Six thinking hats and stock market(4 min read)

If you are a marketing person, you must know the concept of six thinking hats. Developed by Dr. Edward de Bono, the “Six Thinking Hats” ™ technique is a framework designed to promote holistic and lateral thinking in decision-making and evaluation. Conducted alone or in group meetings, participants – project members, key decision-makers, and stakeholders – are encouraged to cycle through different modalities of thinking using the metaphor of wearing different conceptual “hats”.

Purpose of this exercise is to seek to combine the strengths of a range of different mental states. It basically to deal with different human emotions like rational, positive, emotional, optimistic, pessimistic and intuitive.

In this method, participants are asked to consider the same problem through a full spectrum of thinking style and concluding to a common decision.

Six “hats” are available to use, each identified by a different color symbolic of a different style of thinking, and each dictating unique mode of analysis.

Let’s go one by one and check them with the perspective of the stock market.

White hat:

“Information”. Objectively consider available information, focusing only on data available, where gaps in existing knowledge exist, and what trends can be extrapolated from the information to hand.

This type of person is data crunchers. While wearing a white hat, I pick stocks based on the available past data/ performance of the stocks. I tend to be logical and always keeps information handy so that decision can be taken immediately. Chances of going wrong are lesser as a decision is backed by strong legit data. I always prefer wearing the white hat as decisions are statistically verified.

Red Hat:

“Emotions”. Identify emotional reactions, judgments, suspicions and intuitions in oneself and others, separate from the objective data itself.

Breaking news! Rakesh Junjinwala has bought 10% stake in Titan. Oh! There must be something good coming ahead in this company. I should also ride on the rally. On hearing such news If you think like this, you are wearing a red hat. Here decisions are not based on any research or available data. It’s purely based on the emotions. I am certainly not a person who goes with the flow BLINDLY.

Black Hat:

“Negatives”. Raise and consider any potential flaws, risks, challenges and fears in a decision or plan in order to preempt them and avoid the dangers of over-optimism.

I like wearing a black hat sometimes as it makes me think twice before making any buy or sell decision. It covers the other side of the coin. Makes me alert on the risk involved in my decision. As you know the stock market is volatile and risky, taking decisions considering the negative aspects save me from the loss of money.

Yellow Hat:

“Positives”. Identify all optimistic, constructive aspects and suggestions regarding a decision or plan, with an eye towards building confidence and enthusiasm at the outset.

I use this hat while buying a blue chip and large cap stocks. The stocks are less risky, has a good track record and is a market leader in their respective industries. I don’t mind picking up such stocks without wearing a white hat.

Green Hat:

“Creativity”. ‘Blue-sky’ thinking. Consider abstract thinking, digressions, alternative proposals, and provocative statements.

Remember the great fall o the year 2008? Everyone was feared and have no idea what is next. It is a natural reaction. Suddenly being exposed to something with such a big impact is going to shake you up. But how people react to that fear is where it gets interesting.

Some people are giving in to their fear and selling off their stocks, trying to push their money into safe investment. It seems a right decision but ironically it’s not. During this panic situation if you sell off your stocks at a loss will always remain a loss.

There are people who also have felt the fear but instead of panicking they are stopping, watching and listening. They are not trying to protect themselves but rather finding an opportunity. If you are a stock market investor, you should know that market always goes through downturns. So instead of panicking, plan for it, find good stocks which are fundamentally strong but are at 52 weeks low.

Just remember at these times that this feeling of fear is natural, and don’t succumb to it. When you feel the fear, don’t run and try to protect yourself. Don’t panic and lock in your losses. Invest in it. That feeling of fear is the signal that it is time to step out of the crowd and wear your green cap.

Blue Hat:

“Overview”. Consider the entire thinking process itself, i.e. ‘meta-cognition’. Review and assess the six hats session thus far, identify places where a specific modality of thinking needs expanding, revisiting, or balancing.

These hats may be metaphorical, or even physical, and each change of “hat” indicates the next stage of the session. By the end of a successful “Six Hats” session, a particular decision or evaluation will thus have been considered from a range of viewpoints. This will help you while picking up stocks considering different viewpoints.

Which hat are you wearing?

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