The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits)

by James Montier

Groupthink tends to have eight symptoms: 1. An illusion of invulnerability. This creates excessive optimism that encourages taking extreme risks. This is very similar to the over-optimism and overconfidence we discussed in Chapters 4 and 5. 2. Collective rationalization. Members of the group discount warnings and do not reconsider their assumptions. They become blind in the same ways we saw in our discussion of conservatism in Chapter 10. 3. Belief in inherent morality. Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions. 4. Stereotyped views of out-groups. Negative views of “enemy” make effective responses to conflict seem unnecessary. Remember how those who wouldn ’t go along with the dot-com bubble were dismissed as simply not getting it. 5. Direct pressure on dissenters. Members are under pressure not to express arguments against any of the group’s views. 6. Self-censorship. Doubts and deviations from the perceived group consensus are not expressed. 7. Illusion of unanimity. The majority view and judgments are assumed to be unanimous. 8. “Mind guards” are appointed. Members protect the group and the leader from information that is problematic or contradictory to the group ’s cohesiveness, view, and/or decisions. This is confirmatory bias writ large.