Posts filed under “Philosophy”

The Art of Intuition and the Science of Discovery

“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.” ~ Albert Einstein

What is intuition and how might it help or hinder an investor’s decision making process? A good philosopher begins with definitions, otherwise they risk building their argument upon a false premise. Therefore we begin with a broad, conventional definition of intuition from Miriam-Webster:

Intuition: a natural ability or power that makes it possible to know something without any proof or evidence: a feeling that guides a person to act a certain way without fully understanding why.

My intuition tells me that there are several things wrong with this definition. The primary problem is that it is a conventional definition and conventions only cover the surface. So let’s delve deeper by doubting or elaborating upon the last two words, “understanding why.” And where does this “feeling” come from? More importantly, how does one recognize intuition and differentiate it from potentially defeating signals coming from media noise, biases, and ego?

Personally, I do not believe that ideas just magically appear or that they arise from nothing. Roughly one year ago, I interviewed Barry Ritholtz for a writing project and I asked him about intuition in trading: He said, “I suspect the best traders learn to internalize lots of what they have learned over time, and what appears to be intuition is really the result of thousands of hours of hard work, research, practice, and experience.”

This is a good foundation for a practical meaning of intuition. It may appear as a gut feeling. However it is really just a culmination of learned knowledge that we call experience. But how and when can intuition be called upon and applied in the decision making process?

“Basketball is an intricate, high-speed game filled with split-second, spontaneous decisions. But that spontaneity is possible only when everyone first engages in hours of highly repetitive and structured practice—perfecting their shooting, dribbling, and passing and running plays over and over again—and agrees to play a carefully defined role on the court. . . . Spontaneity isn’t random.” ~ Malcolm Gladwell

Seeking is the opposite of finding; thinking gets in the way of feeling. The more you focus on seeking, the more you diminish the capacity for finding. In different words, intuition cannot be “called upon.” Searching for a specific piece of information can ironically make you miss the idea that may actually help you make the best decision.

For example, have you ever tried to recall something and it just would not come to your mind? This typically occurs when in conversation and you say the thought is “on the tip of your tongue” but you just can’t recall it at the moment. Hours or even days later, the information you were seeking seems to suddenly pop into your mind. This is because the part of your brain used for recall is not the same part that produces the answers.

Speaking of recall, some of you may recall the blog, TraderFeed, which combined trading and psychology, authored Dr. Brett Steenbarger, PhD, from 2005 to 2010. In one of his posts, The Role of Intuition in Trading Decisions, Dr. Brett teaches readers that there are two parts of the brain at work with learning:

An interesting research study found that research subjects who took a tranquillizing drug performed worse on a recall task than those that did not take the drug. The subjects who took the drug, however, scored higher in the ability to perceive novel pairs—a task that relied on ‘gut feeling’.

The researchers hypothesize that two different brain systems are at work in learning: one is an explicit system based on recall and reasoning; the other, an implicit system based upon the brain’s reward system. By dampening the explicit learning system, the tranquillizing drug provided subjects with greater access to their gut.

I am no PhD but my simple mind can translate this into the notion that trading is both science and art, either as separate but necessary entities or possibly a synthesis of both. The explicit mind is the reasoning scientist and the implicit mind is the artist on drugs (so to speak). But the artist is the intuitive thinker that is rarely heard because the scientist commands the attention with attractive solutions and demands decisions be made with quantitative data. For the investor, the scientist often speaks louder than the artist.

An Intuitive Summary of Intuition?

And now we arrive at a difficult juncture—how to end this blog post. If I provide more supportive data and a definitive solution, the scientist will ironically crowd out the artist. So after my own scientific research for this particular blog post ended, I did my best to stop thinking about finding a solution. This way perhaps my intuitive mind could fittingly end a blog post about intuition!

So I looked outside of a window near my desk and began watching the colored leaves of a white oak tree slowly fall to the ground. After following one particular leaf complete its descent from beginning to end, my eyes met a pair of squirrels engaging in their hurried late-Autumn activity and, as I began to find myself amused by their…. Aha! My mind was empty and quiet. Or as a scientist might note: the explicit learning system was dampened; access to the gut feeling was enabled; and this nugget of wisdom popped into my mind:

“Freedom from the desire for an answer is essential to the understanding of a problem.” ~ Jiddu Krishnamurti

I am guessing I recalled this piece of useful wisdom because I had stopped the hyper-intentional activity of searching, which presumably awakened the artist needed to finish this post. If there is a way to use this intuitive thinking for investing, or for any other endeavor for that matter, it will not likely come to you by calling upon it.

Instead, try doing your research and analysis first to satisfy your inner scientist. When the analytical work is done, leave it alone for a while and try doing something completely different than investment research before making a decision. Perhaps you could take a walk, read a book, listen to music, meditate or even take a nap. You may be surprised at how productive ideas can come to you because you were not looking for them.

This is the art of intuition that can follow the science of discovery….

What are your thoughts on intuition? How often do your intuitive ideas come to you and how accurate are they? Have you ever ignored a “gut feeling” and regretted it later? How do you balance or combine the science and art of investing?

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Kent Thune is blog author of The Financial Philosopher. You can follow him on Twitter @TheThinkersQuill.

Category: Philosophy, Psychology, Trading

The Clever Fighter

Over at Forbes, Jessica Hagy (of Indexed fame) has been illustrating the Art of War, with excellent results. This observation from Ch4 tickled me: “What the ancients called a clever fighter is one who not only wins, but excels in winning with ease.”   Jessica Hagy via Forbes

Category: Digital Media, Philosophy

Putting Time In Perspective

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Category: Digital Media, Philosophy

Where Does Success Come From?

You go to meetings. You process your inbox. You might make a presentation here and there. You certainly seem busy. But I bet if I asked your team what it is you do all day long, most of them would say, “I have no idea”. And come to think of it, do you know how…Read More

Category: Digital Media, Philosophy

Freedom To Choose (…to be buggered)

Cassandra Does Tokyo is a former hedge fund manager and ex NY Trader, who is now living abroad. ~~~ Freedom To Choose (…to be buggered) Her Majesty’s Post Office, The Royal Mail, has been privatized. As such, it is an opportune moment to evalute past experience, in order to ruminate upon whether, in totality, as…Read More

Category: Philosophy, Really, really bad calls, Think Tank

More Noise, Less Signal

On Friday, I described a goal of mine: To pursue more signal, and less noise: “Our subject is how to reduce the meaningless distractions in your portfolio (and your life). You want less of the annoying nonsense that interferes with your investing, and more of the meaty data that allows you to become a less…Read More

Category: Financial Press, Philosophy

Tax Rates, Inequality, and US Deficits

Its Friday, after what was for me a long and annoying 17 days. But the shutdown is over, US markets are at all time highs, and Bob Shiller got his Nobel (more on this tomorrow). You might think that I would be at peace with the current state of the world, but life is never…Read More

Category: Economy, Mathematics, Philosophy, Taxes and Policy

Being A Long Term Investor in a Short Term World

Its Friday, and today is the day I usually like to wax philosophical about a variety of things. It seems this week we have done a good deal of that already (see this and this). Given those posts, let’s briefly discuss the issues investors have with the artificial construct we call Time. What’s that you…Read More

Category: Investing, Philosophy, Psychology

Yay! Its a No-NFP Non Farm Payrolls Friday !

Okay, so here is the deal: We have no report of the NFP data today. The net impact of this? Nothing. Total loss to the investment community? Nada. Actual impact to the economy? Zilch. There are two things we need to understand about this report: The first is what makes it significant; the second is…Read More

Category: Employment, Philosophy

An Illustrated Book of Bad Arguments

Click for full book Source: Book of Bad Arguments   I deal with bad arguments all the time, constantly swatting away silly arguments and foolish rhetoric. This little book does a nice job summarizing them all.  

Category: Philosophy, Really, really bad calls