I was eating lunch at Tropical Smoothie Cafe yesterday when my friend turned to me and said “Dude, that [amazingly cute] girl over there is totally checking you out”.  I quickly dismissed his comment but he kept persisting, “No seriously, she keeps looking over at you”.  I probably just had some mustard on my face or crumbs on my shirt.  How could we both be sitting at the same table but see such a different perspective?  

Framing is the way we interpret things, based on stereotypes and preconceptions, that help us understand the context of events around us.  In any situation, if we are given no context, there can be several different explanations for why things are happening.  Framing is our minds way of gathering that information and processing it into a logical conclusion.

One example of framing deals with everyday social interaction.  When a friend closes and opens one eye quickly, how do you know whether they are blinking, winking at you, or just trying to get dust out of their eye?  It lies in the context of the situation and environment around you. 

In investing, two different investors may interpret the same information differently, depending on how the information is presented to them and how they frame the circumstances of that information.  Let’s use my favorite example, Apple (AAPL).  I may look at Apple’s financial reports and ratios and recent news to decide on the direction of the company.  However, my friend John could take those same financial reports and ratios and news and come to an entirely different conclusion based on his preconceptions.  Sometimes, even the knowledgeable investor isn’t always successful.  It’s equally important to mention what we do with the knowledge that we receive.  By keeping our emotions out of our investing decisions, we can remain impartial and make smarter investments.      

Last day tomorrow… self serving bias!