Analysing stocks is supposed to be one of the ultimate numbers-driven, fact-based exercises. Yet, one of the most successful, award-winning equity analysts I know always finishes his investment analysis by saying something along the lines of: “Crucially, on top of all that, I have the gut feeling that this stock is going to be a good investment.”
How come an equity analyst would even dream of making such a statement when the consensus is that investments, stocks, and equity markets are all about number crunching?
Interestingly, he isn’t alone. It is becoming increasingly recognised that there is a lot more to the term “gut feeling” than meets the eye. That’s why I placed it in the no. 1 spot on my recent list of 44 things I know because I am now 44.
Throughout my twenty-five years of managing projects, organisations, and investments, I have had powerful experiences about the consequences of ignoring your gut feeling (negative experiences and their fallout always leave a stronger impression on you than the instances where you got it right and everything went smoothly).
For my own life going forward, I have made it one of my priorities to hone my ability to listen to that inexplicable, quirky urge you get in your stomach region. As you will see in this article, this is actually a skill you can develop. A variety of external factors can influence how good you become at it. There is a lot you can do to improve your ability to use your gut feeling to your advantage, and everyone has the necessary seeds inside them to make use of it. Though it’s also a fairly complex skill and one that you will not be able to make quantum leaps forward with overnight.
Here are some initial thoughts that should help, inspire and guide you if you would like to start on the same journey.
Buckle up for a quick and dirty primer on a human ability that our Western civilisation has long written off as unscientific woo-woo, but which is increasingly recognised as one of the potentially most valuable decision-making tools you can use in your business, your investments, and your life.
Science is catching up with what we kind of knew instinctively all along
I have recently spent a fair bit of time checking what literature exists on the subject of gut feeling, and I read up about it from a wide variety of sources.
Surprisingly, what we commonly and somewhat disparagingly refer to as gut feeling is actually backed by a growing body of science and behavioural analysis. It’s now becoming apparent that our gut feeling is a result of evolutionary changes that happened over lengthy periods and which were, ultimately, geared towards ensuring the human species’ survival.
Much of this is based around the notions of:
- Us humans are constantly exposed to an overwhelming amount of information. We are exposed to more information than we could possibly process, and that’s if we even have access to all necessary information (which we usually don’t).
- Because of life’s circumstance, we often have to make decisions within seconds. These time constraints further limit the amount of information we can take in before basing a decision on it and limits to what degree we can “think things through”.
- In the past more so than today, many of these quick decisions based on limited information were life-or-death decisions. Those who were wired in such a way that they tended to make the right decisions and survive, were more likely to pass on their DNA to the next generation. Whatever it was that made them succeed, it subsequently became more prominent within the human gene pool by way of natural selection.
As an example, a human who could speedily detect whether a stranger was a friend or a foe was more likely to survive in the hostile world that our predecessors inhabited. Such an assessment often had to be made within ten seconds of meeting another human, which was way too short for the brain to gather and process all the factual information that would typically go into judging someone else. So how could such a rapid assessment based on minimal information be done with a good degree of accuracy?
Gut feeling actually does boil down to utilising factual information, though what we long misunderstood or failed to appreciate, is how our body subconsciously processes this kind of information.
Sticking to our example of quickly having to distinguish between friend and foe, one factor based on which we humans make such distinctions are micro-expressions in your counterparty’s face. Modern-day science tells us that there are 43 groups of different facial expressions, which in turn are split into roughly 3,300 (!) micro-expressions. Humans are, in principle, really apt at covering up their emotions and putting on fake facial expressions. However, for a fleeting moment before actively covering up an emotion and its accompanying facial expression, we show our real feelings. The right side of our brain is reading and processing all of this, even when your analytical left side of the brain is otherwise engaged.
No one but a few individuals with years of specialised training could knowingly tell you what these expressions are and how to read them. Yet, we humans have evolved to spot them subconsciously and draw conclusions from them. This is the sort of information that feeds into gut feeling! You probably don’t even realise it, but you are hard-wired to spot certain unguarded micro-expressions and draw conclusions from them. That’s why you probably already experienced the feeling of knowing something before you knew it, and without being able to explain it. Equally, you have probably experienced instances where something (or someone) didn’t feel right, but you couldn’t quite put your finger on it.
Gut feeling actually does boil down to utilising factual information, though what we long misunderstood or failed to appreciate, is how our body subconsciously processes this kind of information.
Gut feeling is a fast, automatic, subconscious way of processing information, and it happens in a way that is different from deliberate analysing. In the past, the ability to rely on such information processing of barely noticeable signals and incomplete information determined who would survive long enough to procreate and pass on these abilities to the next generation. That’s why we are so good at it!
Once you start to look at gut feeling from this perspective, it starts to appear in an entirely different light!
A (sometimes) superior rather than an inferior decision-making tool
In the Western part of the world, in particular, relying on gut feeling has long been seen by most as inferior to analytical and scientific thinking.
At best, it has been seen as a whimsical tool that you employ when you don’t have facts to base a decision on or when you can’t be bothered to analyse the available facts. At worst, it’s put on the same level as primitive, magical and religious thinking. In any case, “Let’s go with our gut” has not been a sentence you were likely to mutter in your management meeting!
Though with each passing year, it becomes more evident that Western civilisation has an entirely wrong perception of gut feeling. As seen in the example above, science is increasingly delivering evidence that gut feeling (some call it intuition or instinct) is actually part of an elaborate protective system that humans have developed over the past millennia as a means to survive.
This, in turn, tells us that our emotions are mostly not the kind of dumb responses that our Western society long told us they were. Feelings coming from your gut are a reaction based on the accumulated, ancient biological wisdom that is somehow stored deep in our system. We could think of ourselves as a wet computer. Our wiring is the result of tens of thousands of years of appraisals carried out by our ancestors, all of which have left traces in our DNA and, thus, our body’s overall composition. Our body is a powerful intuitive communicator and information processor.
The good news is though that, without a shadow of a doubt, all of us carry in ourselves the ability to use our gut feeling to our advantage in an everyday situation.
Modern-day science has already started to identify some of the “human infrastructure” on which this is based. E.g., we now know that your gut and your brain are constantly communicating via a complex nerve system. There is a sprawling two-way network of nerves that is about 100 times larger than the surface of your skin and which sends more signals from your gut to your brain than any other organ in your body! How all this works is something we have only started to understand, but it has already led to some calling our gut the “second brain”.
Looked at it this way, emotions are simply another form of information processing. Think of gut feeling as our entire body being a predictive machine that constantly compares incoming sensory information and current experiences against the stored knowledge and memories that you gathered during your life so far. Your subconscious is a kind of supercomputer that can process the answer you need within just a few seconds, and using a small but relevant selection of information that is stored in our system. Gut feeling is not really a “feeling”, it is a mental process that is more closely related to reason than to feeling. We should really be speaking of “gut reasoning”.
With this in mind, it becomes apparent that gut feeling is much more about evolutionary traits than spiritual woo-woo. We are still only on the cusp of starting to understand all this in more detail, and our understanding is bound to continue to evolve. The good news is though that, without a shadow of a doubt, all of us carry in ourselves the ability to use our gut feeling to our advantage in an everyday situation.
Provided, of course, we start to listen to the signals our body sends us! It is not generally part of today’s upbringing to teach children and young adults how to listen to it.
How to improve your ability to listen to your gut?
Once you start reading up about it, you quickly realise that it is challenging to create any fixed set of rules for how to use and improve your gut feeling. Everyone is different, and these differences also exist along the lines such as male and female sex. Women probably have a stronger ability to make decisions based on gut feeling and intuition, because our female ancestors had to constantly tune in to the environment and be aware of potential dangers to their children.
What you will have to do in order to use this human ability to a higher degree depends on factors such as your personal history, the environment you live in, and what you want to use it for.
For myself, I have found three golden rules:
1. The broader your personal set of experiences, the more reliable your gut feeling
Gut feeling is based on your body comparing a current set of information to all the experience you have gathered in this area.
When you have a lot of experience in a particular area, your brain will have more historical information to match the current experience against.
As with so many other skills in life, simply having seen and done a lot means your gut feeling will become more reliable.
You can improve on this front through reading eclectically, traveling widely, and trying different career paths.
2. Give yourself time and space so that your gut feeling can speak to you
You will find that you won’t be able to listen to your gut feeling in an effective way if your environment is busy and noisy.
Improving your ability to listen to your gut feeling is one of the ultimate multi-year – or life-long! – projects. The more attention you give it, the more accurate it will become over time.
You can systematise this through a variety of means, e.g.:
- Journaling (or, as I do, blogging).
- A morning or evening routine that allows you to regularly decompress and have thinking time.
- Long walks, which is what Charles Darwin did.
For you to be able to maximise the benefits of your gut feeling, you’ll have to make time to connect to it.
Make space for your gut feeling to rise to the surface!
3. Practice, practice, practice
As professional sportsmen often say: “The more I practice, the luckier I get.”
Just as with every other skill, you get better at it the longer you have practiced it. With this in mind, don’t expect immediate results. Improving your ability to listen to your gut feeling is one of the ultimate multi-year – or life-long! – projects. The more attention you give it, the more accurate it will become over time.
Taken together with points (1) and (2), I am convinced you will improve over time if you follow these three simple rules. Practicing it is actually very similar to what I set out in point (1), but it is a point worth setting out separately.
Here is a useful article listing 11 instances where your body is trying to tell you something, and how to become better at listening to it.
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Surely it can’t be that easy?
Truth be told, even our gut feeling is far from infallible.
Because gut feeling is so firmly based on comparing current information to experiences from the past, you could also end up being misled by the biases created by your past experiences.
E.g., something you are simply not very familiar with can trigger undue suspicions of it being dangerous; even if it isn’t dangerous at all. Equally, you might be too positively inclined towards a new person because he/she reminds you of someone from your past.
A related area you should gradually educate yourself about are so-called “cognitive biases”. These are, in essence, mental short-cuts that our brains use to save energy. One famous cognitive bias is that our brain is geared towards ignoring information that contradicts our existing beliefs. Obviously, these cognitive biases can seriously trip up your decision-making.
Science claims there are 175 different forms of cognitive biases. If you check the Wikipedia list of such biases, you’ll quickly be overwhelmed. So how to best start to identify the ones you are prone to fall for?
One useful tool is a grouping of cognitive biases another blogger has created. He divided the 175 known cognitive biases into 20 sub-groups, which makes the entire subject much more approachable and allows you to pick out one or two biases that seem particularly relevant for you. His 2016 article on the topic has by now been read over 1m times. I recommend it as a starting point to educate yourself about the subject, though in reality, this is also a long journey to embark on. You might also find it useful to read this article about 20 cognitive biases that screw up how you make decisions.
For a start, just be aware that as much as your gut feeling is a valuable tool, it’s not infallible and should never become the sole source of your decision-making. You always have to weigh up different tools against each other.
Combining the linear mind and your gut feeling
Our brain is an extraordinarily powerful organ, as is our ability to analyse something in a linear way. We have our brain for a reason, and we should never discount research, intellect, and facts.
The right way to utilise your gut feeling is to combine it with the analytical skills of the brain, in the way that this makes the most sense for you. Check your gut feeling against your rational mind whenever possible.
Probably the clearest and most valuable signal you can get from this is when one contradicts the other. E.g., one of the few instances where I have a real regret in life was when I ignored the gut feeling to step down from the CEO position of the Charles Darwin Foundation in mid-2014. My gut feeling sent me strong signals that this was the right moment to leave on a high and that – given the screwed-up governance structure of the organisation which I wrote about separately in another article – everything would eventually go haywire for reasons beyond my control. I used all sorts of rational thinking to justify staying on board, ranging from loyalty to the cause, to just wanting to achieve one more major thing before checking out. I let these seemingly rational thoughts drown out my gut feeling’s effort to get my attention, which is something I vividly remember because these signals were so strong and lasting.
Just as my gut feeling had indicated me, the organisation did go haywire again. Had I spent more time to quietly sit down and contemplate what my gut was telling me, I could have prevented myself from wasting a year of my life on a dead-end job in a dead-end organisation. That was one expensive instance of ignoring the signals my body sent me. Mistakes are annoying, but preventable errors are truly terrible and unforgivable. This was one of the cases that made me decide never again to let that happen to me – hence my strong interest in the subject.
The web offers a variety of resources for practical exercises you can do when you are in doubt about making a decision, e.g. if your gut feeling contradicts your brain. Here is an example of a blogger who developed a simple process you can use to decide whether to follow your gut or your brain.
Getting it right more often than wrong is all you can aim for in life
I said it before, and I’ll repeat it one last time. All of this is very much down to your personal history, needs and preferences. E.g., if your childhood involved neglectful parents, then there is a chance you are more beset by self-doubt, and you will need more practice and time to start trusting your gut feeling.
None of it can be developed overnight. Tapping into your body’s innate wisdom is a skill you should spend the rest of your life on improving. The beauty of this incredible tool is that your capacity to grow this skill will never stop.
You’ll find that it can be applied in all sorts of different situations, for example:
- “Reading” an audience before you give a major presentation.
- Making a decision on a major, complex purchase. One scientific study found that car buyers who relied on analysing factual information were happy with their purchase in 25% of cases, whereas car buyers who relied on their intuition were happy in 60% of all cases.
- Many scientific findings were famously made “accidentally”. There is a growing body of science that if you train your brain to spot patterns and make creative connections (which gut feeling and intuition is all about), you are more likely to make new discoveries.
You will also realise that entirely different aspects of your life are ultimately connected to this. E.g., there is some evidence that the quality (or lack thereof) of your diet influences to what degree your gut can send you useful signals. Obviously, if you expose your nerve system to a never-ending stream of toxins and low-quality food, eventually it will deteriorate and so will the quality of the signals it sends you. The set of good and bad life choices that influence to what degree you can develop these skills is long and complicated.
The beauty of this incredible tool is that your capacity to grow this skill will never stop.
The complexity of this subject means that even with our growing body of knowledge, there won’t ever be all that many people who excel in maximising the reliability and usefulness of their gut feeling. A positive way of looking at this is that if you succeed at it, then this skill of yours will be all the more valuable in the marketplace. All the more as this skill is not very likely to catch on widely in “conservative” sectors such as the world of management, finance, and business management (although the Harvard Business Review did once publish an insightful discussion of how gut feeling can be used in management). The rarer your skillset, the better for you!
Also, you’ll find in life that you won’t ever get 100% of things right. Tossing a coin would lead you to getting around 50% right. If you can move the needle closer towards 60%, 70% or even 80%, then you’ll already be way ahead of most anyone else.
To get closer to such a percentage of getting it right, I have no doubt, being able to better utilise your gut feeling will be one of the most useful indicators you can find.
What’s more, it’s for free! No mentor, lawyer, or professional advisor would ever give you such great advice without charging for it.
Of course, you had a gut feeling about all this all along, which is why you read this article. Right? We simply tend to know these things…
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