The Zurich Axioms By Max Gunther
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A hunch can be trusted if it can be explained.
A hunch is a piece of feeling-stuff. It is a mysterious little clump of not-quite-knowledge: a mental event that feels something like knowledge but doesn’t feel perfectly trustworthy. As a speculator you are likely to be hit by hunches frequently. Some will be strong and insistent. What should you do about them?
Learn to use them, if you can.
That is easy advice to give but, as you will undoubtedly discover, not so easy to carry out. The subject of intuition is complicated, imperfectly understood, and troublesome to many people. There are three distinct approaches to the phenomenon:
Scorn. Many investor/speculators studiously ignore their own hunches and laugh at other people’s. They insist on backing all speculative moves with facts and factlike material. It is often pretty goofy material – charts, economists’ forecasts – but to people in this group, it seems more trustworthy than hunches. They will often make a move even when their intuition is telling them strongly that the move is wrong. “The chart says it’s right, and that’s what I go by.”
Indiscriminate trust. Then there are people who lean on hunches too hard, too often, and without enough skepticism. Any wayward intuition becomes a reason for making a move, even when a rational analysis of the situation might yield completely different ideas. “I go with my hunches”, these people will say proudly, neglecting to add that those wonderful hunches have quite often led to speculative calamities.
Discriminating use. This is the Zurich approach. The thought behind it is that intuition can be useful. It seems a shame to scorn such a potentially valuable speculative tool in a categorical way – to throw out all hunches just because some are silly. On the other hand, it is true that some hunches deserve to be tossed in the garbage can. The challenge is to discern which are worthy of your attention and which are not.
So the first step is to find out just what a hunch is. Where does this odd little piece of nearly-knowledge come from?
It turns out to be less mysterious than it seems. There are some who would explain intuition by talking about extrasensory perception or occult powers, but none of that is necessary. A hunch is a perfect ordinary mental event. When you are hit with a strong hunch – “I think that company is in worse trouble than they’re letting on” – the possibility is that this conclusion is based on actual, solid information that is stored somewhere in your mind. What makes it perplexing is that it is information you don’t know you possess.
Is that plausible? Of course. It is an everyday mental occurrence. Dr. Eugene Gendlin, a University of Chicago psychologist was has spent years studying this subject, points out that it is a common human experience to know something without knowing how you know it.
Dr. Gendlin points out that you take in colossal amounts of data every day – vastly more than you can store in your conscious mind and recall in the form of discrete data bits. Most of it is stored in some other reservoir just below or behind the conscious level.
For instance, think of a certain man or woman who has played a significant role in your life. This person doesn’t come to you in discrete data bits – brown hair, blue eyes, likes Chinese food, and so on. There are millions of such data bits that you have stored over the years, far more than you could list in your lifetime. Instead of coming to you in bits, the person comes whole. Everything you know and feel about him or her, everything you have ever thought, felt, or experienced in connection with this person – it all comes at once, mysteriously pulled up from the colossal library of not-quite-knowing.
Imagine meeting this man or woman in the street. You instantly know who it is. With no conscious thinking at all you instantly react in appropriate ways. Yet if I were to ask you how you recognize this person, precisely what your clues are – the shape of the nose? the manner of walking? – you would have no answer to give. You know you know you friend, but you don’t know how you know.
Similarly, if this man or woman telephones you, you instantly recognize the voice. How? By precisely what clues? There is no answer. If you were to attempt to describe that voice to me so that I, too, could recognize it, you would find the task impossible. The information is in your head somewhere, but don’t know just what it is or where it is. This is the stuff hunches are made of. A good hunch is something that you know, but you don’t knw how to know it.
For instance, a woman who speculates in New England real estate told me about a hunch that visited her in the middle of that night. She had renovated a very old seashore house in Maine and had been trying to sell it but had not heard of any offers that came close enough to her asking price. One offer was almost acceptable but was just shy of her preplanned ending position. She was holding for more and feeling fairly confident.
Then, in the small quiet hours before a rainy dawn, she came suddenly wide awake and found herself gripped by a powerful, insistent hunch that she ought to take that offer. The intuition said that the market for old Maine coast homes was about to soften, maybe collapse. She didn’t know how she knew this. She just knew.
But she was afraid to trust the hunch. She was perplexed by the usual problem: She couldn’t see the library of information on which the hunch was based.
She and I talked about it. Her first inclination was to laugh at the hunch and hope it would go away. But then we began to come around to the view that it might well be based on solid, trustworthy information.
She had long made it her business, after all, to study the economy of the Maine coast as it impinged on real estate. She subscribed to a couple of local newspapers, belonged to a property owners’ association, talked frequently with realtors and other knowledgeable folk. She also kept herself well informed on national and world events. She was a Business Week reader among other things. Thus it could be said with perfect confidence that she possessed a big store of data relevant to the selling price of a house on the Maine coast.
Much of this information was stored, however, on o not quite-conscious level of her mind. Indeed, probably most of it was. The fully conscious part was like the visible tip of an iceberg.
The troublesome hunch had arisen, we concluded, when connections were made in that huge nonconscious data bank. Facts had drifted together like pieces of a jigsaw puzzle, without her conscious direction. Perhaps there were scores of these little bits of forgotten data: something she had read, something she had overheard at a meeting, a remark made months ago by a realtor. Put together, they resulted in an intuitive conviction that the Mine coast real estate market was riding for a fall.
She decided to trust the hunch. She accepted the highest offer for her house. Only a month or so later it was apparent that she had made a brilliantly right move. The offer she had taken was the highest she was likely to have seen for a long, long time.
We are now in a position to understand what the Seventh Axiom means when it says, “A hunch can be trusted if it can be explained.”
When a hunch hits you, the first thing to do is ask whether a big enough library of data could exist in your mind to have generated that hunch. Though you don’t know and can’t know precisely what the relevant data bits might be, is it plausible to think they exist?
If it’s a hunch about Maine coast real estate, ask whether you are genuinely knowledgeable on this particular topic. Have you studied it? Have you been following its ups and downs? If it’s a hunch about the price of silver, have you absorbed a lot of knowledge about the metal and its complex interrelationship with other economic goings-on? If it’s a hunch about a person – ‘this guy is out to cheat me’ – have you known him well enough and long enough to make character insights possible?
The reason for subjecting hunches to this rigorous testing is that sometimes we get flashes of intuition that aren’t based on good, hard fact. They are airy nothings. Where do they come from? Search me. They are like dreams. They come out of nowhere, they mean nothing, they lead nowhere. They are simply the brain playing with itself.
You’re reading the paper one morning and come across a little article about the installation of a new president at Hoo Boy Computer. Suddenly you’ve got this terrific hunch. The new man is going to take Hoo Boy to magnificent new heights. He’ll gobble up the market! He’ll send IBM reeling! The stock price will soar like a rocket!
But before you call your broker, put this wonderful hunch to the test. Your internal monologue might so something like this:
“Okay, friend, let’s look at this calmly. What do you know about Hoo Boy Computer?”
“Well, uh, once in a while I read something about it. Sounds like a good solid outfit.”
“But have you made a special study of it? Really followed its fortunes?”
“No, can’t say I have.”
“And how about this new president? Know a lot about him, do you?”
“Uh, not exactly.”
“Matter of fact, you never heard of him before, right? So what gives you this great feeling of faith in him?”
“Well, the newspaper reporter seemed to think he was a sound man.”
“The reporter probably never heard of him before either. Probably half the stuff in that article right out of a company press release. So you really think you’ve got enough of a data base to generate a reliable hunch?”
“Well, uh – ”
“Come on, friend, let’s go get some beer and forget it.”
This kind of testing doesn’t guarantee that you will never have an inaccurate hunch, of course. Even the most solid-based hunch can go wrong. Conversely, an out-of-nowhere hunch can be right, just as any wild guess can. What this procedure does for you is to improve the odds in your favor. It puts you one up on those who scorn all intuition and also on those who think all hunches are sent from heaven. You are more likely to act on good hunches than the first group, more likely to discard bad ones than the second group.
Whatever you do, however, keep the rest of the Axioms about you. No matter how good a hunch feels, don’t let it lull you into a state of overconfidence. Stay worried. Intuition can be a useful speculative tool, but it isn’t the long-sought, infallible formula for 100 percent correct money decisions. As we have noted before, there is no such formula.