Is critical thinking the rarest character trait?

Posted by Gavin Chau

A good mate of mine who holds a very senior position in a large real estate company has mentioned several times that critical thinking is almost non-existent in people. He’s an interesting character, a super extroverted wild man in his teens and 20s, always outlasting everyone on multi-day benders. In middle age, he moved across the continuum towards introversion and grew into a good leader and thinker. More importantly, he has never cared about what people thought of him. More on this later.

As far as I can tell, it isn’t just that people are stupid; critical thinking doesn’t seem to have any real relationship with IQ. However, a high IQ and mental stability certainly help with the speed and flexibility needed to work through scenarios.

The conversation led to another friend asking how you would teach critical thinking skills. I had no idea last week and still don’t know now. However, either courage or strength would surely have to be step one—there is usually a social price to pay when you break down a problem, and the logical solution differs from the status quo. Yet, countercyclical thinking and going against the herd are exactly what are needed to make market-beating gains. By definition, this is not what most people do…. It’s easy and safe to do what everyone else does, and you’re usually rewarded socially for it (even while your finances are being punished).

Going along with the herd is likely an evolutionary trait that helped weaker members of society survive— signaling that they are part of the tribe and proving consensus in thinking is a decent safety mechanism. Most people are simply wired that way. A surprisingly small proportion of the population filters new information with “Is this true?” rather than “What will people think of me if I think this is true?”.

In investing (and everything else), we don’t lack information compared to 20 years ago. The problem has now become determining what is true from the giant pile of information in front of us and the ability to go through it, filtering the truth from the garbage.

The best way to think about property and all other cyclical assets would probably be to look at the primary data and create a thesis around the cyclical tops and bottoms. Then backtest your assumptions extensively. In my personal portfolio, I’ve been all in since 2022, and while there is an onslaught of bad news in the media, it’s simply the same headlines that we see repeated every time we reach this stage of the cycle. As far as I’m concerned, it’s clear that we’re in a mid-cycle consolidation, and while most people are sitting on their hands, a quick look at the investor lending volumes shows that the smart money is already accumulating despite what the media says.

Posted by Gavin Chau, on 3rd Sep 2024