How one-eyed man spotted the gathering storm?

Michael Lewis's book, The Big Short: Inside the Doomsday Machine and get Liar's Poker, the Michael Burry, The unlikely investing genius made hundreds of millions from the big finance fall caused by subprime loans.Not everyone has the talent to spot the big short, however, the message is universal: it takes rationality, not emtion to spot the historical opportunity.

We humans are too emotional. When we look at something, we already have a bias. We tend to think the way we want the things to go, most smart people have a contingency plan, and prepare for a worst-case scenario, but how convinced they are that it will actually going to happen? The irrationality makes us hope instead of fear, and fear instead of hope.

When we decide, headcount and number crouch should always be put front and center, but as a recent neurologist revealed during a fascinating presentation, most of us prefer to choose the easiest option that requires least thinking. When the things get too complicated or it simply takes more time to comprehend, we simply stop thinking and let the things decide for us.

One real life example he cited is picking an option on donor card. When one is required to decide whether agrees to donor organ or not, most people seemed to be confused and did nothing. However, when the format changes to doing nothing if one agrees to donor, but cross the option only if choose not to do so, most people did nothing and thus increase donor pool significantly.

The example illustrates that we are prone to make an irrational decision, and only when the process is coupled with logical reasoning and quantitative counting, can our decision making become more balanced.

However, the rational reasoning is not without its own potholes, numbers can be cheery picked to fit a particular agenda and charts can be created to illustrate a quite opposite picture. The solution is a thorough duel diligence.

Before putting faith to any theories, one has to question the credibility and long term performance. Also, how much time we are willing to spend on the research also makes or breaks a sound reasoning.

Next time, when coming to make a decision, whatever small it is, blending with some number crouching and critical thinking will help us to clear the mind and see the path further down the road.

1. Ask for numbers, where is the data, benchmark, measurement? How long does the data trace back? How credible is the data?
2. Get to the bottom of the issue. How does it work? (When the issue gets complicated, few are willing to spend alone time to dig out dirt). Who are the key players?
3. What’s in there for ME? Can I leverage my edge?
4. Realize it is ultimately cold and lonely all the way on the top. Can I endure? Are there any support systems? How long can I stay there? How convinced for a long term endurance of loneness and even be ridiculed?
5. Depersonalize the issues. It is not about the relationship, but about the results. How better to achieve it without too much emotion involved.
6. Spot a manipulation early on. And look at things with a critical eye and open mind. Determine to get to the bottoms of an issue.

You need the logic to convince and the emotion to persuade. When the jury is in and the vote is counted, only result will be the final.