Missing The Obvious: Your Perception Is Easily Fooled

Wouldn’t it be nice to have a little more money? I don’t know about you but this inflation is killing me. Butter has nearly doubled in price, I love to cook and butter hides many mistakes.

Most of the best investors in the world have a fair bit more money than you and I combined. What they don’t have is more information than we do. (N.B. There is some insider trading and some sneaky people do have more information, but that is another story.)

The best investors have basically the same information as the rest of us, they are just better at understanding where there is value and where the value is coming from.

They don’t need to be much better than the crowd. A slight advantage over time creates a huge return. In golf, the difference from shooting 1 under par to even par doesn’t feel like much but can be enormous.

If you invest $10,000 into an account and it gets 5% annually and reinvests it, after 10 years you will have $16,288.95. A nice increase of $6288.95. If you get 7% however, you get a return of $9671.51. Nearly 50% more return.

Little additional bits of value make huge differences in the long term.

Why Are We So Blind

We suck at context. Ask a runner if they did well in the marathon and they say no, their time was terrible compared with the other runners.

However, compared to the world, they are incredibly fast. The person who gets 8th in the finals at the Olympics feels like a failure but is actually astonishingly quick. The context is very important and we are terrible at judging it.

There is the famous Ebbinghaus Illusion where two circles are surrounded by different-sized circles.

Which orange circle is bigger?

The answer is, they are the same size? The larger spread-out circles make the orange circle on the left look smaller than the orange circle on the right.

It is a perception problem. The size and distance of the outer layer of circles distort our view of the orange circle. Making what we think are different sizes seem the same size.

I Can See

This stuff happens in your team too. Someone’s project might be great, but the others around it are slightly better so it is underappreciated compared to what benefits it actually provides.

Or it could be that someone is in a team of underperforming people and they look way better than they actually are. The performance might be misrepresented due to the environment and not actually reflect the true talent of the individual or team.

Or even when you compare yourself to others. You could be that runner who downplays their success because you are comparing yourself to the wrong cohort of people.

Perception is our reality and we often perceive it incorrectly.