Blind Spots Beyond Ghor there was a city whose inhabitants were blind. A king and his entourage arrived nearby. He had a mighty elephant, which he used in battles and to increase people’s awe of him.
The inhabitants became anxious to see the elephant, and some sightless from among this community ran like fools to find the beast.
They did not know the form or shape of the elephant, so they groped sightlessly, gathering information by touching parts of it.
Each thought he knew something because he could feel a part of the elephant.
When they returned to their fellow citizens, eager groups clustered around them, excited to hear the truth from those who had touched the elephant.
They asked about the form, the shape of the elephant: and listened to all they were told.
The man whose hand had reached an ear was asked about the elephant’s nature. He said: ‘It is a large, rough thing, wide and broad, like a rug.’
The one who had felt the trunk said: ‘I have the real facts about it. It is like a straight and hollow pipe, awful and destructive.’
The one who had felt its feet and legs said: It is mighty and firm, like a pillar.’
Each had felt only one part of the elephant, and each had perceived it wrongly. No mind knew all: knowledge is not the companion of the blind. All imagined something…something incorrect.
There is no ‘Way’ in this science by means of the ordinary intellect.
The Blind Ones and the Matter of the Elephant (13th century tale)
If you’ve read my previous posts, you may have noticed ‘blind spots’ is a common theme. This tale highlights two themes in how we view the world: that the parts are greater than the whole and second, our predisposition to categorical thinking.
We are like the blind men, looking at the parts, generalizing and comparing them with something already known, placing them into categories. This dependence on rational thinking has conditioned us to see the world in a piece-meal, decontextualized way. It’s an overly restrictive, short-term view and most investors (and managers) are locked into it. Our latent capacity to perceive holistically remains dormant, making it difficult for us to see the extraordinary in the ordinary.
When I was a kid, I lived in a small town, and I can remember all the houses on my block. I can remember them in detail. They're familiar to me as individual entities, but now that I'm an adult I’ve live on my street for 20 years, but the houses are indistinguishable to me. I can't see them as different entities. I'm so familiar with the category house which is a practical category that I can't see beyond the category and it's very efficient because I know what houses do. They sit there. You don't have to pay attention to them, and so it's really a useful perceptual shorthand just to see the category. U of T Psychology Professor
In the Smuggler story (see link below), it is the Smuggler who understood the shortcomings of the rational mind and knew the customs men would be trapped in categories and not be alert to the
unique situation, that donkeys too could also be ‘contraband.’ Categorical thinking restricted the customs men’s ‘field of vision’ preventing them from seeing the obvious right before their eyes: Crooked donkeys! Most investors by ‘labelling’ the airline industry as unattractive, fail to see the unique – that superior performance can exist within
every industry.
Those classifications help investors sift through the vast number of available investment options, and that’s important. But they also lead investors to allocate capital inefficiently in terms of risk and return. During the internet bubble of the late 1990s, for example, people invested heavily and almost immediately in companies that had adopted dot-com names, even when nothing else had changed about those businesses. That mistake cost many investors dearly. Another example: When a company’s stock is added to the S&P 500, it starts moving more closely with the stock prices of other companies in the index, even if nothing about the company or its stock has changed. HBR, The Dangers of Categorical Thinking. Sept-Oct 2019 In the post (see link below), Measuring Air Canada’s Turnaround Success, it was the older, wiser fish having learned to see and understand the broader context of
his world – the
Water – whose question prompted the younger fish – trapped in rational thinking with its narrow focus – to respond, ‘
What the hell is water?’
It is the familiar that usually eludes us. What’s before our noses – for example, a turnaround – is what we often ‘see’ last. Investors who have an expanded time frame can notice underlying patterns that only emerge over an extended period. An ability to identify trends early and be alert to opportunities are key qualities for long-term wealth creation. Seeing things in relation to time, so that the past is held as an important part of what has happened, the future is vivid, and the current situation is brought into consideration – a kind of fluidity of movement – is a skill that can be developed (the history of capital cycles is a key concept to understand).
In approaching any investment, investors need to be sophisticated at industry analysis. Understanding the general concepts of competition is not complicated. Applying them well is really difficult to do. Porter’s five forces determining industry profitability are sticky, not static. It’s not enough just to know them by name (or category), or to have even a superficial understanding of each. Investors need to dig down to understand what the
real entry barriers are, what the
real bargaining power of suppliers and buyers are, and like how evolving valuation methods are changing the mindsets of CEOs, altering the competitor rivalry landscape. This applies to both investors and managers.
It requires a very unusual mind to undertake the analysis of the obvious. 
- Alfred North Whitehead