Warren Buffet are successful because they get the big, important decisions right and don’t get bogged down in noise (Buffet, on principle, will not look at daily stock market movements). You’ve also probably noticed that Buffet has a great sense of humour and a sunny, optimistic disposition. This is no accident – studies have clearly shown that optimists are typically much better investors than pessimists. They’re much quicker to spot – and pounce on – opportunities.

Investors who suffer from the double-whammy of Pessimism AND Confirmation Bias (P/CB) get sucked into a stomach-churning moshpit of negativity: while their pessimistic viewpoint conjures up dismal thoughts of gloom and doom, Confirmation Bias ushers them out to collect “proof” that this dreaded end is nigh. And of course the “proof” is easy to find because newspapers like to maintain a ratio of 7 bad news stories to every one of good news.

Aside from the emotional cost of being in this horribly depressing state, P/CB sufferers tend to pessimistically miss opportunities, and invest in the wrong things anyway. So, sadly, their investment returns often turn out just as glumly as they predicted.

Today P/CB sufferers are agonizing over the anaemic state of Europe and the US. And yes, it’s true that the outlook’s not bright for these debt-laden, high unemployment, high tax, ageing economies. Yet P/CB sufferers should be careful that with all this hand-wringing over Europe and the US, they don’t miss a far more magnificent opportunity – the massive demographical shift in the world’s economic centre of gravity… towards of course, Asia and other Emerging markets.

The global middle class today = one billion people. In 2030 it will become TWO billion. That’s twice as many middle class consumers demanding bridges, roads, cars, phones, computers, TVs. All just 20 years from now. And not in Europe and the US.

So get clear on what’s the wood and which the trees: make sure your money’s in the right place – the bright place.