Wednesday, 27 May 2020

"The time to sell a stock is - almost never." The four rules of selling.

Philip Fisher, in his book Common Stocks and Uncommon Profits wrote, “If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”

I sincerely believe in this idea of never selling my stocks, IF I did the job of picking them well. But then, there are times when you must sell your stocks, and one of the keys to investment nirvana is the ability to know when to do that. 

Four rules of Selling

A value investors in India, Sanjoy Bhattacharyya, wrote on the art of selling stocks some years back, wherein he shared the four rules of selling
While remaining disciplined in terms of the process of stock-picking, the seasoned value investor waits patiently for Mr. Market to provide opportunity.
     Typically, there are just four reasons to sell:
1. A clear deterioration in either earning power or ‘asset’ value.
2. Market price exceeds ‘fair’ value by a meaningful margin.
3. The primary assumptions, or expected catalysts, identified prior to making the investment are unlikely to materialise or are proven to be flawed.
4. An opportunity likely to yield superior returns (with a high degree of certainty) as compared to the least attractive current holdings is on offer.

The Riskiest Moment in Investing

Peter Bernstein said that “the riskiest moment in investing is when you’re right.”

On being asked how investors can avoid being shocked, or at least reduce the risk of overreacting to a surprise, Bernstein replied –
Understanding that we do not know the future is such a simple statement, but it’s so important. Investors do better where risk management is a conscious part of the process. Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.
The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance. And I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I’m exposed to it. Somebody once said that if you’re comfortable with everything you own, you’re not diversified.

Here is another article Peter Bernstein wrote for Bloomberg many years back, titled The 60/40 Solution, wherein he talked about the lessons from history –
The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet. Surprise is the rule, not the exception. That’s a fancy way of saying we don’t know what the future holds. Even the most serious efforts to make predictions can end up so far from the mark as to be more dangerous than useless. 
All of history and all of life is stuffed full of the unexpected and the unthinkable. Survival as an investor over that famous long course depends from the very first on recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain. Something very simple but very penetrating stems from this observation. If we never know what the future holds, we can never be right all the time. Being wrong on occasion is inescapable. As the great English economist John Maynard Keynes expressed it some 80 years ago, “A proposition is not probable because we think it so.” The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.

Tug of war between Deflation and Inflation: the most Challenging Investment Climate today

A Central Banker’s Worst Nightmare

#Inflation and Deflation

From a mathematical perspective, inflation and deflation are two sides of the same coin.

  • Inflation is a period of generally rising prices. 
  • Deflation is a period of generally falling prices.

Both are deviations from true price stability, and both distort the decisions of consumers and investors.

  • In inflation, consumers may accelerate purchases before the price goes up. 
  • In deflation, consumers may delay purchases in the expectation that prices are going down and things will be cheaper if they wait.

To investors, inflation and deflation are bad in equal, if opposite, measure.

But, from a central banker’s perspective, inflation and deflation are not equally bad. 
  • Inflation is something that central bankers consider to be a manageable problem and something that is occasionally desirable. 
  • Deflation is something central bankers consider unmanageable and potentially devastating. 

#Central banks fear deflation more than inflation

Understanding why central banks fear deflation more than inflation is the key to understanding central bank monetary policy today.

1.  Central bankers believe they can control inflation by tightening monetary policy. 

  • Generally, monetary policy is tightened by raising interest rates
  • Since rates can be raised to infinity, there is not limit on this tool. 
  • Therefore, no matter how strong inflation is, central banks can always tame it with more rate increases.
  • The classic case is Paul Volcker in 1980 who raised interest rates to twenty percent in order to crush inflation that had reached thirteen percent.  
  • Central bankers feel that if the inflation genie escapes from the bottle, they can always coax it back in. 

2.  Central bankers also believe that inflation can be good for an economy.  

This is because of something called the Marginal Propensity to Consume or MPC.   The MPC is a measure of how much an individual will spend out of an added dollar of income.
  • The idea is that if you give a poor person a dollar they will spend all of it because they struggle to pay for food, housing and heath care. 
  • If you give a rich person a dollar, they will spend very little of it because their needs are already taken care of, so they are more likely to save or invest that dollar.  
  • Based on this, poorer people have a higher MPC. 

3.  Inflation can be understood as a wealth transfer from the rich to the poor. 

  • For the rich person, his savings are worth less, and his spending is about the same because he has a low MPC. 
  • By contrast, the poor person has no savings and may have debts that are reduced in real value during inflation. Poor people may also get wage increases in inflation, which they spend because of their higher MPC.

4.   Therefore, inflation tends to increase total consumption because

  • the wealth transfer from rich to poor increases the spending of the poor, 
  • but does not decrease spending by the rich who still buy whatever they want. 
The result is higher total spending or “aggregate demand” which helps the economy grow.

#Deflation hurts the government in many ways

Deflation is not so benign and hurts the government in many ways.

1.  It increases the real value of the national debt making it harder to finance.
  • Deficits continue to pile up even in deflation, but GDP growth may slow down when measured in nominal dollars. 
  • The result is that the debt-to-GDP ratio can skyrocket in periods of deflation. 
  • Something like this has been happening in Japan for decades. 
  • When the debt-to-GDP ratio gets too high, a sovereign debt crisis and collapse of confidence in the currency can result.

2.  Deflation also destroys government tax collections. 

  • If a worker makes $100,000 per year and gets a $10,000 raise when prices are constant, that worker has a 10% increase in her standard of living. 
  • The problem is that the government takes $3,000 of the increase in taxes, so the worker only gets $7,000 of the raise after taxes.
  • But if the worker gets no raise, and prices drop ten percent, she still has a ten percent increase in her standard of living because everything she buys costs less. 
  • But now she keeps the entire gain because the government has no way to tax the benefits of deflation. 
  • In both cases, the worker has a $10,000 increase in her standard of living, but in inflation the government takes $3,000, while in deflation the government gets none of the gain.

#What is good for government is often bad for INVESTORS.

For all of these reasons, governments favor inflation.   It can

  • increase consumption, 
  • decrease the value of government debt, and 
  • increase tax collections. 

Governments fear deflation because

  • it causes people to save, not spend; 
  • it increases the burden of government debt, and 
  • it hurts tax collections.

But, what is good for government is often bad for investors. 

In deflation, investors can actually benefit from

  • lower costs
  • lower taxes and 
  • an increase in the real value of savings. 

As a rule, inflation is good for government and bad for savers; while deflation is bad for government and good for savers.

#Flaws in the thinking about inflation and deflation by the government and economists

There are many flaws in the way the government and economists think about inflation and deflation.

The idea of MPC as a guide to economic growth is badly flawed.

Even if poor people have a higher propensity to consume than rich people, there is more to economic growth than consumption. 

1.  The real driver of long-term growth is not consumption, but investment. 
  • While inflation may help drive consumption, it destroys capital formation and hurts investment. 
  • A policy of favoring inflation over deflation may prompt consumption growth in the short run, but it retards investment led growth in the long run. 
  • Inflation is a case of a farmer eating his own seed-corn in the winter and having nothing left to plant in the spring. Later he will starve.

2.  It is also not true that inflation is easy to control. 

  • Up to a certain point, inflation can be contained by interest rate increases, but the costs may be high, and the damage may already be done. 
  • Beyond that threshold, inflation can turn into hyperinflation.  

3.  Hyperinflation

At that point, no amount of interest rate increases can stop the headlong dash to dump money and acquire hard assets such as gold, land, and natural resources. 
  • Hyperinflation is almost never brought under control. 
  • The typical outcome is to wipe out the existing currency system and start over after savings and retirement promises have been destroyed.

#Central banks favour inflation over deflation:  Its Implications

In a better world, central bankers would aim for true price stability that does not involve inflation or deflation.

But given the flawed economic beliefs and government priorities described above, that is not the case.

1.  Central banks favor inflation over deflation because it

  • increases tax collections, 
  • reduces the burden of government debt and 
  • gooses consumption. 
If savers and investors are the losers, that’s just too bad.

2.  The implications of this asymmetry are profound.
  • In a period where deflationary forces are strong, such as the one we are now experiencing, central banks have to use every trick at their disposal to stop deflation and cause inflation. 
  • If one trick does not work, they must try another.

Since 2008 central banks have used
  • interest rate cuts, 
  • quantitative easing, 
  • forward guidance, 
  • currency wars, 
  • nominal GDP targets, and 
  • operation twist to cause inflation. 

3.  None of it has worked; deflation is still a strong tendency in the global economy. This is unlikely to change.  The deflationary forces are not going away soon.
  • Investors should expect more monetary experiments in the years ahead. 
  • If deflation is strong enough, central banks may even encourage an increase in the price of gold  in order to raise inflationary expectations.

4.  Eventually the central banks will win and they will get the inflation they want.

  • But it may take time and the inflation may turn into hyperinflation in ways the central banks do not expect or understand. 
  • This “tug-of-war” between inflation and deflation creates the most challenging investment climate in 80 years.

The best investment strategies involve a balanced portfolio of hard assets and cash so investors can be ready for both. 

Monday, 25 May 2020

Lessons from the Great Depression

#Depression, Recession and Expansion

The term “depression” is not well understood and is not in wide use today.

Economists prefer terms like
  • “recession,” which means two or more consecutive quarters of declining GDP with rising unemployment, and
  • “expansion” which covers periods of rising GDP between recessions. 

Economists like the fact that recession is mathematically defined and measurable, whereas depression is subjectively defined and somewhat in the eye of the beholder.
Policymakers avoid using words like depression for fear that the public may become depressed and stop spending — the opposite of what is desired.

#Characteristics of Depression

Depression does not imply long periods of declining GDP. 

It is possible to have rising GDP, falling unemployment and rising stock prices in a depression.  Indeed, this is exactly what happened from 1933 to 1936 in the middle of the Great Depression.

What characterizes a depression is that

  • growth does not return to long-term potential, and 
  • total output, labor force participation and asset prices languish below prior peaks in some combination. 

This definition was first laid out by John Maynard Keynes in 1936 in his magnum opus, The General Theory of Employment, Interest and Money. It is not mathematically precise, but it is highly serviceable.

The importance of Keynes’s definition is that depressions are not merely longer or more persistent versions of a recession.  They are qualitatively different

# Tackling recession and depression

A recession is a cyclical phenomena amenable to liquidity and interest rate solutions applied by central banks.

Depressions are structural and do not respond to central bank remedies.
Depressions are only cured by structural changes in areas such as fiscal policy, regulation, and labor markets that are not controlled by central banks, but rather by legislatures and the executive.

#Lessons from the Great Depression of 1929 to 1940

The mystery of the Great Depression is not why it began but why it lasted so long.

The answer appears to be something economists call regime uncertainty.
  • The Hoover-Roosevelt programs seemed to come out of nowhere and disappear just as quickly confusing business leaders. 
  • Programs were launched with great fanfare then abandoned based either on Supreme Court decisions declaring  them unconstitutional or because of their failure to produce results.
  • In response, private capital went to the sidelines and refused to invest. Instead of a labor strike, there was a capital strike. 
  • No amount of government intervention could make up for the lack of private capital investment caused by the policy uncertainty of those years.

The Great Depression in the United States is conventionally dated from 1929 to 1940. These dates are somewhat arbitrary.
  • It began with the stock market crash in October 1929, and only ended when the U.S. massively restructured its economy to produce war material, first for our allies, particularly the U.K., in 1940, and later for our own forces after the U.S. entered the Second World War in December 1941.
  • The U.S. depression was part of a larger global depression that was visible in the U.K. in 1926, and in Germany in 1927, and that was not fully resolved until the new international monetary arrangements agreed at Bretton Woods in 1944 and implemented in the post-war years. 
  • But the core period, 1929–1940, covering President Hoover’s single term, and the first two terms of President Franklin Roosevelt, are the object of intensive interest by historians and scholars to this day.

The conventional narrative of the Great Depression is known by rote.
  • Herbert Hoover and the Federal Reserve are the typical villains who committed a series of policy blunders that first caused the depression, and then failed to alleviate it.  
  • Franklin Roosevelt is portrayed as the hero who saved the day and led the country back to growth through activism, government programs and massive spending. 
  • This narrative has been the blueprint and justification for liberal government intervention and spending programs ever since.

This narrative is almost completely wrong.
  • One much closer to the truth of what happened in the 1930s shows that there was a great deal of continuity between the Hoover and Roosevelt administrations. 
  • Both were activists and interventionists.
  • Both believed in public works and government spending.  
  • Major depression-era projects such as the Hoover Dam were begun in the Hoover administration; Roosevelt merely continued such hydroelectric and flood control projects on a larger scale with his Tennessee Valley Authority and other projects.
  • Importantly, Roosevelt did not end the depression in the 1930s; he merely managed it with mixed results until the exigencies of war production finally helped the U.S. escape it. 
  • Indeed, the U.S. had a severe relapse in 1937–38, the famous “recession within a depression,” that reversed some of the gains from the period of Roosevelt’s first term.

#Implication for the U.S. today

Indeed, the U.S. is in a depression today, and its persistence is due to the fact that positive structural changes have not been implemented. 

Federal Reserve policy is futile in a depression.
    The implication is that the current period of low growth in the U.S. will continue indefinitely until positive structural changes and greater clarity in public policy are achieved. 

    This new depression may be a long one.  

    Malaysia is not heading for deflation: Economists

    Publish date: Mon, 25 May 2020 

    KUALA LUMPUR: Malaysia is not heading for deflation despite Consumer Price Index (CPI) having deflated further 2.9 per cent to 117.6 points in April from 121.1 in the same month in 2019, the lowest level since 2010, economists said.

    Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the core CPI, which removes the volatile items such as fresh food and administered prices, had been recording positive growth of 1.3 per cent for the past three months now.

    "Therefore, it is not deflation since the primary driver for the decline in headline CPI was due to fuel prices and electricity charges whereby both sub indices have declined by 38.2 per cent and 33.3 per cent respectively during April.

    "I do not think deflation is going to happen in a truer sense. We can see food prices are still at elevated levels. Some items have been reporting quite substantial increment," he told the New Straits Times.

    Afzanizam said besides that, the country had been recording trade deficits in food items.

    He expects food prices to stay high with the ringgit continuing to be weak.

    He said in 2019, Malaysia had recorded a trade deficit in food items of RM17.4 billion. The deficit has remained since 1990.

    He noted that the country's Self Sufficiency Ratio (SSR) for rice, beef and chilli had stood at 70 per cent, 25.5 per cent and 38.8 per cent respectively in 2017.

    "This would mean Malaysia has been relying from import source in order to satisfy its local demand," he said.

    Putra Business School associate professor Dr Ahmed Razman Abdul Latif said he did not foresee the country heading towards deflation as the lower CPI was caused mainly by the decrease of global crude oil price for the past few months.

    He said this had in effect reduced the costs of transportation and fuels.

    He said, however, prices of global crude benchmarks such as Brent had steadily increased for the past few weeks towards US$35 per barrel which will stabilise the CPI movement.

    "In addition, the price of food and beverages has increased steadily and this will also ensure that the CPI will not go towards negative number," he said.

    RAM Ratings expects a deflationary trend in the second and third quarters of this year.

    The firm revised its headline inflation projection for 2020, from 0.7 per cent to 0.0 per cent.

    This is mainly due to weak global oil prices, generous discounts for household electricity bills, and subdued demand.

    "While inflation remained stable at 1.5 per cent in January-February, it is expected to ease to -0.2 per cent in March," it added.


    What makes deflation such a dreaded condition is that, once it takes hold, it motivates consumers to hold back on spending in the expectation that they will be able to buy things at a cheaper price later. This causes further drop in demand today, leading to more cutbacks in production and even slower economic activity, which feeds into more price declines -- a highly destabilizing dynamic.

    The Downfall of Money. Risks of Hyperinflation.

    #The risks of hyperinflation in the U.S. today.

    Today’s problems in the U.S. economy, too much debt and too little growth, are identical to the problems confronting Germany in 1921. 

    • Then, as now, the solutions were mainly structural. 
    • Then, as now, the politicians refused to compromise on solutions and looked to the central bank to paper over the problems. 
    • Then, as now, the central bank accommodated the politicians.

    Central bank independence is largely a myth and only appears to be a reality during stable economic times.

    • But when the legislative and executive branches become dysfunctional, as they are today, and when debts and deficits spin out of control, as they appear to be, then central banks must bow to the politicians and monetize the debt by money printing. 
    • This is what happened in Germany in 1921–23.

    Something similar may be starting to happen in the U.S. today.

    • The U.S. is not yet at the point of no return that Germany reached in 1921. But it is moving in the same direction. 
    • It has a dysfunctional political class and accommodating central bankers. 

    You want to know about the warning signs of hyperinflation before its most virulent stage wipes out your savings and pensions.

    Mark Twain once wrote, 
    “No occurrence is sole and solitary, but is merely a repetition of a thing which has happened before.” 

    #Weimar hyperinflation

    Weimar hyperinflation offers a historic guide to something that has happened before and that may repeat in the U.S. under remarkably similar conditions.

    Despite the widespread identification of “Weimar” with hyperinflation, few investors know the detailed history and political dynamics that led to Germany’s catastrophic outcome.

    • The facts that Germany had recently been defeated in the first World War and bore a heavy debt burden in the form of reparations to France, the U.K. and other victorious powers are necessary background.
    • You may also know that communists and proto-Nazis fought street battles, led regional rebellions and engaged in assassinations of high-profile political figures.

     But even this backdrop does not tell the whole story.

    #Rudolf Havenstein, the director of the Reichsbank, the central bank of Germany. 

    Most accounts of the Weimar hyperinflation focus on Rudolf Havenstein, the director of the Reichsbank, the central bank of Germany.

    • Havenstein had control of the printing presses and was directly responsible for the physical production of the banknotes, eventually denominated in the trillions of marks.
    • At one point, the Reichsbank printed such huge volumes of currency that they were physically constrained by paper shortages. 
    • They even resorted to printing on one side of the banknote in order to save ink, which was also in short supply. 
    • Havenstein is routinely portrayed as the villain in the story the man whose money printing ruined the German currency and its economy.

    #The culprit was the political leadership

    • Yet the culprit was the political leadership that refused to compromise on the structural reforms needed to restore growth to the German economy so it could begin to deal with its debt burden.
    • Politicians looked to the central bank to paper over their problems rather than fix the problem themselves.  
    • Havenstein is not an autonomous actor out to destroy the currency. 
    • He is simply the handmaiden of a weak, dysfunctional political class who refuse to make hard choices themselves.

    This insight, is of the utmost importance as you try to assess the risks of hyperinflation in the U.S. today. Investors like to point fingers at the Fed for “printing” (actually digitally creating) trillions of U.S. dollars out of thin air; they maybe not totally correct.


    The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class, by Frederick Taylor. This is the best and most thorough account of the Weimar hyperinflation yet and is likely to remain the definitive history.  Read this to understand exactly what happened, and why a repetition in the U.S. is a real possibility today..

    Wednesday, 20 May 2020

    Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

    If You Must Find Fault, This is the Way to Begin

    It is always easier to listen to unpleasant things after we have heard some praise of our good points.

    Begin with praise and honest appreciation.

    How to Criticize - and Not Be Hated for It

    Calling attention to one's mistakes indirectly works wonders with sensitive people who may resent bitterly any direct criticism.

    Talk About Your Own Mistakes First

    It isn't nearly so difficult to listen to a recital of your faults if the person criticizing begins by humbly admitting that he, too, is far from impeccable.

    Admitting one's own mistakes – even when one hasn't corrected them – can help convince somebody to change his behavior.

    Talk about your own mistakes before criticizing the other person.

    No One Likes to Take Orders

    Asking questions not only makes an order more palatable; it often stimulates the creativity of the persons whom you ask. People are more likely to accept an order if they have had a part in the decision that caused the order to be issued.

    Ask questions instead of giving direct orders.

    Let the Other Person Save Face

    Letting one save face! How important, how vitally important that is! And how few of us ever stop to think of it! We ride roughshod over the feelings of others, getting our own way, finding fault, issuing threats, criticizing a child or an employee in front of others, without even considering the hurt to the other person's pride. Whereas a few minutes' thought, a considerate word or two, a genuine understanding of the other person's attitude, would go so far toward alleviating the sting!

    Even if we are right and the other person is definitely wrong, we only destroy ego by causing someone to lose face.

    How to Spur People on to Success

    Let us praise even the slightest improvement. That inspires the other person to keep on improving.

    Praise is like sunlight to the warm human spirit; we cannot flower and grow without it. And yet, while most of us are only too ready to apply to others the cold wind of criticism, we are somehow reluctant to give our fellow the warm sunshine of praise.
    Jess Lair

    Everybody likes to be praised, but when praise is specific, it comes across as sincere – not something the other person may be saying just to make one feel good.

    Abilities wither under criticism; they blossom under encouragement.

    Give a Dog a Good Name

    [...] if you want to improve a person in a certain aspect, act as though that particular trait were already one of his or her outstanding characteristics.

    Give the other person a fine reputation to live up to.

    Make the Fault Seem Easy to Correct

    Tell your child, your spouse, or your employee that he or she is stupid or dumb at a certain thing, has no gift for it, and is doing it all wrong, and you have destroyed almost every incentive to try to improve. But use the opposite technique be liberal with your encouragement, make the thing seem easy to do, let the other person know that you have faith in his ability to do it, that he has an undeveloped flair for it – and he will practice until the dawn comes in the window in order to excel.

    Making People Glad to Do What You Want

    Always make the other person happy about doing the thing you suggest.

    The effective leader should keep the following guidelines in mind when it is necessary to change attitudes or behavior:
    1. Be sincere. Do not promise anything that you cannot deliver. Forget about the benefits to yourself and concentrate on the benefits to the other person.
    2. Know exactly what it is you want the other person to do.
    3. Be empathetic. Ask yourself what is it the other person really wants.
    4. Consider the benefits that person will receive from doing what you suggest.
    5. Match those benefits to the other person's wants.
    6. When you make your request, put it in a form that will convey to the other person the idea that he personally will benefit.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    When Nothing Else Works, Try This

    How to Win People to Your Way of Thinking

    That is what every successful person loves: the game. The chance for self-expression. The chance to prove his or her worth, to excel, to win.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    The Movies Do It. TV Does It. Why Don't You Do It?

    How to Win People to Your Way of Thinking

    Merely stating a truth isn't enough. The truth has to be made vivid, interesting, dramatic. You have to use showmanship. The movies do it. Television does it. And you will have to do it if you want attention.

    Dramatize your ideas.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    An Appeal That Everybody Likes

    How to Win People to Your Way of Thinking

    [...] all people you meet have a high regard for themselves and like to be fine and unselfish in their own estimation.

    [...] a person usually has two reasons for doing a thing: one that sounds good and a real one. The person himself will think of the real reason. You don't need to emphasize that. But all of us, being idealists at heart, like to think of motives that sound good. So, in order to change people, appeal to the nobler motives.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    What Everybody Wants

    How to Win People to Your Way of Thinking

    Wouldn't you like to have a magic phrase that would stop arguments, eliminate ill feeling, create good will, and make the other person listen attentively? Yes? All right. Here it is: "I don't blame you one iota for feeling as you do. If I were you I would undoubtedly feel just as you do." An answer like that will soften the most cantankerous old cuss alive. And you can say that and be 100 percent sincere, because if you were the other person you, of course, would feel just as he does.

    Be sympathetic with the other person's ideas and desires.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    A Formula That Will Work Wonders for You

    How to Win People to Your Way of Thinking

    Remember that other people may be totally wrong. But they don't think so. Don't condemn them. Any fool can do that. Try to understand them. Only wise, tolerant, exceptional people even try to do that. There is a reason why the other man thinks and acts as he does. Ferret out that reason – and you have the key to his actions, perhaps to his personality. Try honestly to put yourself in his place. If you say to yourself, "How would I feel, how would I react if I were in his shoes?" you will save yourself time and irritation, for "by becoming interested in the cause, we are less likely to dislike the effect."

    Tomorrow, before asking anyone to put out a fire or buy your product or contribute to your favorite charity, why not pause and close your eyes and try to think the whole thing through from another person's point of view? Ask yourself: "Why should he or she want to do it?"

    Try honestly to see things from the other person's point of view.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    How to Get Cooperation

    How to Win People to Your Way of Thinking

    Don't you have much more faith in ideas that you discover for yourself than in ideas that are handed to you on a silver platter? If so, isn't it bad judgment to try to ram your opinions down the throats of other people? Isn't it wiser to make suggestions – and let the other person think out the conclusion?

    No one likes to feel that he or she is being sold something or told to do a thing. We much prefer to feel that we are buying of our own accord or acting on our own ideas. We like to be consulted about our wishes, our wants, our thoughts.

    Let the other person feel that the idea is his or hers.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    The Safety Valve in Handling Complaints

    How to Win People to Your Way of Thinking

    Most people trying to win others to their way of thinking do too much talking themselves. Let the other people talk themselves out. They know more about their business and problems than you do. So ask them questions. Let them tell you a few things. If you disagree with them you may be tempted to interrupt. But don't. It is dangerous. They won't pay attention to you while they still have a lot of ideas of their own crying for expression. So listen patiently and with an open mind. Be sincere about it. Encourage them to express their ideas fully.

    Even our friends would much rather talk to us about their achievements than listen to us boast about oursLa Rochefoucauld, the French philosopher, said: "If you want enemies, excel your friends; but if you want friends, let your friends excel you." Why is that true? Because when our friends excel us, they feel important; but when we excel them, they – or at least some of them – will feel inferior and envious.

    Let the other person do a great deal of the talking.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    The Secret of Socrates

    How to Win People to Your Way of Thinking

    In talking with people, don't begin by discussing the things on which you differ. Begin by emphasizing – and keep on emphasizing – the things on which you agree. Keep emphasizing, if possible, that you are both striving for the same end and that your only difference is one of method and not of purpose.

    Get the other person saying "Yes, yes" at the outset. Keep your opponent, if possible, from saying "No". A "No" response [...] is a most difficult handicap to overcome. When you have said "No", all your pride of personality demands that you remain consistent with yourself. You may later feel that the "No" was ill-advised; nevertheless, there is your precious pride to consider! Once having said a thing, you feel you must stick to it. Hence it is of the very greatest importance that a person be started in the affirmative direction.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    A Drop of Honey

    How to Win People to Your Way of Thinking

    If a man's heart is rankling with discord and ill feeling toward you, you can't win him to your way of thinking with all the logic in Christendom. Scolding parents and domineering bosses and husbands and nagging wives ought to realize that people don't want to change their minds. They can't be forced or driven to agree with you or me. But they may possibly be led to, if we are gentle and friendly, ever so gentle and ever so friendly.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    If You're Wrong, Admit It

    How to Win People to Your Way of Thinking

    Say about yourself all the derogatory things you know the other person is thinking or wants to say or intends to say – and say them before that person has a chance to say them. The chances are a hundred to one that a generous, forgiving attitude will be taken and your mistakes will be minimized [...].

    There is a certain degree of satisfaction in having the courage to admit one's errors. It not only clears the air of guilt and defensiveness, but often helps solve the problem created by the error.

    Any fool can try to defend his or her mistakes – and most fools do – but it raises one above the herd and gives one a feeling of nobility and exultation to admit one's mistakes.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    A Sure Way of Making Enemies – And How to Avoid It

    How to Win People to Your Way of Thinking

    You can tell people they are wrong by a look or an intonation or a gesture just as eloquently as you can in words – and if you tell them they are wrong, do you make them want to agree with you? Never! For you have struck a direct blow at their intelligence, judgment, pride and self-respect. That will make them want to strike back. But it will never make them want to change their minds.

    If you are going to prove anything, don't let anybody know it. Do it so subtly, so adroitly, that no one will feel that you are doing it.

    You cannot teach a man anything; you can only help him to find it within himself.
    Galileo Galilei

    Be wiser than other people if you can; but do not tell them so.
    Lord Chesterfield

    One thing only I know, and that is that I know nothing.

    If a person makes a statement that you think is wrong – yes, even that you know is wrong – isn't it better to begin by saying: "Well, now, look, I thought otherwise, but I may be wrong. I frequently am. And if I am wrong, I want to be put right. Let's examine the facts."

    You will never get into trouble by admitting that you may be wrong. That will stop all argument and inspire your opponent to be just as fair and open and broad-minded as you are. It will make him want to admit that he, too, may be wrong.

    Show respect for the other person's opinions. Never say, "You're wrong."

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    You Can't Win an Argument

    How to Win People to Your Way of Thinking

    "Why prove to a man he is wrong? Is that going to make him like you? Why not let him save his face? He didn't ask for your opinion. He didn't want it. Why argue with him? Always avoid the acute angle."

    [...] there is only one way under high heaven to get the best of an argument – and that is to avoid it.

    You can't win an argument. You can't because if you lose it, you lose it; and if you win it, you lose it. Why? Well, suppose you triumph over the other man and shoot his argument full of holes [...]. Then what? You will feel fine. But what about him? You have made him feel inferior. You have hurt his pride. He will resent your triumph.

    If you argue and rankle and contradict, you may achieve a victory sometimes; but it will be an empty victory because you will never get your opponent's good will.
    Benjamin Franklin

    [...] a misunderstanding is never ended by an argument but by tact, diplomacy, conciliation and a sympathetic desire to see the other person's viewpoint.

    Welcome the disagreement. Remember the slogan, "When two partners always agree, one of them is not necessary." If there is some point you haven't thought about, be thankful if it is brought to your attention. Perhaps this disagreement is your opportunity to be corrected before you make a serious mistake.

    Our first natural reaction in a disagreeable situation is to be defensive. Be careful. Keep calm and watch out for your first reaction. It may be you at your worst, not your best.
    Thank your opponents sincerely for their interest. Anyone who takes the time to disagree with you is interested in the same things you are. Think of them as people who really want to help you, and you may turn your opponents into friends.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    How to Make People Like You Instantly

    Ways to Make People Like You

    If we are so contemptibly selfish that we can't radiate a little happiness and pass on a bit of honest appreciation without trying to get something out of the other person in return and; if our souls are no bigger than sour crab apples, we shall meet with the failure we so richly deserve.

    Always make the other person feel important.

    You want the approval of those with whom you come in contact. You want recognition of your true worth. You want a feeling that you are important in your little world. You don't want to listen to cheap, insincere flattery, but you do crave sincere appreciation.

    So let's obey the Golden Rule, and give unto others what we would have others give unto us. How? When? Where? The answer is: All the time, everywhere.

    The unvarnished truth is that almost all the people you meet feel themselves superior to you in some way, and a sure way to their hearts is to let them realize in some subtle way that you recognize their importance, and recognize it sincerely.

    Make the other person feel important – and do it sincerely.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    How to Interest People

    Ways to Make People Like You

    Whenever Roosevelt expected a visitor, he sat up late the night before, reading up on the subject in which he knew his guest was particularly interested. For Roosevelt knew, as all leaders know, that the royal road to a person's heart is to talk about the things he or she treasures most.

    Talking in terms of the other person's interests pays off for both parties.

    Reference:  How to Win Friends and Influence People by Dale Carnegie

    An Easy Way to Become a Good Conversationalist

    Ways to Make People Like You

    [...] I had done this: I had listened intently. I had listened because I was genuinely interested. And he felt it. Naturally that pleased him. That kind of listening is one of the highest compliments we can pay anyone.

    Listening is just as important in one's home life as in the world of business.

    [...] many people fail to make a favorable impression because they don't listen attentively.
    [...] he had wanted merely a friendly, sympathetic listener to whom he could unburden himself. That's what we all want when we are in trouble. That is frequently all the irritated customer wants, and the dissatisfied employee or the hurt friend.

    People who talk only of themselves think only of themselves.

    So if you aspire to be a good conversationalist, be an attentive listener. To be interesting, be interested. Ask questions that other persons will enjoy answering. Encourage them to talk about themselves and their accomplishments. Remember that the people you are talking to are a hundred times more interested in themselves and their wants and problems than they are in you and your problems.

    Reference:  How to Win Friends and Influence People by Dale Carnegie