Sixth sense
Robert O'Riordan explains why intuition, as well as detailed analysis, may be important for investment
The old saying 'never judge a book by its cover' can be approached with a modicum of distrust. The expression may date back to a time when most books looked much the same, with similar brown calf bindings, and the more popular volumes were easily identified only as those that were the most threadbare.
First impressions can count, however, and are more powerful than we realise, according to Malcolm Gladwell, author of the highly stimulating title Blink: The Power of Thinking Without Thinking.
This fascinating book is all about rapid cognition - that is, the kind of thinking that happens in the mere blink of an eye. As Gladwell's website (www.gladwell.com) says: "When you meet someone for the first time, or walk into a house you are thinking of buying, or read the first few sentences of a book, your mind takes about two seconds to jump to a series of conclusions."
Those two seconds are important, argues Gladwell, because the instant conclusions we reach are very powerful and occasionally very good. He does not like to describe these moments as intuitive because he thinks that the process is actually a fast, mysterious kind of rationality. For me, however, 'intuition' describes that kind of thought process well.
There is a lot more going on below the surface of our consciousness than ever meets the eye, and certainly more than most of us care to admit or engage with, hence our self-protective blind spots and partiality for self-delusion. Or, as Robert Burns wrote in To a Louse (verse eight): "O wad some Power the giftie gie us, to see oursels as ithers see us."
The power of this less rational self could be much greater than we realise and play a more important part in choosing shares than is acknowledged in academic circles.
Fund managers sometimes like to paint a picture of themselves as stern, unemotional, rational beings, the Mr Spocks amongst mere mortals. Rigorous thought and self-discipline play a big part in investment success - but perhaps they are not everything.
In contrast, the increasing availability of complex computer power and data-sorting models can render humans redundant. All a person need do is push a button and the machine does the rest. Almost fantastically, funds exist where shares are chosen by software that is automatically modified and adapted by other bits of software.
However, back in the real world of investment, which deals with markets where prices are actually driven by emotion (greed and fear in particular), an emotional and intuitive alertness and a sensitive mind-set can be just as important for results as brain power and rationality. Investment, it can be argued, is as much an art as a science.
The successful investors are those rational beings who are also capable of tapping deep reservoirs of intuition, instinct and experience. They are the people who can take common sense risks and who have guts. Of course, it is not always that simple, but perhaps we see more at first glance than we realise: if it feels right, it may well be right.
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