Some points later, through continuous learning and practicing the necessary steps we become a master of our own minds in making many good decisions from our personal life to business, and also our stock market investment decisions.
Learning is conceptual understanding in the process of grasping and comprehending something is an essential keeping oneself on the edge and making also sound decision; they can’t be apart from each other and neither in integral part of our lives. As decision making is perceived by having enough knowledge and careful consideration most likely the outcome would be good or at least less risky. That’s why people say to put more weight on the head than heart in a business decision because pragmatic thinking may secure a better financial advantage. It is true investing in the stock market – just because stock market investment is a business. Winning a stock market in every investment requires mental fitness with solid mental habits that will only practice rules of thumb or investment principles. It is no less than exercising and running every day for physical fitness to win a marathon. The exercise is one day for one thing at a time-- learn, practice and build mental habits
A habit is a learned response that has become automatic through repetition. One good decision based on mental habits can make you to get another higher rate of good decision as you continue to do so that will grow only the rate of compounding and leave you a financial success.
The key is here learning and how spontaneously making good judgment on a stock. Let me ask you a simple question if you are an experienced driver. Aren’t you expert on making instantaneous judgments — exactly when to slow down, speed up, turn right or left for avoiding a potential accident or running into a pothole on the road.
You can probably recall times when you have hit the brakes or swerved to avoid an accident — have you been aware of the complete driving movements? Probably not, rather you have been busy listening music and talking to friends while driving, all these pre-cautious actions and decisions made entirely at the subconscious level of your mind. Such pre-programmed automatic reactions come as the result of years of experience.
Think about it for a moment and you’ll realize that driving a car on a busy traffic road is quite a complicated activity. Think of all the things you’re monitoring at the same time:
• Is that kid going to run onto the road?
• Is that car behind me too close?
• Will that car stop at the corner although no signal light is given?
• Is there enough space between me and the car in front in case he brakes hard — unexpectedly?
Have you ever thought of multi-tasking activities you are involved in driving in unconscious mind? Even an apparently simple thing like changing lanes on the freeway is what’s called a multi-body problem in physics. You have to monitor your speed, the speed of the traffic, the speed of the cars behind you and in front of you on the lane you’re in and the lane you want to move into. And you do all these at the same time, almost instantaneously. In a state of unconscious competence, you solve the multi-body problem automatically — what to watch precisely are pre-programmed and ingrained into your brain by practice.
The Four Stages of Learning
Pro-Investors act apparently effortlessly and instantaneously in a way that they don’t even pause to think, screening a stock comes from built in mental habits like driving a car in a highway, but other inexperience investors seem find risky because of lack of knowledge and lack of competency. Investor saga “Warren Buffett” can decide to buy a multi-million dollar company in 10 minutes or less, doing all the calculations in his head. He doesn’t even go back his guidelines and spend night after night to evaluate a company. What’s more, most of the decisions he’s made so quickly have proven to be the right ones.
“That’s only possible for someone who has gone through the four stages of learning:
• Unconscious incompetence: in a state of mind he doesn’t know that he doesn’t know. Little knowledge is dangerous…..
• Conscious incompetence: in a state of mind one knows that he doesn’t know. A person knows about confused with how to read balance-sheet and all the earning reports.
• Conscious competence: in state of mind knows what he knows and knows what he doesn’t know. A person has understood precisely the limitation of his knowledge and competency.
• Unconscious competence: knows that he knows in depth and has trained subconscious mind to take actions unconsciously.”
Unconscious incompetence is the state where you don’t even know that you don’t know: the state of mind so many young drivers are in when they begin to learn to drive. That’s why young drivers have many more accidents than older, they fail (or refuse) to recognize their limited knowledge, skill and experience.
People in this state are highly likely to take risks — expose themselves to danger or loss — for the simple reason they’re totally unaware that that’s what they’re doing. It is also the reason why the worst thing that can happen to a novice investor is to make a pile of money on his very first investment. His success leads him to believe that he’s found the secret of trading or investing and that he really knows what he’s doing. So he repeats whatever he did in the past — surprisingly he has lost everything.
Conscious incompetence is the first step to mastering any subject. It’s the conscious admission to yourself that you really don’t know what to do, and the full acceptance of your own ignorance.
This may result in feelings of despair or futility or hopelessness — which stops some people from investing entirely. But it’s the only way to realize that to master the subject requires a process of intensive learning.
Conscious competence is when you’re beginning to have mastery of a subject, but your actions have yet to become automatic, not complete yet. In this stage of mastery, you have to take every action at the conscious level. In this stage, your reactions are far slower than the expert’s.
This doesn’t mean you can’t do it: far from it. You could make the same investment decision as Warren Buffett. But what took Buffett 10 minutes to decide might take you 10 days...or even 10 months: you have to think through every single aspect of the investment.
An amazing number of investors believe they can skip this stage of learning entirely. One way they attempt to do it is to duplicate theory after reading about Dow Theory, or Technical analysis book or whatever, and follow the steps outlined, or who adopt someone else’s trading strategy, sooner or later find that it doesn’t work for them. There’s no short-cut to unconscious competence. As your knowledge expands, as your skills develop, as you gain experience by applying them over and over again, they become more and more automated and move from your conscious mind into your subconscious.
Unconscious competence is the state of a Master, who just does it — and may not even know how, specifically, he does it. When he acts from unconscious competence, the Master appears to make decisions effortlessly, and acts in ways that might scare you or me to death. He knows what he is doing. Similarly, there’s bound to be something you do in your life that, to an outsider, seems full of risk but to you is risk-free. That’s because you have built up experience and achieved unconscious competence in that activity over the years. You know what you’re doing — and you know what not to do. To someone who doesn’t have your knowledge and experience, what you do will seem full of risk. Many of us will find risk in sky diving, skiing, rock-climbing, scuba diving or car racing. For others, they are merely challenging games playing in almost every week.
Risk declines with experience: There is a risk in everything regardless of what you have in your mind. If you focus on how to reduce risk by following having extensive knowledge and experiences that will only leave you on hands of good investment stake. When George Soros (another saga investor in our time) shorted the pound sterling with $10 billion dollars of leverage in 1992, was he taking a risk? To us, he was. But we tend to judge the level of risk by our own parameters; or to think that risk is somehow absolute. But Soros knew what he was doing. He was confident the level of risk was completely manageable. He’d calculated that the most he could lose was about 4%. “So there was really very little risk involved.” In Warren Buffett’s own words: “Risk comes from not knowing what you are doing.”
Narrated from a book named “the Winning Investment Habits of Warren Buffett and George Soros.”
-- Kabir Ahmed is a stock market specialist, runs www.bdstock.com