Characteristics of Experts

I was going through my notebooks and ran across this article “Are You an Expert?” by Michael Mauboussin and thought you might find this interesting.

Characteristics of Experts

(1) Experts excel in their domains, but not outside their domain.

(2) Experts perceive patterns in their domains.

(3) Experts solve problems much faster than novices.

(4) Experts have superior short and long-term memory.

(5) Experts represent problems at a deeper level than novices.

(6) Experts spend a lot of time solving problems qualitatively.

(7) Experts have a strong sense of their own fallibility.

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Tinbergen’s Four Questions

(1) Why do stocks respond to environmental stimuli in a particular way?

(2) Why do stocks respond to internal movements in their company and financials in a particular way?

(3) Why do some stocks respond in one way and others in another way, to the same situation?

(4) Why do some stocks of a particular industry of style, or value category, characteristically behave in a particular way in a particular situation?

Guidelines of a Biotech Investment

(1) More drugs in trial mean a likelihood of profits.

(2) Shorter time lines to FDA approval mean lower risk of failure.

(3) More alliances reduce investor risk by validating the technology in development.

(4) Big dollar alliances generate cash and create the potential for royalty revenues.

Some Psychological Investment Traps

(1) Overconfidence-Researchers have found that people consistently overrate their abilities, knowledge and skill.

(2) Anchoring and Adjusting

(3) Improper Framing

(4) Irrational Escalation of a Commitment

(5) Confirmation Trap-Investors tend to seek out information that supports their existing point of view while avoiding information that contradicts their opinion.

Mental Models-Complex Adaptive Systems

Complex Adaptive Systems have a feature that is difficult to grasp: the magnitude of an outcome is not necessarily proportionate to the size of the peturbation.  Sometimes small perturbations lead to large changes, and vice versa. We have to let go of our conventional notions of proportionality when we study markets

Investing in Blockbuster Medicine

When I think about Blockbusters, I think about three attributes: One, is the patient pool large? Two, is the underlying disease that it treats serious? and Three, is the medication safe and effective?

Interesting Pitfalls (Psychological Traps) of Investors

(1) Overconfidence

(2) Anchoring and Adjusting

(3) Improper Framing

(4) Irrational Escalation of a Commitment

(5) Confirmation Trap