Inductive vs Deductive reasoning for investing in the markets 
Inductive vs Deductive reasoning- for investing in the markets

Inductive vs Deductive reasoning- for investing in the markets

Inductive vs Deductive reasoning

Updated April  2020

Benefits of Inductive vs Deductive reasoning

Inductive thinking teaches one to examine the data provided with a different set of eyes and not to accept anything as factual even if it appears to originate from the most pristine of sources.  It teaches you to break down everything, and reanalyze it all through a different lens. In applying this form of thinking, you dramatically cut the amount of flawed data that goes into your analysis.

Instead of simply blindly accepting raw data you actually decide to objectively look at this raw data and then decide whether it should or should not be used. It is widely known that government data is extremely manipulated (and this has never been truer. Since 2008, the Central bankers have manipulated the markets and the data in way never seen before in the history of the markets) and thus no matter how prestigious the company that provides the data, the data is and will always be flawed.

Advantages of Inductive Reasoning

The principles of Mass Psychology are understood better if one is able to think inductively.

One of the main tenets of Inductive thinking is to build a comprehension of the basic rules of mass psychology; by reading past and present issues of the market update you will slowly but surely understand how to apply mass psychology to not only help you with your investments, but you will find out that it can be applied to improve all aspects of your life.

Remember the two most important principles for success are patience and discipline and so do not feel that you have to rush out and buy the plays in our portfolio; take the time to understand and learn our investment rules and the way we operate before deploying your money.

New opportunities are always presenting themselves so if you miss one, there are plenty more around the corner; the problem with most is that instead of embracing opportunity when it knocks, they are busy waving goodbye

Disadvantages of Deductive Reasoning

Understanding the basic concept of mass psychology is imperative as it is the only tool that pushes the mind to focus on inductive thinking as opposed to deductive thinking. Deductive thinking is where you are given a certain bunch of facts, and you use these facts to come up with a possible outcome. However, what if the facts given to you are faulty or worse yet fake. Then, no matter how thorough your analysis, the result will be flawed.

Inductive Thinking In More Detail

Inductive thinking involves using a higher part of the mind.  Here you search for the facts and then use these facts that you obtained from your own observations to draw a conclusion.  When it comes to the Financial Markets, Inductive thinking is far superior to deductive thinking. Very few are able to understand this process, let alone use it effectively.

The reason for this failure is that most market participants are trained to believe that they have to work very hard. they are also told that they need to spend an endless amount of time memorizing facts to improve their skills.  Nothing could be further from the truth. The general concept can be summarised as follows, you should be very nervous when everyone is happy and vice versa.  Once you understand this, you can then work on fine-tuning your understanding of this very powerful and invaluable tool.

Inductive thinking is a pre-requisite To Employing Mass Psychology

At TI our focus is on the behavioural patterns of the average individual (mass mindset). Mass Psychology is the study of the mass mindset; understand the mass mindset and you understand the markets. We would like to take the time to remind everyone that before one could walk or run one had to learn to crawl. Before one could crawl one had to want to crawl. Thus, if you seek to change you must first want change.  Change is not something that comes about without some effort; effort is necessary because one has to deprogram one’s mind from old concepts that one was falsely led to believe.

Inductive Versus Deductive reasoning; how to set your mind free

Your mind has been trained for decades to accept what mainstream media and so-called experts deemed to be true. Here at TI, we view no one as an expert (this includes us). We are not in awe of any being on this planet nor shall we be in awe for anyone who claims to know it all. We do, respect the giants from the past and few from the present. These individuals usually go out of their way to state that they don’t really know much but are open and willing to learn as much as possible.

Idiots are forever clamouring for attention while the wise desperately seek to avoid it for they know their efforts are best directed towards seeking more knowledge rather than wasting time basking in the light of false glory.  Sol Palha 

Thoughts from other individuals on Inductive thinking

The strength of inductive reasoning lies in establishing probability. You might observe that when it is very cloudy there is rain. Pure inductive reasoning would say that means it will rain on all cloudy days. You will observe days when this is not true, but through inductive reasoning, you establish the probability that it could rain on a cloudy day and prepare accordingly.

Another strength is that inductive reasoning allows you to be wrong. It is only through more observation that you determine whether your premises are true. Detectives use this method of reasoning when investigating a crime. They see patterns or make observations that lead them to certain conclusions. That sets their path in motion, and they will either prove their conclusion right or wrong with further investigation. The value is that this form of reasoning has at least given them some direction Full Story

Inductive Thinking Example

Inductive reasoning begins with detailed observations of the world, which moves towards more abstract generalisations and ideas[4]. When following an inductive approach, beginning with a topic, a researcher tends to develop empirical generalisations and identify preliminary relationships as he progresses through his research. No hypotheses can be found at the initial stages of the research and the researcher is not sure about the type and nature of the research findings until the study is completed.

As it is illustrated in the figure below, “inductive reasoning is often referred to as a “bottom-up” approach to knowing, in which the researcher uses observations to build an abstraction or to describe a picture of the phenomenon that is being studied”[5]   Full Story


Differences between  Inductive Approach vs  the Deductive Method 

One of the most important issues in research is the research approach. Researchers usually use one of the two widely known research approaches i.e. deductive and inductive. Both of the approaches have their advantages and disadvantages and both impact on many aspects of research. The aim of this article is to explore the differences between deductive and inductive approaches to research.

Advantages and disadvantages associated with Deductive reasoning 

Deductive research is a focused method of testing hypotheses. However, some critics would argue that this approach does not encourage divergent thinking.  It may also limit the scope of creativities.

What is the inductive approach?

According to Gratton and Jones (2009) inductive approach generates an explanation from the data collected. It is the opposite of deductive research. Aims at exploring a new theory. It is about moving from specific observations to broader generalizations and theories.

Advantages and disadvantages of the inductive approach

The inductive approach is flexible as the researcher does not have to follow any pre-determined information. However, critics would argue that if observations are incorrect, the researcher would end up in incorrect conclusions.

Deductive vs inductive approaches to research

There are some differences between deductive and inductive approaches to research. In the deductive approach, the researcher begins the process by considering past and present theories concerning the topic of the research. This helps the researcher develop some hypotheses. The new hypotheses will then be tested by the researcher in the process of conducting a new study. The collected data will either confirm or reject the hypotheses. Full Story

Inductive Reasoning vs Deductive reasoning

During the scientific process, deductive reasoning is used to reach a logical true conclusion. Another type of reasoning, inductive, is also used. Often, people confuse deductive reasoning with inductive reasoning and vice versa. It is important to learn the meaning of each type of reasoning so that proper logic can be identified.

This type of reasoning is a basic form of valid reasoning. Deductive reasoning, or deduction, starts out with a general statement, or hypothesis, and examines the possibilities to reach a specific, logical conclusion, according to California State University. The scientific method uses deduction to test hypotheses and theories. “In deductive inference, we hold a theory and based on it we make a prediction of its consequences. That is, we predict what the observations should be if the theory were correct. We go from the general — the theory — to the specific — the observations,” said Dr Sylvia Wassertheil-Smoller, a researcher and professor emerita at Albert Einstein College of Medicine.

This type of reasoning is the opposite of deductive reasoning. Such reasoning makes broad generalizations from specific observations. Basically, there is data, then conclusions are drawn from the data. This is called inductive logic, according to Utah State University.

“In inductive inference, we go from the specific to the general. We make many observations, discern a pattern, make a generalization, and infer an explanation or a theory,” Wassertheil-Smoller told Live Science. “In science, there is a constant interplay between inductive inference (based on observations) and deductive inference (based on theory), until we get closer and closer to the ‘truth,’ which we can only approach but not ascertain with complete certainty.”

An example of inductive logic is, “The coin I pulled from the bag is a penny. That coin is a penny. A third coin from the bag is a penny. Therefore, all the coins in the bag are pennies.”  Full Story


Other Articles Of Interest

Why market crashes are buying opportunities

A clear Illustration of the Mass Mindset In Action

Inductive Versus Deductive reasoning

Mass Psychology Introduction

Comic Strip Illustrating Mass Mindset

Mass Psychology or Contrarian Investing

Contrarian Investment Guidelines

Fashion contrarian 

7 rules for contrarian investing



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