March 27, 2017

Humans are Pattern-Seeking Animals!

Amit Trivedi
Owner, Karmayog Knowledge Academy

Humans are Pattern-Seeking Animals! 

A man is a pattern-seeking animal. We see patterns where none may exist. We have seen Ganesh idol in the clouds and we have seen India map on highways between trees.

Those are fine, so long as our lives are not affected. However, when one starts putting serious money while looking at patterns, one may be in for a very big surprise.

Take, for example, the recent successful IPO and a blockbuster listing of Avenue Supermart – the D-Mart company.

The success of this IPO brought out some pretty interesting observations from people:

  1. What is common between R K Damani, Rakesh Jhunjhunwala, and Nimesh Shah? There wives’ names are “Rekha”. So now you know what to do to become wealthy. (By the way, I am not sure whether the names of the wives’ of these three is really Rekha. I just got a forward from someone and added this example to highlight the pattern seeking behavior).
  2. The most successful people wear the same clothes to the office daily – e.g., Steve Jobs, Mark Zuckerberg, R K Damani. So you know what is required to be successful.

Now, in both the cases, someone has picked up a trait common to some of the successful people (some and not all) and jumped to an easy conclusion. However, no logic can explain the causality between the two. Can you get rich just because your wife’s name is “Rekha”? If that is true, then tomorrow everyone should queue up in front of the courts to change their wives’ names to Rekha. Or that we should change the whole wardrobe and discard all the clothes other than keeping just one pair (or at least a few exactly same pairs). In the latter case, we may not become successful, but we would ensure the textile mills become unsuccessful.

Seeking patterns is a mental shortcut. A man is a lazy animal by nature and we look for ways to reduce our work, especially the “thinking” kind of work. This leads to short cuts, like looking for patterns.

It was exactly this kind of thinking that led droves of investors to buy any company with “Technology, or “Software”, or “Infosys” in the name during the tech boom. It was exactly this kind of thinking that people bought into emerging markets between 2003-08.

History repeats – it is just that the players change, but many things don’t – human behavior being one such thing.

Be careful while selecting your investments. You got to select each investment on its merits and each investment could be very different from another that “sounds” similar. Even when you see patterns, please look for logic, please look for causality.

2 Thoughts to “Humans are Pattern-Seeking Animals!”

  1. Priyesh Sampat says:

    Very well articulated Shri.Trivedi. Currently whilst meeting a lot of investors / finance professionals I discovered a pattern of Buying into a script or a scheme which carries a tag of Micro / Mid / Small as the flavour, for that case even the Balanced tag if the investor is conservative,seems to be favourite of many nowadays.

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