The impact that stress can have on normal thinking, where heavy stress can often lead to dysfunction
16-Sep-2015 •Mohammed Ekramul Haque
What is it? This is the tendency where an adrenaline rush produces a quicker and more extreme reaction. Less stress can improve performance but heavy stress often leads to dysfunction.
Heavy stress can take a toll on anyone's correct frame of mind. Says Munger, "Few people know more about really heavy stress than that it can cause depression. For instance, most people know that an "acute stress depression" makes thinking dysfunctional because it causes an extreme of pessimism, often extended in length and usually accompanied by activity-stopping fatigue. Fortunately, as most people also know, such a depression is one of mankind's more reversible ailments. Even before modern drugs were available, many people afflicted by depression, such as Winston Churchill and Samuel Johnson, gained great achievement in life."
Often found in: Instances of heavy stress when the mind ceases to work normally.
The Russian scientist Pavlov spent the last years of his life studying stress and its working on dogs that were previously conditioned to different responses. Pavlov's work is an eye-opener on how stress works its way. Munger says, "What happened to cause Pavlov's last work was especially interesting. During the great Leningrad Flood of the 1920s, Pavlov had many dogs in cages. Their habits had been transformed by a combination of his "Pavlovian conditioning" plus standard reward responses into distinct and different patterns. As the waters of the flood came up and receded, many dogs reached a point where they had almost no airspace between their noses and the tops of their cages. This subjected them to maximum stress. Immediately thereafter, Pavlov noticed that many of the dogs were no longer behaving as they had. The dog that formerly had liked his trainer now disliked him, for example. This result reminds one of modern cognition reversals in which a person's love of his parents suddenly becomes hate, as new love has been shifted suddenly to a cult. The unanticipated, extreme changes in Pavlov's dogs would have driven any good experimental scientist into a near-frenzy of curiosity. That was indeed Pavlov's reaction. But not many scientists would have done what Pavlov next did. And that was to spend the rest of his long life giving stress-induced nervous breakdowns to dogs, after which he would try to reverse the breakdowns, all the while keeping careful experimental records. He found (1) that he could classify dogs so as to predict how easily a particular dog would breakdown; (2) that the dogs hardest to breakdown were also the hardest to return to their pre-breakdown state; (3) that any dog could be broken down; and (4) that he couldn't reverse a breakdown except by reimposing stress."
In investing: It is obvious that investing under stress of outperforming, say the markets or a competitor, opens the field up for mistakes. Even the stress of maintaining past performance for fund mangers can take its toll and hamper judgement. The stress of recovering a loss made in one stock to find another that can more than compensate can similarly affect judgement.
You just read about one of the misjudgements people generally make while investing. Read 25 ways to (Not) make mistakes to get an account of Charlie Munger's twenty-five typical misjudgements, along with our commentary on how they fit into Indian businesses and Indian investments.