6 Thinking Hats to improve on Stock Market Profit

Recently I went to a gathering in Pahang and someone share with us on "6 thinking hats" in decision making process. Let me explain what is 6 Thinking Hats, then I relate it to Stock Market.

The 'Six Thinking Hats' is a technique in decision making. It forces you to move outside your habitual thinking style, and helps you to get a more rounded view of a situation. It was created by Edward de Bono in his book '6 Thinking Hats'.

In order to make effective decision, we need all the 6 thinking hats. One person can wear or perform all 6 thinking hats roles, but very tough. Generally different people will have different ideas or strength or attitude, and therefore, it is better to have few persons to perform the 6 thinking hats role.

Each 'Thinking Hat' is a different style of thinking. These are explained below:

White Hat:

With this thinking hat you will focus on the data available. Look at the information you have, and see what you can learn from it. Look for gaps in your knowledge, and either try to fill them or take account of them. This is where you analyze past trends, and try to extrapolate from historical data.

In stock market, this means you need to focus on the stock market data before making a decision.

Red Hat:

'Wearing' the red hat, you look at problems using intuition, gut reaction, and emotion. Also try to think how other people will react emotionally. Try to understand the responses of people who do not fully know your reasoning.

In stock market, it is very unpredictable. So, sometimes you need some gut feeling to make the decision.

Black Hat:
Using black hat thinking, look at all the bad points of the decision. Look at it cautiously and defensively. Try to see why it might not work. This is important because it highlights the weak points in a plan. It allows you to eliminate them, alter them, or prepare contingency plans to counter them.

In Stock Market, Black Hat role is very important. When during bull or good market, we tends to be very positive and ignore all the risk. We need the Black Hat to challenge all our stock buying or holding decision.

Yellow Hat:

The yellow hat helps you to think positively. It is the optimistic viewpoint that helps you to see all the benefits of the decision and the value in it. Yellow Hat thinking helps you to keep going when everything looks gloomy and difficult.

In Stock Market, yellow hat is very important in bear or bad market. This is the time where everybody is so pessimistic that many refuse to buy stock. But this is also the time that the stocks are very cheap and can make a lot of money when the market recover.

Green Hat:

The Green Hat stands for creativity. This is where you can develop creative solutions to a problem. It is a freewheeling way of thinking, in which there is little criticism of ideas. A whole range of creativity tools can help you here.

In stock market, we need some creativity too. It can be how we source for more money. Get idea to get more research, how to get lower brokerage, or how to analyse data in a shorter time, use chart or technical analysis, etc.

Blue Hat:

The Blue Hat stands for process control. This is the hat worn by people chairing meetings. When running into difficulties because ideas are running dry, they may direct activity into Green Hat thinking. When contingency plans are needed, they will ask for Black Hat thinking, etc.

In stock market, blue hat role is also important. Due to different idea by different hats, blue hat need to moderate all the decision making process. Let the process keep going rather than stop when there is conflict of ideas.

Comment:

It is very tough that one person can wear all the hats. I suggest we find few persons. Some people have a lot of data, let him/her wear white hat. Some are very pessimistic, then let him/her wear black hat, etc.

When we have all the 6 hats, we have a more complete views/ideas in the decision making process. I quote you one example.

In late 2009 the market rebounded after the crash in 2008, I have a friend who is very pessimistic (wearing black hat). He kept telling me about conspiracy theory, double recession, shown me negative web sites and all sort of bad things. Saying the market will crash further.

Then I met another friend (wearing yellow hat), he is positive and asked me to buy and keep. He said market is a cycle. Buy at that level and will make money. If drop lower, buy more.

The yellow hat friend gave me confident and I have some gut feeling that it is time to enter (I was wearing red hat). In order to decide what stock to buy, I do some research (I was wearing white hat), and buy stocks which are cheap.

After trading for few months, I noticed that the profit that I have made is not much. I want to make more. I think I can improve on my investment. Therefore, I have come out with PEGGY Method and using Dollar Cost Averaging (I was wearing green hat).

As you can see, I was the person that was looking for data, talked to different people, persist to continue, etc, I was also wearing blue hat.

If we can have 6 thinking hats, we can make better decision. Hope this article can help you in your stock market investment.

By the way, in the gathering, I met a friend, I just couldn’t understand why whenever she talks to me, she will be wearing the black hat. She will just interpret negatively in whatever thing I said or do. I find it very hard to deal with her and I am very tired. Actually I can just avoid her, but I do treasure our friendship. Hope she can change her hat. For the record, she is very cute.

Source:

6 thinking hats- mindtools dot com

For more information on stock market, here.

http://politemarket.blogspot.com/

Thanks