Smart People Don’t Do Dumb Things In Seven Seconds

It’s said we judge the people around us within the first seven seconds of meeting them.

I think something similar happens online. I don’t know what the scientific word is for this, but one image, video, or headline from a Twitter account can push us from 0 to 100 (real quick). This is not a good thing. It threatens our most valuable ability: making the right decision.

The speed from the time a visual is seen to the creation of a unique opinion about it happens with a spark of electricity from screen to neuron. A flash of light, and an opinion is born. It is a remarkable capability. But it is also a weakness, an Achilles heel. It’s how outrage is created so quickly through social networks. It happens in those first few seconds of seeing that one “thing.” Then it spreads like a wildfire. Someone no one will meet has made a dent in the universe, and they probably did it from a basement.

The rise of fake news has overtaken media across the world. So have the networks who mistakenly give it a platform. The real problem goes deeper, though. The real problem is the collapse in the number of people thinking critically. Everything online has been reduced to seven seconds. Maybe we weren’t built to see a tweet and calmly, book case behind us, and a fire stirring, articulate a thoughtful and meaningful take. Maybe we were built to see, and act. See, and react. Seven seconds.

I’ve learned this lesson not through argument, or research, and not through political conflict. But instead, with my own money on the line. I am here to tell you about how I lost money making a decision in seven seconds. I think my story is a reminder of the long road ahead for reworking our day-to-day intake of information.

In the stock market, there’s a theme that’s governed everything since the Financial Crisis. Most readers here will know what it is: the Federal Reserve is behind the rise in stocks. They saved the economy, and in doing so they made it a mandate to support the market. Whether you believe it or not, without question it’s impacted every investor at least once since it was heard. Yet, how many investors have actually taken the time to research what this really means? Or the exact mechanics used by the Fed?

In July of 2017, I took a swing. I still believe everyone should try to make one big call in their time. That’s the point of this all. You have to try for the impossible at least once. I was invited to a radio show to talk about my thoughts live on air. My piece was about my first bearish position on the market, and why I was betting on a stock market drop. I wrote:

“I got bearish in June after the Fed did something about its balance sheet. For the first time since the Financial Crisis, they’re going to become net sellers of their massive balance sheet. Just how big is it? About $4.5 trillion. The chart below shows how that looks (blue line) vs. the S&P 500 $SPY ETF (orange line) over the last 10 years.”

I made this chart:

I was wrong.

In a matter of weeks, my short book was stopped out, and I walked away with a cold loss. Looking back, my reasoning was flawed. It was based on seven seconds. That day I heard the Fed was reducing its balance sheet, and subsequently I followed all the hot takes people were saying on the Internet. The Fed’s balance sheet will start shrinking! That balance sheet propped up the market! On the Internet, no one knows you’re a dog.

My decision that day came down to one thing. The hard work to do my own research, and to look deeper into whatever it was that came across my screen that day. Information is fed to us in feeds. It comes at us from a tunnel that we can’t see. But everything on Internet is being shown to you because that’s who you are. Whether it’s a machine learning from your interests over time or a group of people trying to serve things that align with your interests. 

With a little research, I could have saved myself from a terrible trade. But that piece of information, that one “thing” grasped me that day. It was my Big Short moment. One Google search alone would have saved the entire trade. Yes, the Fed has a blog and they wrote about their balance sheet shrinking.

Everyone is always searching for that one secret to succeed. Wake up earlier! Work more hours! Manage your calendar! When you sift through this advice something stands out. They’re calling on people to do more, to be more, and to add more. Maybe the opposite is true. Step back, and slow down.

Warren Buffett’s protege, Todd Combs, beautifully says he spends most of his day reading books and company financial statements. He’s in total control of his information flow thinking through things in a long-term format. No single tweet or meme would ever persuade him. He’s not looking to add more complexity to his day. It is a slow, and methodical day filled with deep dives, and great books.

“I read about 12 hours a day. Our offices are like a library. So I read annual reports, conference call transcripts, etc. Most things are routine, mundane and obvious, but every once in a while you find something interesting worth digging into.”

The mind is extremely good at what it does.

When we form an opinion in seconds, it’s almost as if it knows it’s so good that now it’s just showing off.

This isn’t about consuming less, or that there’s too much noise, it’s instead the need to reclaim the ability to think critically, more importantly, to think slowly. Never act in the first seven seconds.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, here’s what I learned about the stock market in 2018.


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