Historical article note: This article was originally published on 2019-06-27. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.

"As long as you are always jealous, resentful, fickle, dispirited, disdainful of objectivity, and unwilling to learn from others' experiences, you are guaranteed to easily have a miserable life." — Charlie Munger.

There are many success study materials on the market, covering research ranging from ancient Chinese figures to Western capitalists. It seems that the path to success has been thoroughly studied, and everyone ought to know it. Some even offer tutoring classes to teach students how to achieve it, and knowledge-based paid programs target people of all ages eager for quick results. After so many years of effort, in today’s age where information is readily available, the proportion of successful individuals in the population does not seem to have changed, and most people have not benefited from success studies. Success is certainly related to effort, but whether one succeeds is determined by the direction of effort and luck. One could even say that luck is a necessary condition for success. Regarding luck, what we can do is minimize misjudgments. Charlie Munger, Warren Buffett's partner, is a hero of the era who made money through integrity and wisdom. Munger’s distinct approach is reverse thinking: if you want to succeed, you must avoid failure; if you want happiness, you must avoid living a miserable life. Munger's catchphrase is: if I know where I will die, I will never go there. I firmly believe one thing: formal education cannot make you happier than others; yet the experiences of wise contemporaries are invaluable survival wisdom.

I have read the complete set of Scott Peck's "The Road Less Traveled," and I have also read some outstanding works on psychology by Wu Zhihong and Krishnamurti, but none of these provide a summary or research on human misjudgment in psychology. The great scientist Newton fell victim to the South Sea Bubble; the economic genius Irving Fisher went bankrupt in the 1929 stock market crash, and there are countless other examples showing that knowledge of economics alone does not guarantee success in investment—in fact, excessive confidence can cause you to lose your shirt, not to mention happiness. Liang Ning mentioned in his recent speech at the Product Manager Conference, "A Product Manager's Odyssey," that judgment is a lower-level skill in the information age because while there is plenty of information, how to judge it is up to you. The same piece of information, if misjudged, can lead you off a cliff with no return. In "Poor Charlie's Almanack," which records Charlie Munger's thoughts, there is an article personally written by Munger titled "The Psychology of Human Misjudgment." We are grateful that Charlie Munger spent a lifetime compiling these 25 tendencies of human misjudgment, an extremely valuable summary and distillation that cannot be found in any formal psychology textbook. For any friend who wants to fail in investing and easily live a miserable life, please continue to indulge in the following psychological tendencies, or plug your ears and say, 'I don't have these tendencies.'

01 How the psychological tendencies of others harm us

"The super responsiveness to rewards and punishments." I recently gave a lecture attended by many real estate agents. An audience member asked me whether it was better to buy a pre-sale condo or a second-hand apartment at this moment. I didn’t want to make such predictive comments, so I casually said: 'Don't be misled by the salespeople’s reward mechanisms; the commission for pre-sale condos and second-hand apartments is different.' Immediately, one audience member objected: 'Mr. Wang, I reserve my opinion on what you just said.' So I had to explain this particularly destructive 'super responsiveness to rewards and punishments,' which ended up making the lecture run 30 minutes over time. Munger gave an example in his article: A surgeon was very skilled at performing gallbladder removal surgeries and became somewhat famous because of it. Laboratory tests on the removed gallbladders showed that many were actually healthy, for which he was prosecuted. This doctor gained fame and fortune by removing healthy gallbladders, while the victims suffered a lifetime of pain. In fact, the doctor sincerely believed that gallbladders were the root of many diseases. Long-term, continuous incentive stimuli can form a response tendency that changes one's perception of the world. 'Individual' refers to everyone; this response tendency is a psychological phenomenon of all mankind, not just a specific group. Denying that you don’t have this tendency is meaningless. Is real estate in Cyprus worth investing in? I don't know. But I know that Cyprus once adopted the Swiss model, hoping to become a world-class financial center and actively attract overseas deposits, especially from Russian billionaires. As a result, in 2013, Cyprus froze all deposits from foreign savers, with savers holding more than €100,000 losing as much as 60%. Would such a country attract many residents? If an agent sells a piece of real estate in Cyprus, the commission is XX%. In their eyes, real estate in this country is truly worth investing in, and the reason is not that salespeople earn high commissions, but that, after long-term incentive stimuli, salespeople discovered other reasons worth investing. In Taleb’s book *Antifragile*, there is a term 'iatrogenic harm,' which means you might live longer if you don’t see a doctor. This is also why people are surprised to find that hospital strikes can lead to reduced mortality. Without higher education and strict regulation, one’s 'super responsiveness to rewards and punishments' does not disappear or weaken. It can be said that 'iatrogenic harm' is caused by doctors being subjected to long-term 'super responsiveness to reward mechanisms.' The inherent super responsiveness to rewards or punishments in others can easily harm us, whether intentional or unintentional. What we can do is consult more peers of the same type of service providers.

"Error of Measuring by Availability Bias." There is a lyric that goes: 'If the girl I love isn’t around, I will love the girl who is around.' The human brain is limited and imperfect; it is easily satisfied with what is readily available and tends to overestimate the importance of what is easily obtainable, thus showing the availability-error bias. Couples or spouses separated due to immigration often destroy their relationships because of this tendency. If your spouse wants to return to their home country to develop their career, you must go back together. Unless you have had enough time with each other, otherwise, you may hurt yourself due to your partner's availability bias.

"The tendency to be influenced by authority mistakes." A doctor once left a medical order for a nurse, instructing how to treat a patient's ear pain: Two drops, twice a day, r.ear. Two drops a day, right ear. The nurse misread 'r.ear' as 'rear' (buttocks) and had the patient turn over to apply the ear drops into their rectum. We live in a hierarchical society; the power of authority is omnipresent. When authority is wrong, or when we misunderstand authority, things can go terribly wrong: following Hitler to massacre Jews; beating your own teachers during the Cultural Revolution—these are all results of wrongly following authority. Some people deliberately put shiny halos on their necks, dressing themselves up as authorities to gain others’ trust and induce blind obedience. This phenomenon can be seen everywhere at any time. Many people who speculate in the stock market believe economists’ opinions, and the results are often disastrous. In August 2007, George Soros invited top economists and investors from Wall Street to a lunch in Southampton, at the easternmost tip of Long Island, New York. The topic of discussion was whether we were about to experience a recession. Among the 21 attendees, 19 expressed optimistic views. Only two disagreed, one of whom was Soros. After the meeting, Soros became even more certain that a financial crisis was inevitable—economists and experts are reverse indicators; have you ever seen them make money? A year later, Lehman Brothers collapsed, and the world experienced the largest stock market crash since World War II, and Soros had avoided disaster. Furthermore, we need to be extremely careful about who we entrust with authority, because once an authority figure takes office, the tendency to follow authority mistakes reinforces them, making it difficult to remove the wrong choice. Let us watch the future development of British Columbia, Canada.

Pay attention to the tendency to value reasons. Charlie Munger's original words: “People, especially those living in developed cultures, are naturally fond of accurate cognition and the pleasure obtained in the process of acquiring accurate cognition. Unfortunately, the tendency to value reasons is so great that even a reason that is meaningless or inaccurate can make a command or request more likely to be followed.” This is the origin of marketing gimmicks. To persuade you to buy something immediately, the best gimmick is to show you a photo of others lining up to rush to buy it. According to Canada's CBC, a homeowner in Toronto believed a real estate agent's reason for selling a house that “people over 65 cannot own property,” and ended up selling the house and now rents instead.

02 How your own psychological tendencies make you suffer

“The tendency for a super reaction when deprived.” No matter how docile a dog is, if you take food from its mouth while it is eating, it will automatically bite you. It can't help it. A dog biting its owner is completely irrational, but when its food is taken away, the natural reaction is like this—this is the dog's super reaction tendency when deprived. In this respect, humans are no different from dogs, and everyone has this tendency: the pain from loss is greater than the pleasure from gain; extremely irrational behavior occurs in moments of imminent loss. When we are facing something we strongly desire but it slips away just before we can get it, people react as if they had owned it for a long time and then suddenly lost it. Items that can only be obtained through auctions often sell for prices far above the buyer's expected price, and during the auction, this cursed super reaction tendency when deprived is constantly at work, gradually pushing up the price step by step. Buffett's advice to us is: don’t participate in these auctions. When buyers bid, the house prices rise rapidly, and this is the reason. If the annual increase in house prices exceeds 8% for two consecutive years, it will attract real estate speculators, further worsening the housing market.

"Reciprocity tendency" refers to the inclination to repay kindness with kindness. When we try free samples at the supermarket or receive some unpaid help, the tendency to return favor subconsciously arises. Think about how many times we have suffered losses just because we accepted small favors. 'Eating someone's food leaves a short tongue; taking someone's help makes your hand soft.' Feeling too embarrassed to refuse leads us to make reciprocal concessions subconsciously. I don’t know how many times I’ve heard, 'Because so-and-so helped me a lot, I entrusted them with this matter, but I didn’t expect such consequences.' I just want to say, it is your own reciprocity tendency that led you to meet the wrong people—you can’t blame the other person. Remember, there is no free lunch in this world. If you do get one, the actual cost is more than paying for it yourself. The people around me who live the easiest lives are those who don’t take advantage of others.

"The tendency to overestimate oneself" We often describe some people who are all talk and no action as 'overestimating themselves.' In fact, everyone has a tendency to overestimate themselves; it's just that they are not easily aware of it. Psychologists conducted an experiment where they asked a class of students whether their driving skills were above the class average. The result was that 80% of the students believed their driving skills were above average. Additionally, once people own something, they tend to value it higher than before they owned it. Psychology has a specific term for this phenomenon, called the 'endowment effect.' For example, everyone I have met believes their own house is better than their neighbor's. If a bank were to appraise it, their house would always be valued higher than the neighbor's house that was just sold. That's right, I'm saying every single person I've met thinks this way, without exception. I once wrote an article on the 'endowment effect' titled 'Why Housing Prices Rise Fast but Fall Slowly,' which explains it in more detail.

"Envy and jealousy tendency," Buffett said, "is not greed driving the world, but jealousy." "Once, at a friend's gathering, two children struggled to grab a toy car, and the floor was covered with other toys. So we started discussing the difference between greed and jealousy. If someone you know has it and you don't, and you envy it deeply, jealousy arises. If someone you don't know has it and you don't, and you envy it greatly, that's just envy. If others have it, you have it too, and you endlessly want more—that's greed. Children are instinctively jealous and don't hide it. Adults have it too, but they're better at hiding it. When housing prices are at their highest, the last wave to rush into the market is often the most cowardly, because they can't stand that people they know have already profited from real estate appreciation. This shows that jealousy can completely overcome cowardice.

03 How psychological tendencies caused by social pressure harm oneself

"Avoiding Inconsistency" The human brain's tendency to resist change leads people to retain several things as they are: previous conclusions, loyalty, identity, and socially recognized "persona." Zou Tao, a Shenzhen resident who initiated the "Three Years No Buying a House Campaign," publicly apologized on his blog in May 2010 to those who responded to his call not to buy a house. He said, "I publicly apologize to all compatriots who responded to my 'Three Years No Buying a Home' campaign in May 2006, and I bow deeply." Zou Tao is one of the few who admit his mistake. Most people who believe housing prices shouldn't be so high and wait until prices drop before buying, are still making excuses, just because he clearly expressed the wrong view, and insists on maintaining this consistency. Using a lifetime of renting as the price to prove a wrong view is too costly, so those who urge everyone not to buy houses now post anonymously on BBS to avoid being proven wrong by society. Avoiding inconsistency directly leads to maintaining the status quo, artificially creating barriers for adapting to this changing world.

"Social Conformity Tendency." This is a tendency to think and act automatically based on the thinking and actions of the people around you, that is, herd behavior. People are most susceptible to social conformity tendency when they are confused or under pressure. In a state of doubt, the inaction or actions of others become social proof. In the investment process, herd mentality and social conformity tendency are major enemies, because no one becomes wealthy by following the crowd, while Soros used the reflexivity theory to make every 'sheep' pay tuition, becoming the world's most expensive critic and the greatest beneficiary of social conformity tendency.

04 Comprehensive Influence Case Analysis

Hong Kong compatriots have a phrase to describe people who wrongly sell their property—"getting on the wrong train." After the 2008 financial crisis, some people in Vancouver, fearing a housing bubble, sold their property and waited for prices to drop. As a result, they are still renting today. In Toronto, from 2012 to 2016, the accumulated increase in CONDO apartments over five years was only 20%, while during the same period, detached houses increased by more than 50%. Many CONDO investors couldn't be patient and sold their CONDOs before 2017. The risk of getting on the wrong train is even greater than getting on the wrong one. When buying a house, taking a loan is required, and one must ask whether the bank agrees, but there are no barriers to selling. Several misjudgment tendencies combined to determine the outcome. Here is a question to ponder: for those who got on the wrong train, what misjudgment tendencies overlapped to cause it? The angles of analysis include: those related to stakeholders, how the psychological tendencies of others lead to getting on the wrong train, what personal psychological tendencies cause it, and which social tendencies lead to it. Getting on the wrong train is the most serious misjudgment in real estate investment and must be carefully summarized to avoid repeating the mistake.

Conclusion: There are too many 'success studies' textbooks; we really can’t go through them all. The best textbook on 'not-success studies' is Charlie Munger's essay 'The Psychology of Human Misjudgment,' which can be read repeatedly. From Munger's works, I have summarized 25 human misjudgment tendencies and extracted 10 tendencies that I currently understand fairly well to introduce to everyone; the other 15 tendencies you can look up in the book yourself. Among all people, it’s okay to not succeed, but we should still avoid easily leading a miserable life. If you don’t understand and don’t actively overcome these misjudgment tendencies, you can very easily be dragged into misery by jealousy, resentment, inconsistency, lack of willpower, disdain for objectivity, and failing to learn from others. After reading this article, if you recognize yourself in it, please don’t be upset, because you are not alone. At least, I have all these tendencies myself, and I am also working hard to overcome them.