How do we avoid “groupthink?”
Photo: Paul Mariz. Source: Wikipedia
People like to agree with one another. We’re strongly influenced by the group that we’re part of. Back in the 1950s, a researcher had some college students match the length of a line on one card to one of three alternatives on another card. When people worked alone, over 99% of them chose the matching line. But when they were put in a group that pressured them make the wrong choice, over a third of the time they would “go along to get along.” They didn’t want to appear stupid by disagreeing.
Test cards. Source: Wikipedia
For investors, this tendency is dangerous. It’s important to think independently. After all, if everyone thinks alike, someone isn’t thinking.
One way to remain independent in your thinking is to commit your decisions to writing. Researchers found that subjects who wrote their conclusions down before they discussed them were far more likely to stick with their decisions rather than be swayed by others. A journal is also a good way to review what you did and why. Our memories can play tricks on us.
Another way to remain independent is to be positive and polite. Disagreeing doesn’t mean you have to be disagreeable. If you have good relationships, you’re far more likely to be able to ask tough questions and challenge the consensus without being offensive. A strong team can differ and still remain cohesive.
People work together because they accomplish more when they cooperate. And everyone has eyes and ears. When we know we are respected, we’re far more likely to use disagreement as a tool for getting to the truth.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!