Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life

by William Green

Shubin Stein warns that “you can’t immunize yourself effectively” against cognitive biases, no matter how smart or self-aware you are. The recognition that we are all subject to them is a start, but that knowledge doesn’t protect us against their unconscious influence on our thinking. Still, he offers several practical suggestions that can significantly enhance our ability to make rational decisions, despite the problematic tendencies ingrained in the human brain over millennia. For a start, Shubin Stein recommends taking the time to rewrite the list of common cognitive errors that Munger describes in his talk on the psychology of misjudgment. Instead of quoting Munger, it’s best to describe these pitfalls in your own words, so you can internalize his insights and make them your own. It’s also helpful to personalize Munger’s checklist by including investment mistakes you’ve made in the past and emphasizing the tendencies to which you’re especially vulnerable. “You need to learn how your own brain works, where you’re strong, and where your challenges lie,” explains Shubin Stein. For example, he’s highly susceptible to “authority bias,” which has sometimes led him to place too much faith in stocks owned by investment luminaries whom he admires. To help counter this bias, he added two questions to his cognitive checklist: “Have I done the work? And have I independently verified everything?”