Book Review: Malcolm Gladwell's 'Blink'

Is investing more art or science? Cash flow analysis and industry assessment submit to quantitative measures. Yet, economic moats and management’s rationality less so. The most successful investors use both quantitative and qualitative assessments to find undervalued businesses, though the former is certainly the standard route. For most, investing is primarily a science.

Ostensibly, Malcolm Gladwell’s book, Blink: The Power of Thinking without Thinking (Back Bay Books, 2005), is not a book about investing. Being interested in the human mind making judgments, Gladwell highlights situations in which rational, well-considered judgments are more inaccurate than reactive, non-reflective judgments. Peppered with memorable, illustrative anecdotes, Blink contrasts scientific rationality with the aesthetic, to see which more reliably guides us to make correct decisions (spoiler: it’s not an either/or).

It is our basic prejudice to think that lengthy, thoughtful, verbose defenses of our judgments are more likely to produce correct judgments than unexpressed, implicit ones. For example, Gladwell tells the story of the J. Paul Getty Museum’s $10 million acquisition of a sixth century BC marble kouros in the 1980s. Employing typical caution and prudence, the Museum solicited a handful of experts—geologist included—to assess the piece. “I’ve always considered scientific opinion more objective than aesthetic judgments,” said Getty’s curator of antiquities Marion True. And the experts gave the green light; two days with a stereomicroscope confirmed the presence of calcite on the statue’s exterior—significant because dolomite can turn into calcite only over the course of hundreds of years.

Of course you may suspect how the story ends—the kouros was a fake. The museum, though, was not without warning, for no fewer than three additional experts had expressed their concern. Federico Zeri, an Italian art historian, found the sculpture’s fingernails odd. The first time Evelyn Harrison, a Greek sculpture expert, saw the kouros, she thought something was amiss. Thomas Hoving, former director of the Metropolitan Museum of Art in New York, met the statue and found it “fresh.” Not exactly the first impression that a sixth century BC statue should expect.

Long story short, time revealed the fraud. But Gladwell’s interesting observation is that the latter three experts all felt an “intuitive repulsion” when they first saw the kouros, and they were absolutely right. Inexpressible at the time, yes. But correct. What Gladwell ultimately aims to explore is whether our initial, “gut” reactions are reliable tools for making correct judgments.

As Gladwell observes, “when it comes to the task of understanding ourselves and our world, I think we pay too much attention to grand themes and too little to the particulars of fleeting moments.” (16) In those fleeting moments, a practiced and prepared expert can expose truth with unreflective judgments. In sum, people who are “very good at what they do and all of whom owe their success, at least in part, to the steps they have taken to shape and manage and educate their unconscious reactions.” (16)

Reading the book with an eye on investing produced two conclusions. First, quick judgments—even unexpressed—may incorporate sophisticated unconscious mental skills, such that an initial response to a prospective investment deserves one’s special attention. Second, and I quote, “being able to act intelligently and instinctively in the moment is possible only after a long and rigorous course of education and experience.” (259) I guess I’d better get back to the 10-Ks…

Comments

[daniel3582:]

Interesting summation of his book. But dollars to donuts, the quickest way to part the average retail investor from his money is for him to follow his gut reaction.

If you are going to relate this to trading, it would be useful to marry Gladwell's idea from "Blink" to the idea in "Talent is Overrated" by Geoff Colvin. Colvin's assertion is that world-class performers are made from thousands and thousands of hours of intentional, difficult practice.

For instance, he tells the story of a test that was done on the eyes of three classes of tennis players: beginners, excellent amateurs, and professionals. They showed the video of an "opponent" serving. They measured where the tennis players' eyes went to at the end of the serve. The beginners could not track the ball. The amateurs followed the ball to where it hit the ground. The professionals? During the serve, their eyes went to the general area where the ball was going to hit... BEFORE it even was hit by the racket. They had played so much tennis, and had been in so many similar situations, that the body movements, racket position, and height of the other tennis player was internalized and a computation was made.

What's my point?

What made those geologists know that something was off? Was it a gut reaction based on luck? No. They were experts in their field. More expert than the forgers. Their internal reaction and immediate suspicion makes complete sense!

How does this relate to trading?

Unless you have put thousands of hours in to studying chart patterns, reading balance sheets, interpreting indicators, and mastering your emotions during a trading day... well, the chances are that you have NOT internalized and mastered trading. The only place your gut will lead you is the poor house.

Novices beware...

May 16 10:49 PM