Here are the key sentences extracted from the provided text, based on their relevance to your request (trends in business models, influences on behavior, innovation during/after the pandemic, and effectiveness of influence):

- "Many of these mathematical models work only because they rely on certain assumptions about human behavior."

- "In fact, focusing on innovation can be a source of great hope as we try to navigate safely out of the pandemic."

- "Cialdini’s ideas are robust because he began not in a lab but in the real world."

- "They are timeless and have been proven to be effective."

- "One of the biggest problems with making predictions is that they can change the future."

- "Perhaps the product is so well known that there’s no need for social proof."

- "That’s why people who are serious about change find groups of people that are living the change that they would like to see."

- "Change is hard and it can be messy and uncomfortable, but with the right tools and support it is not impossible."

- "If it takes less time to revert, the losses could be quicker and steeper."

These sentences address behavioral models, innovation amid the pandemic, principles of influence, the role of group dynamics and support systems, and the importance of adaptability and change—factors relevant to understanding trends and attraction mechanisms in MLM and similar business models.

Here are the key sentences extracted from the provided text, based on their relevance to your request (trends in business models, influences on behavior, innovation during/after the pandemic, and effectiveness of influence):

- "Many of these mathematical models work only because they rely on certain assumptions about human behavior."

Title:

Content: Reel science

The biggest sci-fi show of 2021 reveals the real science of predicting the future

“Maths is the best way we have of understanding the world around us.”

Psychohistory is “the destiny of the human race expressed in numbers.”

In Foundation, an Apple TV+ series loosely based on the books by Isaac Asimov, psychohistory is the use of mathematical models to predict what will happen in the future. Developed by mathematical genius Hari Seldon and imparted to his young apprentice Gaal Dornick, these complex calculations point to a dangerous new world: one where an empire falls leading to 30-thousand years of dark ages.

What might save them is acting now on these predictions.

At its core, sci-fi fascinates audiences by using complex scientific ideas to help us make sense of complex worlds — both fictional and real. Accordingly, the idea that we can use math to make predictions on a large scale has its roots in real-life mathematics.

Maths is the best way we have of understanding the world around us,” Kit Yates, a mathematical biologist at the University of Bath and author of The Math of Life and Death, tells Inverse. Yates is currently working on a book about using math to predict the future — but don’t call her work psychohistory.

Warning: Light spoilers for Foundation below.

Reel Science is an Inverse series that reveals the real (and fake) science behind your favorite movies and TV.

Is psychohistory real?

Psychohistory isn’t technically a real area of study — but it does resemble real-life applications of real-life mathematics and psychology.

“Building mathematical models is the best way we have to make predictions about what will happen in the future,” Yates says.

Math is also used to interpret, rather than predict, human behavior.

“I do create mathematical models of human psychology, but my goal is not to predict future behavior, but to simplify — reveal the essence of — human psychology,’ George Loewenstein, the Herbert A. Simon University Professor of Economics and Psychology at Carnegie Mellon University, tells Inverse.

Mathematical models “don’t seek to capture human behavior in all its enormous complexity,” Loewenstein adds. He stresses “very few models could be used even to predict” the behavior of groups of people in particular situations, let alone the behavior of individuals.

Yates agrees — mathematical modeling works best on a larger scale. Even in Foundation, Hari’s mathematical models operate on the scale of empires, not human lives.

“Just as in Foundation, mathematical prediction works better when we try to predict what is going to happen at the population-level,” Yates says.

“Mathematical modeling is by no means a perfect framework. A model is only as good as the assumptions on which it rests.”

Using math to predict the future

While predicting the collapse of society might feel estranged from everyday life, you’ve likely already benefited from mathematical predictions.

For example, every time we look at the weather forecast on a smartphone, we’re relying on the power of mathematical models to predict the future.

“At a personal level, we need to know what the weather will be like this afternoon so we can decide whether or not to hang out the washing,” Yates says.

It’s also common to hear people trying to game the stock market or win the lottery using mathematical formulas and probabilities. In the stock market, people called “quants” spend their days generating algorithms to predict certain financial behavior and identify potential trading opportunities.

“Some people have successfully used mathematical models to predict not the stock market, but specific trends in specific sectors — which is all it takes to make money,” Loewenstein says.

Meanwhile, every time you purchase an item on Amazon, the site’s predictive modeling captures that data, using it to offer suggestions — predictions – about what you might like to purchase next.

Actuaries also use statistics to predict the likelihood of risks, while some police departments attempt to use predictive modeling to forecast crime (this type of modeling, however, is widely criticized).

“One of the biggest problems with making predictions is that they can change the future.”

Many of these mathematical models work only because they rely on certain assumptions about human behavior.

“One of the biggest problems with making predictions is that they can change the future – they can become self-defeating prophecies,” Yates says.

This concept is similar to one raised in Foundation. Hari argues exact predictions cannot be revealed to society at large, because if the world knew what was predicted, humans would alter their behavior (there’s more to this but that would be a major spoiler).

“For example, mathematical modeling at the start of the pandemic received criticism because it predicted hundreds of thousands of deaths – many of which didn’t come to pass,” Yates says.

“What people tend to forget in hindsight was that these were projections for what would happen if nothing was done to mitigate the spread of the disease,” he says. “In fact the predictions themselves acted as a wakeup call startling politicians into action, taking measures to save lives and turn the modeled predictions into self-defeating prophecies."

Loewenstein says only artificial intelligence (AI) could come close to predicting complex human behavior on that scale but “how the AI makes such predictions successfully won’t be comprehensible to humans.”

Can math predict the fall of nations?

In Foundation, we’re led to believe that Hari poses a threat to the empire because his predictions could lead to a loss of faith in the status quo. Hari’s apprentice, Gaal, meanwhile, is somewhat skeptical of Hari’s grand predictions.

Like Gaal, many real-life mathematicians are skeptical of using math to predict the course of nations.

“I do think social and behavioral scientists have some profound insights into when and why civilizations rise and fall, and these insights could be used to predict the future success of economies and even of the global economy,” Loewenstein says.

But he also adds, “few of these insightful and profound analyses make much, if any, use of math.”

Yates agrees, saying that “there are so many variables that feed into a process like the rise or fall of an empire, that predicting anything with any certainty is difficult.

Societal collapse hinges on several factors rooted in complex human behavior. Take the fall of Rome, for example. Historians are still debating what, exactly, caused the collapse of this powerful empire.

“That’s not to say that making predictions about large systems with many variables is impossible,” Yates argues.

It’s perhaps less controversial to use math to predict the fall of a nation than to ensure its survival. Today, mathematicians today are using algorithms to prevent gerrymandering — a process where politicians redraw congressional maps to favor certain voters at the expense of others.

Making math cool again

Recent shows like Foundation and movies like The Man Who Knew Infinity have featured younger and prominent characters of color in leading roles, countering the historical past of mathematics as a bastion of older white men. These kinds of media could make mathematics more accessible to a wider audience.

“I think there is a trope that portrays mathematicians on TV as quirky, eccentric, or unhinged,” Yates says.

Foundation both reinforces and challenges these tropes. Hari’s mathematical skills make him an outcast in the eyes of the empire — a threat to be eliminated.

But when Gaal counts numerical patterns under her breath to calm herself down, her companion largely accepts her explanation, rather than mocking her — a positive step forward in representation for math geeks everywhere. Similarly, the characters toss around phrases like “radical integers” and “proofs” in routine conversations.

These small details can help reinforce the idea that math is an everyday part of our world and that mathematicians are relatable people.

“I’m always at pains to point out that mathematicians are just normal people,” Yates says. “You don’t have to be different or an outcast to be a mathematician.”

Foundation is streaming now on Apple TV+.

Related Tags
Share:

- "In fact, focusing on innovation can be a source of great hope as we try to navigate safely out of the pandemic."

Title:

Content: BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Innovation: A Source Of Hope In Times Of Crisis

Post written by Dr Nadia Millington, Senior Lecturer in Practice at LSE’s Department of Management.

Many business leaders are still grappling with the financial and human fallout of Covid, and understandably feel they don’t have the bandwidth to seek out innovative solutions in their businesses.

While conserving cash, cutting costs, driving efficiency and ensuring employee wellbeing should all be top priorities, innovation must not be neglected. In fact, focusing on innovation can be a source of great hope as we try to navigate safely out of the pandemic.

Discussions of hope in times of crisis are common across all Western philosophical traditions, but the term ‘hope’ is not usually discussed in regard to business innovation. The Standford encyclopedia of philosophy did a systematic review of the hope across past and contemporary philosophers and found some common threads. Hope is directed to future events; it leads to justified expectations and a desire for an outcome that makes life better in some way. Hope also promotes rational agency, that is, it’s not irrational optimism, but is based on the knowledge that achievement is possible.

Simply, hope can improve employee experiences at work by allowing them to envisage a better future and have the confidence that a ‘new normal’ is possible amidst the toughest of challenges.

So how then can innovation be a source of hope in crises?

From our experience observing a range of short-term innovation interventions within both large multinationals and social enterprises over the last 15 months, the greatest ‘hope uplift’ starts with the intentionality of the project. The best projects were developed around the most urgent or attractive opportunities and challenges based on the company’s expectations of the new normal beyond Covid. Companies that used this approach sought wide employee engagement to develop projects of true worth to the firm’s post-Covid future. One consulting firm that was particularly intentional about its project choice focused on 3 core themes: changing customer needs, digital adoption, and employee wellness. Employees were engaged and particularly committed as it provided an opportunity to refocus their energy on a brighter tomorrow.

In contrast, firms that simply chose to reimagine old projects, or focus on long-standing, complex and endemic issues, did not seem to have the same hope uplift. A case in point was a social enterprise that focused on innovating a new partnership model – a long-standing problem that had not been resolved by several prior attempts. Such a scattershot approach caused an already Covid-weary workforce to be less engaged in a project amid competing challenges.

A hope uplift is only possible when there is the chance of a beneficial outcome. Whilst there is no proven formula for innovation success, we found that employees had the greatest hope uplift when they expect that their efforts will potentially be rewarded by something new or a significant improvement in the workplace. Simply undertaking countless surveys about 'the future of work', or asking them to brainstorm solutions, was not sufficient, as consistently looking inwards for solutions put additional pressures on staff and stifled innovation. Without infusing external ideas, firms appeared to recycle less ambitious solutions and employee hopes atrophied over time.

In contrast, companies that gained the most hope uplift through their innovation projects tended to engage in ‘open innovation’ (OI), a term popularized by Henry Chesbrough. OI helps companies to leverage external sources of knowledge to solve problems in unique ways. Examples of OI include crowdsourcing, hackathons, lead users or open sourcing. We found that OI is particularly effective in achieving a hope uplift because it allows companies to conserve some of their internal resources to focus on business continuity and other critical tasks, while benefiting from the innovative solutions they’ve found by engaging with their external environment. Firms without prior OI experience were also able to benefit by using low cost OI partners, which complimented and energized internal teams without the need to overhaul the firm’s internal innovation process.

The final ingredient for hope uplift is belief. Employees need to believe that if they invest their time scoping the right project and seeking more novel solutions via OI, the result will be adopted or at least be considered. This is dependent on employees trusting that leaders will prioritize resources towards new solutions. To build this trust, leaders should be explicit about processes used to assess the value of solutions and allow more time to test ideas if staff are especially energized by them. We found that one of the biggest mistakes an organization can make is to sideline a project that employees initiated without clear communication or justification.

Whether we consciously address it in business or not, hope is an essential part of everyday life. There is no denying that Covid has led to significant social and economic fallout and, in doing so, made many employees disheartened about the future. But innovation – when done correctly – can counter this and create an uplift that leads to the renewed sense of optimism we so desperately need.

Follow me on TwitterCheck out my website

The London School of Economics and Political Science is one of the foremost social science universities in the world. We are ranked No. 1 in the U.K. for research in

The London School of Economics and Political Science is one of the foremost social science universities in the world. We are ranked No. 1 in the U.K. for research in business and management studies (REF 2014). Our world-leading academics in the department of management produce original and robust research insights with the aim of deepening society’s understanding of management. We share articles founded on academic thought to inform and inspire better management practice.

- "Cialdini’s ideas are robust because he began not in a lab but in the real world."

Title:

Content: BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Robert Cialdini’s Principles Of Influence Have Held Up For 40 Years, Here’s Why

Following

In recent years, behavioral science has been going through a replication crisis. Research results, some widely cited and some even applied to real-world problems, couldn’t be replicated when other researchers tried the same experiments. Sometimes, the failure to replicate is caused by differences in the experimental process or subject pool. In a smaller number of cases, findings have been discredited due to manipulated statistics or fabricated data. Ironically, a prominent dishonesty researcher has been accused of fraud.

Despite growing doubt in whether we should be using behavioral science findings in business and government, there is one body of work has endured for four decades and seems more applicable today than ever. Robert Cialdini’s seminal book Influence: The Psychology of Persuasion was published 40 years ago and remains a bestseller today.

Except for Dale Carnegie’s How To Win Friends and Influence People, no business book has endured as well as Influence. The book has sold seven million copies and has been translated into 44 languages. The latest edition weight in at a whopping 592 pages and 2.31 pounds. Even today, the book consistently ranks in the top 1,000 at Amazon, not in specific category but among all books sold there.

Cialdini’s principles have become common parlance in business. Many marketers who use the term “social proof” don’t realize it was coined by Cialdini in 1984. Influence has been endorsed by luminaries ranging from Warren Buffet and the late Charlie Munger to Gwyneth Paltrow and Guy Kawasaki.

What Are Cialdini’s Principles of Influence?

Cialdini’s Principles of Influence, sometimes called Principles of Persuasion, are, very briefly:

  1. Reciprocity: People tend to give back to others when they have received something first.
  2. Scarcity: People want things more when those things are scarce or limited.
  3. Authority: People pay attention to those who know more about a topic, like experts and celebrities, when making decisions.
  4. Consistency: People try to be consistent with past decisions and statements.
  5. Liking: People are more influenced by those they like, including those with whom they have something in common.
  6. Social Proof: People look to others for cues as to what they should do.
  7. Unity: A stronger form of Liking that goes beyond shared attributes and is based on shared identity - family members, teammates, and members of any group that the individual identifies strongly with.

In this short video, Cialdini himself describes each principle briefly:

Why Have Cialdini’s Principles Endured?

A big reason many behavioral science findings either don’t replicate or turn into useful real-world tools is that they tend to be lab studies, often conducted with students as subjects. If your results are based on 47 MIT sophomore psychology students, they may not tell you much about the behavioral tendencies of a broad swath of humanity. They may not even replicate at UCLA or Oxford.

Cialdini’s ideas are robust because he began not in a lab but in the real world. He spent three years going “undercover” and training at organizations he knew were effective persuaders: used car dealers, telemarketing firms, and fundraisers. These businesses had mastered the art of getting people to say “yes,” and the only way to learn their methods was to join them and go through their training.

It’s worth noting the level of sacrifice involved in taking years away from conventional research and publishing papers for an up-and-coming professor. But, sometimes great sacrifice yields great rewards.

By observing the techniques proven to work not in a lab but with real people spending real money, Cialdini was able to distill his six principles of influence, later expanded to seven. Further experimentation, often outside the lab and in environments like shopping malls and hotels, added more data to support Cialdini’s theories.

Countless Commercial Replications

Academic replication is fine, but the real test for a behavioral science finding is whether it can be applied across a range of real-world situations. In the forty years since Influence released, these principles have been used time and time again in every commercial context. When the travel site tells you there are “only two rooms left” and “23 people booked this hotel in the last 48 hours,” they are using scarcity and social proof. When the salesperson mentions that you are both fans of the same team or both dog owners, that’s liking. When you buy Lebron James basketball shoes or a book endorsed by an author you respect, that’s authority.

Businesses use the principles because they work, as shown by both experience and extensive testing.

Do Cialdini’s Principles Always Work?

These principles are so basic and ubiquitous one might expect that they will always increase compliance, i.e., boost the chance that the person will take the action you want. These mental shortcuts are reliably effective, but don’t work every time in every situation.

For example, digital marketing experts say that adding social proof to a landing page that previously lacked it will boost the page’s conversion rate nine times out of ten. But sometimes, it will have no effect or even reduce conversion.

What’s going on? There are lots of reasons why social proof might not work. Perhaps the product is so well known that there’s no need for social proof. Would hearing that a hundred million Americans drink Coca Cola make you more likely to buy some? Probably not.

Other types of products, like luxury or artisanal items, might actually be hurt by social proof. If you are buying an Italian supercar or a costly handbag that was hand-crafted by skilled artisans, the last thing you want to see is “thousands sold.” You prefer to imagine that yours is unique, and you’ll never see anyone with the same thing.

How to Apply Cialdini’s Principles

Sometimes, you don’t have to think too hard or worry about testing the effects of using a principle like authority. If a famous expert has declared your product to be amazing, put that endorsement where everyone will see it. There’s almost zero chance it won’t help sales.

Normally, though, the best way to use these powerful principles is to formulate a hypothesis you can test. If possible, use an A/B or multivariate test to see if, for example, “Over a million sold,” increases sales. There are, of course, endless variations you can try. For example, instead of touting the number of units sold, telling people the product is preferred by more than 50,000 businesses might be more persuasive. If you have many testimonials, test various combinations to see which work best.

The point in the customer journey makes a difference, too. If customers are unfamiliar with the product or the company, using authority will likely increase the number who move forward. If someone is ready to buy, on the other hand, scarcity may be the nudge they need to act.

Beyond Cialdini’s Principles

Beyond Cialdini's principles, other strategies based on behavioral science can change customer behavior. Dozens of cognitive biases can be applied in specific situations. Even factors like colors and type fonts can affect customer behavior. (Hint: small and difficult to read fonts usually reduce compliance.) Neuromarketing uses techniques like eye-tracking and brain imaging to uncover subconscious reactions that traditional methods miss.

Despite the myriad ways marketers can use behavioral science and neuroscience to improve results, even after four decades Robert Cialdini’s Principles of Influence are the best place to start. They are timeless and have been proven to be effective.

Follow me on Twitter or LinkedInCheck out my website or some of my other work here

Join The Conversation

Comments

One Community. Many Voices. Create a free account to share your thoughts.

Read our community guidelines .

Forbes Community Guidelines

Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

In order to do so, please follow the posting rules in our site's Terms of Service.  We've summarized some of those key rules below. Simply put, keep it civil.

Your post will be rejected if we notice that it seems to contain:

  • False or intentionally out-of-context or misleading information
  • Spam
  • Insults, profanity, incoherent, obscene or inflammatory language or threats of any kind
  • Attacks on the identity of other commenters or the article's author
  • Content that otherwise violates our site's terms.

User accounts will be blocked if we notice or believe that users are engaged in:

  • Continuous attempts to re-post comments that have been previously moderated/rejected
  • Racist, sexist, homophobic or other discriminatory comments
  • Attempts or tactics that put the site security at risk
  • Actions that otherwise violate our site's terms.

So, how can you be a power user?

  • Stay on topic and share your insights
  • Feel free to be clear and thoughtful to get your point across
  • ‘Like’ or ‘Dislike’ to show your point of view.
  • Protect your community.
  • Use the report tool to alert us when someone breaks the rules.

Thanks for reading our community guidelines. Please read the full list of posting rules found in our site's Terms of Service.

- "They are timeless and have been proven to be effective."

- "One of the biggest problems with making predictions is that they can change the future."

- "Perhaps the product is so well known that there’s no need for social proof."

- "That’s why people who are serious about change find groups of people that are living the change that they would like to see."

Title:

Content: Ronsisvalle: Change can be hard, messy and uncomfortable, but it's not impossible

Dr. Mike Ronsisvalle
Special to FLORIDA TODAY
View Comments

Support local journalism. An unlimited digital subscription to floridatoday.com is just $1 for 6 months. Click here and subscribe today.

The psychotherapy session I was conducting seemed like Groundhog Day.

I was sitting with my engineer client, let's call him John, again talking about how he struggled to communicate well with his wife.

He told me again about his tendency to linger on facts and data points when discussing issues in the marriage.

While his wife wanted John to focus on her emotion and on empathy, John was getting stuck on providing “suggestions” about how she should respond to her stress regarding work and her relationship with her family.

He told me about how the conversation really took a turn for the worse when he asked his wife if she had been going to her yoga class and exercising.

After all, he was positive the research showed those activities would help her feel better.

John’s heart was in the right place, but he was again replicating all the maladaptive communication patterns that we had talked about for the past year in therapy.

As we discussed his therapy homework, John apologized for rehashing all the same problematic behaviors.

“I’m sorry we’re talking about the same thing over and over again," he said. "I want to do better, I’m just having a hard time executing in the moment.”

Therapeutic success:Ronsisvalle: Not making progress in therapy? Make sure you and therapist are good fit

Depression on the rise:Ronsisvalle: Depression rising at alarming rate among all demographics

Marijuana risks:Ronsisvalle: The dangers of marijuana are greater than you're being led to believe

The next client on my books couldn’t have been more different than John, but the session still felt like Groundhog Day to me.

Julia was a 22-year-old marijuana user who dropped out of college two years ago. She didn’t have any advanced degrees like John, she hadn’t been in a long-term romantic relationship in months and she was almost entirely disinterested in data of any kind.

Julia was a free spirit for sure, yet she was stuck in what seemed like an endless cycle of emotional addiction to marijuana. She talked with passion about her desire to stop smoking every week in session and was convinced marijuana had robbed her of motivation and investment in her future, but she just could not stop using.

Here you have two completely different individuals who are struggling with a very similar process: how does a human being create lasting behavior change?

It doesn’t matter whether you are an engineer trying to learn how to communicate better with your spouse or a marijuana user trying to stop smoking, the reality of our human condition is that it is difficult to make changes that last over time.

Change is hard and can be messy at first. Many of us feel like we are living Groundhog Day over and over again and are stuck in patterns of behavior that are incredibly difficult to break.

For many, our failure to change behavior only leads to complacency and frustration over time. In order to disconnect from these negative cycles and to create lasting changes in behavior we must first understand the barriers that keep us from maintaining positive changes over time.

Fully understanding and anticipating your barriers and blocks to behavior change is the first step to creating the healthy life you want to live. While everyone has unique barriers to their own change, there are some common strategies we can implement that will ensure we proactively and intentionally break through barriers that are holding us back.

Address procrastination

Many times the biggest blocks to our change is procrastination. It’s not that we don’t have very real intentions to change or that we don’t even know the steps that would be involved in making the change, it’s simply that we avoid starting.

Think about this process in your own life. How many of us believe we should start exercising immediately? I think it’s safe to say that most people would agree that exercise clearly benefits physical and mental health and that it’s important that we all do it consistently.

Many of us even have a workout routine we would complete on our first trip to the gym, yet we never quite take the step to start.

This procrastination can be devastating to lasting behavior change, and it’s important that you figure out how to break through this barrier now.

One trick that helps many people stop procrastinating is to focus on the timing of when we decide to start.

Change always feels more natural and manageable when it is congruent with the narrative we are building about our life.

For instance, change seems more manageable and exciting around New Year’s Day doesn’t it?

That’s because the new year feels like a new chapter, and that is how we organize our life.

We tell ourselves a story about who we are and we see our life in stages and seasons.

When I was in high school, I saw myself differently than I did when I was a college student.

After college and in graduate school I began to think of myself as a professional and then a business owner.

These different stages of my life encouraged me to make changes that were consistent with my new identity.

As we organize these different chapters of our life, the reset associated with a new beginning often motivates us to change.

When you begin to plan out the changes you want to make, look for the built-in resets that you can easily identify as a result of the start of a different stage or chapter.

Start working out on a Monday because it’s the beginning of the week, rather than on a Thursday or a Friday.

Look for holidays that you can use as a reset that might indicate the beginning of a new season.

For instance, Memorial Day is near the beginning of summer; it might be a great time to start eating healthier or reworking your résumé. Labor Day is the beginning of fall for many people, and it might be a great reset that would allow you to set new goals for your business.

Don’t worry if you can’t find an impending holiday to plan your life around, it’s more about the meaning we attach to any given day we are going to use as a reset to jumpstart our change process.

We can actually just label days and create meaning around days that will allow us more motivation for change.

Try to use the first or last day of the month as motivation to start something new.

Is Sept. 22 just a Wednesday, or was it the first day of fall?

That’s an example of just how easy it is to use certain days as a reset for change.

The meaning you assign to any start date is either going to encourage or discourage you to actually follow through with the change.

Harness the power of your own laziness

Researchers at the University of Pennsylvania have developed the clever idea of harnessing the power of laziness to help people begin and follow through with a change process.

This strategy follows a fairly simple logic: as humans we want to be comfortable and avoid negative emotions like boredom, stress and pain.

In fact, most people avoid spending any extra effort and will instead prefer what the researchers called “default options.”

Default options are what we end up with if we do absolutely nothing.

The default option on my iPhone is the Safari web browser.

My tendency, and the tendency of most people that use iPhones, is to use Safari as their web browser.

Now let’s be clear, I do not use Safari because it’s the best option. No, no, no, that would mean I was actually being intentional.

I use Safari because it’s easy, it happens automatically and I don’t have to expend any extra effort.

Basically, I’m avoiding the added stress and drama of taking five minutes to pick the web browser that best fits my needs.

I know, it's strange, but I challenge you to think about your life and how often you use the default option to make decisions about your behavior.

How amazing would it be if Chick-fil-A decided to set the default option of a Chick-fil-A sandwich to include the fruit cup rather than the waffle fries.

Is it fair to say, as a group, we’re just too lazy to look beyond the default options and be intentional about the choices we make every day?

If we’re going to be proactive and intentional about making changes in our life, we can start by setting healthy defaults.

What website does your browser open up to automatically, a social media site or a news organization?

If one of your behavior-change goals includes being more informed about current events, make sure your default setting is consistent with your goals.

What is your default drink at dinner, a glass of wine or water?

If you want to make sure you drink less alcohol, make sure that your default beverage at dinner is water.

In short, we can leverage our own laziness to set ourselves up for success with behavior change.

Change within the context of relationships

It should come as no surprise that we all need healthy relationships in order to maintain our change over time.

Relationships are vitally important for a couple different reasons.

For starters, other people can provide much-needed accountability for us as we attempt to make and sustain changes.

The most basic behavioral principles demonstrate that the more a behavior costs us relationally, financially or physically, the less likely the behavior is to happen.

That’s why people stuck in addiction often wait until the cost of the addiction has become so severe that they can no longer persist in it.

We call that rock-bottom in the addictions treatment industry.

Rock-bottom often happens for most of us when the cost of the behavior has interpersonal consequences that outweigh the benefits of the behavior.

We need people in our life that are going to be willing to tell us the truth and who will express concern when we do not follow through with our stated goals for behavior change.

If you want to make positive changes that stick, find truth tellers that won’t hesitate to tell you the things you don’t want to hear.

Another reason relationships are so essential for getting unstuck is based on the principle of modeling.

Many times we only know what we’re capable of when we look around and see other people who are living the kind of life we want to live.

At the end of the day the most life-giving relationships that we can be a part of are the ones that inspire us to actually live in our calling.

That’s why people who are serious about change find groups of people that are living the change that they would like to see.

Think in terms of the alcoholic who is inspired by his AA sponsor who has spent 20 years sober or the business owner who connects with a mentor who inspires him to grow his business.

If you’re ready to get unstuck in your life, surround yourself with people who inspire you. Spend time around them and model their behavior.

Now that we've gathered some workable actions to create and maintain change in our own lives, let's help our friends above, John and Julia, by applying the strategies we just learned.

John may not show signs of procrastination or laziness, but he is absolutely leaning into his default options in his relationship with his wife and unable to take the step into healthy communication with her.

Since he is having difficulty "in the moment," perhaps he can utilize his wife's strengths in their relationship to hold him accountable when these issues arise.

For his homework, we decided that he needs to have an open and honest conversation with his wife about how his default options are to go to the research and data points, and he needs her support by holding him accountable if he back steps into his suggestion offering as a strategy to resolve an issue in their lives.

This opens up a line of communication surrounding his barriers and reminding his wife that while his heart is in the right place, his mind goes into default mode, and the hope is that they are going to help each other make changes within the context of their relationship.

For our friend Julia, who is a habitual marijuana smoker, we need to address all three strategies as well.

Julia has made the commitment to stop smoking, but she can't seem to find the desire to begin the process, is stuck in an emotional wheel navigated by laziness, and doesn't have a huge support system in her life rooting for her to take a step toward her goal to leave the marijuana behind.

We decided for Julia to pick any day of the week and attach meaning to it allowing her to begin her journey of not smoking.

Julia picked the following Monday and stated it was the beginning of her journey to Oz.

Next, she has this habit known to most as "wake and bake" as a default, so she decided she was going to alter it some by waking up and actually baking cookies, muffins or cupcakes instead.

The last item we checked off of her list in our session was finding a support group to attend, so she would be surrounded by other supportive people and find at least one person who she admired and could model her behavior after.

Change is hard and it can be messy and uncomfortable, but with the right tools and support it is not impossible.

Dr. Mike Ronsisvalle is a Licensed Psychologist and the President of LiveWell Behavioral Health, a psychological services agency that provides counseling to clients of all ages and addictions treatment to adolescents and adults. You can find him on the web at www.LiveWellbehavioralhealth.com and www.LiveWell-Coaching.com, or call 321-259-1662.

View Comments

- "Change is hard and it can be messy and uncomfortable, but with the right tools and support it is not impossible."

- "If it takes less time to revert, the losses could be quicker and steeper."

Title:

Content: Clorox Can Teach Investors A Lot About Booms, Busts, Story Stocks, And Overvaluation

Apr. 20, 2022 9:50 PM ETThe Clorox Company (CLX)2 Comments1 Like

Summary

  • Clorox has been extremely overvalued for the past two or three years.
  • Heading into the 2020 pandemic, investors seeking yield and earnings stability bought the stock. They were soon followed by investors who liked Clorox's pandemic story.
  • But just like nearly all other overvalued story stocks, Clorox stock has been heading lower recently.
  • Investors can learn a lot about Booms, Busts, and Story Stocks by examining Clorox's recent history.
  • Even after the stock's recent sell-off, it remains unattractive at today's price.
  • I do much more than just articles at The Cyclical Investor’s Club: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Introduction

I always like to begin my articles by reviewing any past coverage I've written about a stock so we can see how my previous expectations have turned out. I've only written one previous article on Clorox (NYSE:CLX), which came out right at the very beginning of the COVID pandemic on February 14th, 2020. It was titled "Clorox: A 10-Year Full-Cycle Analysis". I suggested in that article investors sell Clorox because its high valuation would likely produce poor medium and long-term returns. Since then, here is how the stock has performed compared to the S&P 500 ETF (SPY):

What is interesting here is that Clorox initially had a huge bump from the pandemic. With what was otherwise a pretty boring stock, the price jumped about +45% from the publication of my article until the end of July 2020. During this period when everyone was focused on keeping surfaces clean and disinfected, Clorox became what I call a "story stock". For most investors during this time, the Clorox thesis amounted to "People will be cleaning more, and therefore they will be buying more cleaning products. That makes Clorox a buy." In credit to some of the contributors here at Seeking Alpha, there were several articles during this time that shared my view that Clorox was a "sell" during this COVID-story bubble period. Anyone who was investing in this stock for the medium-term for longer and not simply making short-term trades, hopefully, learned a valuable lesson about narratives and investing. And that lesson is that once we move beyond the short-term, narratives don't mean nearly as much as numbers. Narratives are unpredictable, and most of the time, they follow the stock price rather than lead it. Longer-term numbers from earnings and cash flows, over time, will predict with some accuracy where stock prices typically go, especially at the extremes when a stock is dramatically overvalued or undervalued.

For this reason, I try to avoid narratives in my articles as much as I can, and always make the foundation of my articles rooted in numbers rather than narratives.

The most dangerous narratives are the true ones

It's important to point out that the story surrounding Clorox's increased sales due to COVID were basically true.

CLX's EPS grew 16% in 2020 during the pandemic. Other than 2018, which was a year with big corporate tax cuts which boosted earnings growth that year, 2020 was the fastest CLX's earnings had grown since 2005. That 16% growth rate was about 4x what I estimated CLX's growth rate at leading into the pandemic. So, this was a major boost to earnings growth just like the story said it was.

The problem was that when CLX was trading at a P/E over 30, that assumes 16% earnings growth will basically last a decade or more. Not only was that unlikely to be how this played out, but the reverse was more likely to be true because a lot of CLX's sales were likely pulled forward from the future into 2020 and 2021. This creates a situation where not only was CLX's earnings unlikely to continue growing at 16% for a decade (which is what it would take to justify a 30 P/E ratio), but they were likely to shrink because overall demand, post pandemic, would shrink.

This is a dynamic I call "boom/bust", and I have written several articles about it this year, including on companies as big as Apple (AAPL) and Alphabet (GOOGL) (GOOG). The key difference with Clorox is that, while most of these other businesses likely won't see the bust until 2023, CLX is already experiencing it. (Additionally, while CLX's boom/bust was caused directly by the pandemic, the others are mostly driven by stimulus given out during the pandemic rather than the pandemic itself. So, while the pandemic is mostly over in the US, the stimulus only recently stopped and is still circulating in the economy.) For this reason, I think CLX is a good stock to study when it comes to the basic dynamics surrounding "boom/bust" patterns.

Booms and busts can be distinguished from what I consider to be "normal" cyclicals because booms and busts are typically caused by one-time (or very rare) factors that happen to come together at a particular time and place. Because these occurrences are rare and somewhat unpredictable ahead of time, they don't really form what I would consider a predictable "cycle". What this means is that past history doesn't serve as a particularly good guide for booms and busts, and we have to rely on logic and reasoning instead.

Fortunately, when it came to Clorox, it was already overvalued before the pandemic, so it was an incredibly easy stock to avoid buying for medium and long-term investors. But there are other stocks that are trading at more attractive valuations which are much more tempting to value investors today. My hope is that Clorox can serve as an example of what might lie in the future for some of the "stimulus boom/bust" stocks that haven't fully busted yet.

But before I get into that commentary, I'm going to go ahead and run my basic full-cycle analysis on CLX in order to see where its valuation stands given the price has dropped off its highs quite a bit. CLX has historically been a very stable earnings growing stock, so I will share the valuation technique I use for less-cyclical stocks.

Market Sentiment Return Expectations

In order to estimate what sort of returns we might expect over the next 10 years, let's begin by examining what return we could expect 10 years from now if the P/E multiple were to revert to its mean from the previous economic cycle. Since we have had a recent recession (albeit an unusual one) I'm starting this cycle in fiscal year 2015 and running it through 2023's estimates.

I have chosen to use the earnings estimates from 2023 because they are more generous than 2022's earnings. In fact, I wouldn't be surprised if their earnings normalize a little quicker than analysts expect. A lot depends on whether we have a recession next year or not.

Clorox's average P/E from 2015 to the present has been 24.41 (the blue bar circled in gold on the FAST Graph). Using 2023's forward earnings estimates of $5.63 (also circled in gold), Clorox has a current P/E of 25.78. If that 25.78 P/E were to revert to the average P/E of 24.41 over the course of the next 10 years and everything else was held the same, Clorox's price would fall and it would produce a 10-Year CAGR of about -0.55%. That's the annual return we can expect from sentiment mean reversion if it takes ten years to revert. If it takes less time to revert, the losses could be quicker and steeper.

Business Earnings Expectations

We previously examined what would happen if market sentiment reverted to the mean. This is entirely determined by the mood of the market and is quite often disconnected, or only loosely connected, to the performance of the actual business. In this section, I will examine the actual earnings of the business. The goal here is simple: We want to know how much money we would earn (expressed in the form of a CAGR %) over the course of 10 years if we bought the business at today's prices and kept all of the earnings for ourselves.

There are two main components of this: The first is the earnings yield and the second is the rate at which the earnings can be expected to grow. Let's start with the earnings yield (which is an inverted P/E ratio, so, the Earnings/Price ratio). The current earnings yield is about +3.88%. The way I like to think about this is, if I bought the company's whole business right now for $100, I would earn $3.88 per year on my investment if earnings remained the same for the next 10 years.

The next step is to estimate the company's earnings growth during this time period. I do that by figuring out at what rate earnings grew during the last cycle and applying that rate to the next 10 years. This involves calculating the EPS growth rate since 2015, taking into account each year's EPS growth or decline, and then backing out any share buybacks that occurred over that time period (because reducing shares will increase the EPS due to fewer shares).

Clorox has bought back about 6% of the shares outstanding over this period so I will back those out for my earnings growth estimates. Additionally, I will account for their recent -45% earnings decline the past couple of years, but I will also assume +39% earnings growth for 2023. Taking this all into account, my earnings growth expectation for Clorox is about +2.51%. (Prepandemic it was a little over +4%, so this is pretty much in line with what it has been since 2007 or so.)

Next, I'll apply that growth rate to current earnings, looking forward 10 years in order to get a final 10-year CAGR estimate. (In Clorox's case, all these will be post-2023 because I pulled those expectations forward.) The way I think about this is, if I bought Clorox's whole business for $100, it would pay me back $3.88 plus +2.51% growth the first year, and that amount would grow at +2.51% per year for 10 years after that. I want to know how much money I would have in total at the end of 10 years on my $100 investment, which I calculate to be about $144.63 (including the original $100). When I plug that growth into a CAGR calculator, that translates to a +3.76% 10-year CAGR estimate for the expected business earnings returns.

10-Year, Full-Cycle CAGR Estimate

Potential future returns can come from two main places: Market sentiment returns or business earnings returns. If we assume that market sentiment reverts to the mean from the last cycle over the next 10 years for Clorox, it will produce a -0.55% CAGR. If the earnings yield and growth are similar to the last cycle, the company should produce somewhere around a +3.76% 10-year CAGR. If we put the two together, we get an expected 10-year, full-cycle CAGR of +3.21% at today's price.

My Buy/Sell/Hold range for this category of stocks is: Above a 12% CAGR is a Buy, below a 4% expected CAGR is a Sell, and in between 4% and 12% is a Hold. This makes Clorox a "Sell" at today's prices. It should be noted that by using 2023's expected earnings, I was actually being pretty generous with my assumptions for Clorox (but I do think it was reasonable to do so in this situation). Even if I had assumed a 4% long-term earnings growth rate, Clorox still would have been right at the sell threshold.

Conclusion

My view of Clorox stock is pretty simple at this point. I view it as a simple bond proxy that over the longer term will likely be able to pass most inflation onto their customers (even though they might be having some difficulty doing that at this very moment in time). For that reason, investors should probably think of this stock as an inflation-protected bond and simply look at the dividend yield and ask themselves whether that is an adequate yield or not. The dividend growth rate has been about 6% in recent years, and they have some room to continue raising it for a while assuming earnings recover over the next couple of years.

Personally, for stocks that have very low earnings growth rates like Clorox, I would want to see a dividend yield in the 7-8% range before I would get interested in buying the stock. In order for that to happen, the price would need to drop about -50% from here. While I suppose it could happen during a recession, especially since CLX's earnings have dropped a lot this year, there are so many yield-hungry investors in the market right now that I probably won't get the chance to buy this stock at the price I would like. Nevertheless, I don't think the forward long-term returns, even after the stock's recent sell-off, are attractive enough to hold onto this stock. There are simply better opportunities in the market, and if bond yields continue to rise, Clorox stock will become less and less attractive over the near term unless investors view it as a temporary safe haven during a recession.

If you have found my strategies interesting, useful, or profitable, consider supporting my continued research by joining the Cyclical Investor's Club. It's only $30/month, and it's where I share my latest research and exclusive small-and-midcap ideas. Two-week trials are free.

This article was written by

16.31K Followers
One-of-kind research using historical cycles to identify tops and bottoms

My analysis focuses on the cyclical nature of individual companies and of markets in general. I've developed a unique approach to estimating the fair value of cyclical stocks, and that approach allows me to more accurately buy near the bottom of the cycle.

My academic background is in political science and I hold a Bachelor's Degree and a Master's Degree in political theory from Iowa State University. I was awarded a Graduate Research Excellence Award in 2015 for my research on conservatism.

Follow

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.

These sentences address behavioral models, innovation amid the pandemic, principles of influence, the role of group dynamics and support systems, and the importance of adaptability and change—factors relevant to understanding trends and attraction mechanisms in MLM and similar business models.