reasons for a bounce, page-16

A word of advice lautrec,

One of the biggest causes of incorrect decision making in any sphere of life is the fact that humans fall into three different personality profiles when it comes to decision making:

1. Focus only on the positives,
2. Focus only on the negatives,
3. Look at both the positives AND the negatives,

People in categories 1 or 2 tend to make sub optimal decisions, which in certain circumstances works very well for a period of time, but is still sub optimal, and can, and often does lead, ultimately, to disaster.

One needs only look at recent events for examples. The GFC was caused exclusively by decision making falling into category 1. The positives. Believe it or not, the Risk valuation models, put together by the brightest and most highly paid mathematical geniuses in the world, DID NOT have any ability to factor in a severe deterioration in ASSET VALUES..look it up- it makes for interesting reading.

I myself have turned around a few companies which were in trouble because the directors were too busy being positive, and only looking at building on the positives, and wondering why their business was in severe trouble. The solution, in ALL cases was to prepare a business turnaround strategy based on a simple SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Basic Business 101. My greatest difficulty in doing this was to identify weaknesses in the business, because I, to some extent, rely on directors to assist in identifying the weaknesses. The fact that I am there as a consultant in the first place indicates that they recognise that the business has some negatives and are taking action to actually improve the business, however they still have trouble changing their mindset to determine and identify what those weaknesses in the business actually are. The biggest breakthrough I always have in improving the business is when we agree what the negatives are. The next step of actually determining how to eliminate or lessen the effect of the negatives is relatively easy.

This approach must also be applied to investing in order to make suitable investment decisions. Failure to do so leads to investing in things like Bernard Madoff's now infamous scheme.