Report from RB:, found this on SI. tonight thought you may like it...
The Creation of Misunderstanding
One of the primary principles that motivates us all is the organizing and ordering of
experience--in other words, making meaning out of our perceptions. Most of us who
enjoy investing in development stage companies have done considerable due diligence
before committing monies. It is our understanding of the company's products, services
and management that leads to a sense of confidence in the face of risk. It is this
"understanding" which strengthens our sense of self and allows us to remain invested
long term in an early stage company. At the same time there is always a fear that we
might be misconstruing or misinterpreting a situation. This is why it is so important for
management of development stage companies to continually make themselves available
to investors. For as long as we feel knowledgeable and confident, it is possible to
tolerate a wide variety of emotions as early stage companies attempt to achieve success
against major odds. Without this confidence and understanding, we can't tolerate
glitches in the company's progress, and we tend to sell out at just the wrong time.
One of the first ploys of those attempting to manipulate our emotions is to create
misunderstanding. For example, reports are published employing emotionally tinged
language with highly pejorative connotations--e.g. "It's been reported that highly
questionable relationships exist with the apparently unknown investment bankers..."
Reported by whom? What questionable relationships? Who says they are questionable?
Investment bankers apparently unknown by whom? Why does it matter if they are
unknown? These are all reasonable queries in the face of such a statement. But the herd
rarely challenges such distortions. Instead we buy into the demeaning and inflammatory
connotations that are designed to create confusion and misunderstanding in a contextual
absence of any accurate facts to support a particular author's pejorative biases.
When we feel we've misjudged a stock pick, a number of interesting psychological
phenomena take place. The containment of strong emotion becomes impossible (thus
the normal self doubt characterizing such investments is no longer tolerated);
psychological defenses such as paranoia are mobilized, and the confidence in our
decisions begins to break down. In a word, the successful creation of misunderstanding
leads to significant self-doubt, which is increasingly difficult to tolerate, and eventuates in
exiting an important position at exactly the wrong time.
Adhominem Arguments
An Adhominem argument is defined as one that is directed at destroying the validity of a
proposition, product, technology or service by attacking a person's character rather than
addressing the rational flaws in the company's product or technology. For example, a
CEO might be attacked because one of his or her shareholders had been involved in an
unrelated shady deal ten years ago; thus, by implication, the reader takes away the idea
that the CEO might be dishonest also. Or the Chief Financial Officer may have worked
for a company that went into bankruptcy in the past, thus implying that the CFO had a
direct responsibility for the bankruptcy and will repeat his or her mistakes in the present
situation.
Many of us remain with a small company through difficult times because we admire and
respect its management. One of the requirements for maintaining our investment
confidence is our connection with available others who can be admired, looked up to
and felt to be a source of strength and empowerment. (This is one reason, why we
become so frustrated and angry when management lets us down, and it is this rage,
which fuels many frivolous shareholder lawsuits). By calculating ways to destroy the
credibility of such admired others, the enemies of a company attempt to weaken
investors' connections to their admired management. Psychologically, this disruption
tends to temporarily short-circuit our self-assurance, leading to a drop in self-esteem
and vitality--and thus our investment staying power. For it is our imagined (or real)
connection with a competent management that safeguards against mistrust and
second-guessing ourselves.
Contagious Emotions
It is a fact of life that emotions can be contagious. Whenever our sense of self weakens,
a psychological regression takes place in which cognitive functioning no longer remains
at a logical rational, level. In other words, rather than maintaining our usual cognitive
sophistication when making reasoned judgements, we begin to associate words and
concepts with their emotional connotations. For example, the word red no longer
denotes a color along a spectrum; it connotes danger. When the media wittingly or
unwittingly relies on short sellers for their headlines "du jour" (those sound-bytes that sell
newspapers or attract viewers) the media choose emotionally laden topics designed to
appeal to investor emotion, usually suspicion and paranoia. For example, if a struggling
company resorts to a Reg.-S stock offering, company detractors can point to the
numerous underhanded stock deals that have occurred in what is actuality a legal and
legitimate mode of financing. Such comments rarely include an analysis of the specific
deal under discussion to determine its merits, or the fact that the financing may have
been, for example, obtained at market rates rather than at the usual discount. The
seeming intent of such inflammatory language is to evoke in investors an internal
response, which has some affinity to the author's pejorative analogy by relying on the
fact that emotions are contagious. Such subtly biased (positive or negative) writing has
been referred to in the literature as "journalism of illusion," and more recently by Robert
Samuelson as "junk journalism."
The World as Attacker
Whenever we feel threatened by anxiety, misunderstanding, or blatant attacks on our
judgements, capacities or character, we become emotionally vulnerable. At his point our
sensitivities become heightened. Sights, sounds, smells, off hand comments, or rumors
that are typically ignored become very disturbing to us. Such vulnerability includes a
readiness to experience the world as an attacker because the stimuli to which we have
become so sensitive become organized in a paranoid way in order to be mastered. This
is the reason why those who use emotionally manipulative devices can so easily disrupt
financing arrangements. The investment bankers who are potentially open to funding
development stage companies become just as caught up in the generated paranoia as
the average investor. Furthermore, these investment bankers succumb to herd mentality,
saying to themselves, if Merrill Lynch or Smith Barney hasn't jumped to secure the
company's business, why should we?
The Negative Use of the Obvious
Many concepts in the investment world are taken for granted, but these notions are
easily manipulated to appear anomalous. For example, a common ploy when discussing
development stage companies is to point out that the company has never reported any
meaningful sales or earnings. One could argue that such comments either reflects very
little experience investing in development stage companies, or that someone is
attempting to turn the obvious into frightening revelations. It contributes to the naïve
impression that one should not invest in companies, which have shown no profits. As a
specialist in development stage companies, it seems fair to say I have never seen a
development stage company that has produced revenues and earnings. But the negative
use of the obvious creates a psychological feeling of estrangement in us--e.g. how could
I be so stupid as to invest in a company with no earnings or revenues"? The distortion of
common sense facts fosters a sense of enfeeblement in one's sense of self, as we feel
exposed to such an "obvious" mistake.
The Illusion of Objectivity
Those attempting to manipulate investor emotion set themselves up to become the
admired, omnipotent, and reliable purveyor of objective information to others. Playing
on the notion that companies sometimes exaggerate the benefits of their products or
services, these individuals display an unshakable self-confidence in their statements and
express their "knowledge" with absolute certainty. Usually they'll back it up by
erroneous or out of context statements from ostensibly reputable studies which are not
made available to investors. These characteristics are especially designed to sway those
of us whose self-esteem has been temporarily damaged during periods of market
upheaval. For it is during such periods that we are seeking hard facts and certainty.
Much like cult leaders, the "experts" surface at this point to "objectively" point out the
moral flaws in other's personalities and behavior.
It is only by recognizing these subtle, manipulative devices that we can avoid acting
irrationally -especially in the face of volatile market retreats. |
