>"In life, the winds of circumstances blow on us all in an unending flow that touches each of our lives. It’s one thing to create change. It’s another thing—often unavoidable—to have change foisted upon you when you don’t expect it. > >We all experienced the blowing winds of change. Yet some of us still manage to reach our intended destinations. What guides us to different shores is determined by the way we have chosen to set our sails. The way that each of us thinks makes the major difference in where each of us arrives. > >Unforeseen circumstances happen to us all. We have disappointments and challenges. We all have reversals and those moments when, in spite of our best plans and efforts, things just seem to fall apart. Challenging circumstances are not events reserved for the poor, the uneducated or the destitute. The rich and the poor have marital problems. > >[...] > >In the final analysis, it is not what happens that determines the quality of our lives, it is what we choose to do when we discover that the wind has changed directions. > >When things change, we must change. We must struggle to our feet again and reset the sail to steer us toward the destination of our own deliberate choosing. The set of the sail—how we think and how we respond—has a far greater capacity to alter our lives than any challenges we face. How quickly and responsibly we react to adversity is far more important than the adversity itself. Once we discipline ourselves to understand this, we will finally and willingly conclude that the great challenge of life is to control the process of our thinking." >[How to Deal with the Unexpected](https://www.success.com/how-to-deal-with-the-unexpected/) ## Exponential Change In [[Atomic Habits]], James Clear points out the power of the compounding effect of positive and negative change. A 1% daily improvement yields a 37x change by the end of a year. Whereas, a 1% negative daily change reduces you to almost zero by the end of the year. Our minds struggle to understand the powerful effects of exponential change. Our minds think linearly and [[Jensen's Inequality]] shows us how we underestimate the power of positive change and underestimate the negative effect of bad habits. >**_"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."_** -Leon C. Megginson, Professor of Management and Marketing ## How Change Manifests The world is complex and dynamic and change is all around us all the time. The process by which change becomes a lasting habit or routine is driven by biological processes. Neural pathways form that associate different stimuli and as they produce different outcomes our brains learn that certain stimuli are associated with certain outcomes. We naturally seek positive outcomes so we end up doing more of what gave us positive outcomes. The momentum behind this behavioral direction increases over time as outcomes continue to be positive. We see this process in nature with the changing of the seasons. In the spring the seeds that the dying plants left in the winter start to sprout and reach for sunlight. They continue to grow until they reach their peak or the sun starts to shine less. The cycle completes in the fall and winter when the weather turns less favorable and the plants eventually die leaving seeds for the next season or go into hibernation. The financial markets exhibit [[Cycles]] like the seasons because fundamentally they are driven by biological creatures: human beings. When a new innovation appears it takes time for it to become widely adopted just like we learned what we could and could not get away with as young children. The [[Diffusion of Innovations]] model provides a useful framework for how change is adopted in a social system. It classifies individuals on the basis of innovativeness according to the following categories: 1. Innovators 2. Early Adopters 3. Early Majority 4. Late Majority 5. Laggards To understand whether any given change will become lasting requires an understanding of the process by which change becomes a habit for any individual and how change is accepted broadly in society. Change is much more volatile in the financial markets given the high stakes involved and the intense [[Know your Competition|competition]]. ## The Emotional Cycle of Change >**_“The most dangerous phrase in our language is ‘We’ve always done it this way.’”_** -Grace Hopper, PhD Computer Scientist and U.S. Navy Rear Admiral Change is emotionally charged. When the future unfolds differently than our expectations it creates an emotional response. Our ancestors learned to survive by associating safety and prosperity with certain actions. Those actions were then reinforced, but when a sudden change occurs that upsets the status quo it triggers a primordial reaction in our subconcious. ![[Pasted image 20230604124359.jpg]] Source: [Five Stages You Move Through Emotionally When Changing Behavior](https://www.infocusleadership.ca/blog/five-stages-move-emotionally-changing-behavior/) >We have the opportunity to [[Learning|learn]] from the way the future unfolds to improve our beliefs and decisions going forward. The more evidence we get from experience, the less [[Uncertainty]] we have about our beliefs and choices. Actively [[Fielding Outcomes|using outcomes]] to examine our beliefs and bets closes the feedback loop, reducing uncertainty. This is the heavy lifting of how we learn. > >Ideally, our beliefs and our bets improve with time as we learn from experience. >[Thinking in Bets](app://obsidian.md/Thinking%20in%20Bets), p.80 >**_"If you don't cannibalize yourself, someone else will."_** >- Steve Jobs, Co-founder of Apple Inc. Explore Further: [[Transformation]] **Case Studies:** - [[CHG Issue 194 Confessions of a Value Investor]] - [[CHG Issue 147 The Fear of AI]] - [[CHG Issue 145 Liquidity Crashes]] - [[CHG Issue 119 When Reality Doesn't Meet Expectations]] - [[CHG Issue 111 Change]] - [[CHG Issue 66 Mental Flexibility]] - [[CHG Issue 57 Preparation Not Prediction]] - [[CHG Issue 29 The Art of Learning]] - [[CHG Issue 24]] - [[CHG Issue 22 Markets in Profile]] - [[CHG Issue 16]] - [[CHG Issue 6 Exponential Change]] Explore Further: [[Decision-Making]] Tags: #buddings Your support for Cedars Hill Group is greatly appreciated <form action="https://www.paypal.com/donate" method="post" target="_top"> <input type="hidden" name="hosted_button_id" value="74PGN8ZXHQVHS" /> <input type="image" src="https://www.paypalobjects.com/en_US/i/btn/btn_donate_LG.gif" border="0" name="submit" title="PayPal - The safer, easier way to pay online!" alt="Donate with PayPal button" /> <img alt="" border="0" src="https://www.paypal.com/en_US/i/scr/pixel.gif" width="1" height="1" /> </form>