Subject: Re: OT: Dunning-Kruger effect
While it is good to see the new data concerning and partially dismantling the Dunning-Kruger Effect thesis, we investors should always question our circle of competency. In other words, it is often healthy to assume we may not know as much as we feel we do. The great Daniel Kahneman said something to the effect every new initiative in an organization should also be evaluated by a group deliberately assigned to attack the assumptions, spreadsheet numbers, etc. of the new initiative. There have been times in my business life when we would have benefited from having had such as process rather than proceeding to spending lots of money and time to later have the marketplace shoot down our faulty assumptions with little or no sales of what we thought was going to be a needed product.

Kahneman also said something to the effect humans are blindly optimistic in their business assumptions and this is where entrepreneurs arise. My recollection is Kahneman said without this blindly optimistic quality many companies and initiatives would never happened. I guess a form of Dunning-Kruger Effect is built into many folks mental programming.

I also seem to recall reading Kahneman saying his thought and research partner, Amos Tversky, was nearly always the smartest person at a gathering and if you were a person who failed to see that, you were the dumbest person in the room. Interesting comment. Tversky did some courageous deeds during his military service engagements. He was a very smart person who was also capable of taking decisive action.

At any rate, my biggest failings have been to not buy particular stocks when my evaluations said they were positioned well for the future. This has usually been because they never got cheap enough to meet the Buffett 10:1 Market Cap to Pre-Tax earnings threshold. I've recently been reviewing this area and wonder if a 11:1 or maybe a 12:1 ratio would have served me better as I would gotten nearly all of the ones that have gone on to do quite well over the years. I welcome hearing your thoughts about stretching Buffett's Margin of Safety ratio a bit higher. A note: I think the use of this type of ratio helps with dampening the bias and blindness of investors like me as most companies with little debt, long-running established products or services that get down to the 10:1 ratio generally do well in the long term assuming they are not in a declining industry or beset with intractable legal or competitive challenges.

Thoughts?

Uwharrie