Sunday 15th April, 2007

 

Beat the odds

 
 
 
 
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The Post Hoc Fallacy is a common error in thinking about cause and effect. It works along the line of assuming that because event G occurs, whatever happens after G, is because of G.

There is another construct: the dual fallacy, called the fallacy of composition. It also addresses they way we conceptualise and think. It assumes that what is true for a part of a system is also true for the whole of the system. But that is not always so, and neither does H always follow G.

This is a sophisticated way of saying that our own capacity to save money for the future is likely to be pretty independent of what is happening in the macroeconomics. Will power and determination are individualistic things that often beat the odds.

In fact, the people, who make it big on the stock market, do what the typical person would not do. They see opportunity where others see trouble. They are not necessarily mighty takers of risk; they simply have a keener eye on the ball.

How so? They see what is happening at the micro level, and recognise that they can beat the systems. They then seem to ignore the macroeconomics. They have a burning desire or passion for a thing, intend that it should happen, and despite all the constraints that others belabour; they achieve what they set out to accomplish at the micro level.

Make it big

When governments try to manage the supply of money and the economic indicators through a mix of fiscal and monetary policy, the majority of people get caught up in the victim syndrome.

It is the few who believe in themselves, who get out. They are not concerned with who constitutes the labour force or the inflation rate. Whether people are unemployed or employed, they lay no blame on others. They simply intend to make it big.

There are two basic units of decision making in every economy: the companies and the households. In general there is precious little that any company will do to make you rich. They will give you only in relation to the labour hours that you give to them.

What you make of the benefits you receive is an individual choice. Individuals in the households make a choice to be rich, to be average, to be poor, or to be victim.

By simply not doing what needs to be done we fall in the trap of following the crowd, and we complain. Because the interest rates are low, does not necessarily mean that your returns will be low. Because food prices are high, does not mean that you will spend every cent on food. There is always a window of opportunity.

Individual wealth is not a post hoc fallacy; you have to work on it, intentionally and strategically. I always say that the universe has a way of making room for those who know where they are going.

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