Have you heard of Edward DeBono?
He is reputedly the King of Creativity and wrote a book on how to approach Creative Thinking. So can you use creative thinking with investment analysis?
I think so.
White hat thinking is to write down the key facts. Good and bad. Review what you’ve written for opinion. Remove any opinion. Not yet! Just the facts please.
Yellow hat - now for the optimism. Some investors (myself included) have no difficulty here. That yellow hat is your favourite hat! Get all bullish and ramp to your little heart’s content. But remember it’s still facts and not feelings. Thinking positively. But thinking.
Black hat - now do the opposite. Risk. That’s a huge area overlooked by people. Not just the probability of risk (it’s never zero) but also the consequences of that risk occurring. Catastrophe. But remember it’s still facts, not feelings. Negative facts. Think like an actuary. Go visit sites that encourage shorting. Read Bulletin Boards. Full of Black Hats there. Probably they’ve just come from a shorting web site or there’s sour grapes and an axe to grind. Stop arguing with them and thank them. They are helping with your Black Hat.
Red. Now stop thinking and start feeling. What I’d particularly draw your attention to here is turn on your BS-ometer. Do you trust the management? What does your gut tell you? Do you “like” this investment too much? Remember however much you “like” it that you like preserving your money more. Think about the value of your investment at losing that, what is your gut telling you now. What is the sentiment of the market? How can you take advantage of that? Remember the market is much bigger than you so just because you disagree it doesn’t mean you can take advantage of that.
Green hat creativity. What have people missed? Why is this investment better or worse than everyone else thinks? The market misprices investment all the time. Particularly in the AIM market. The green hat is your opportunity to creatively approach the investment.
Blue Hat is just ensuring that people don’t wear 2 hats at a time. Blue hat is to stop you muddling your thinking. Do 1 at a time. Blue hat is the strict disciplinarian.
I welcome your comments.