Unlearning 101

Unlearn Your Stockbroker

There is already a 50% percent your stockbroker is below average. That's just the nature of statistical distribution. After one accounts for fees and expenses, it is even more difficult for your broker to consistently beat the market and thus earn you more money than you might otherwise make for yourself by investing in a low-fee diversified index fund.

Nevertheless, I recognize how difficult it may be for a person to severe a long-standing relationship with a broker. Therefore, I want to share with you an unlearning trick which may help you: Ask your broker to identify 5 stocks that will lose money over the next 6 months. (Unlike those stocks your broker encourages you to buy, this game has the benefit of not putting any of your money at risk. The risk, instead, is borne entirely by your broker.)

If your broker won't play: fire them. (If they are as confident as they usually claim to be, they shouldn't have any problem with this game.) 

If they do agree and their stock selections end up making money, you should also fire them because it will demonstrate how little they truly know about the market. 

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Unlearning 101: Lesson #18 -- Unlearn Your Preferences

Daniel Ariely's excellent 16-minute presentation at TED:

Unlearning Bubbles

The Internet, the real estate market, fuel cell technology, nanotechnology and, now, "clean tech" have all experienced an investing "bubble." In retrospect, it is easy to point to signs that the market was inflating to dangerous levels. It is even easier to suggest that such bubbles are a bad thing -- precisely because so many investors got burned and lost a great a deal of money.

Bob Metcalfe, an early and successful Internet entrepreneur, see bubbles differently. He sees bubbles as a good thing. Here's his quote: "From Internet history, we know that bubbles are normal. Bubbles are an accelerator of technology progress. Bubbles go against the status quo. We should encourage bubbles."

I suspect that such statements are much easier to make when you're already a billionaire; as opposed, say, to someone to just lost a large amount of money in the stock market. Nevertheless, there is a certain logic to his argument and we may want not to dismiss all bubbles as cases of irrational investors getting sucked up by the winds of "irrational exuberance." Instead we want to view them as "technology accelerators." (This might not ease the financial pain of those who lost money in the bubble, but it might at least make them feel a little bit better about themselves.)