Let’s face it. Not a day goes by that you’re not tempted to glance to the left and to the right to see how you measure up to the people around you.
But it doesn’t stop there, does it?
You’re tempted to compare your children to other children, your spouse to other spouses, your salary to others’ salaries, your car to others’ cars…and your stocks to others’ stocks.
It’s a TRAP!
How to Lose 80% Savings
I got to talk to a college friend yesterday who was completely disappointed with his stock portfolio. For the purpose of this post I’ll call him PJ.
PJ had started his stock market career with a bang in 2007, as by that year end, most of his stocks were up 80-100%.
PJ’s investing philosophy was simple. He mimicked his portfolio to that of one leading investor and trader. Let’s call him RJ.
So, PJ used to buy whatever RJ bought and recommended on television and had a great run till the crash came in early 2008.
So, when he told me his story yesterday, I thought of sharing it with you as I realized that you may find it familiar.
The reason PJ started investing in the stock market was that he was completely mesmerized by RJ and his investment returns over the years. In fact, he had been so inspired by this superstar investor that he simply had to start investing on the stock market – which he did.
The problem that brought PJ to a grinding halt started in the middle of the crash of 2008 after he saw his life’s savings down in the dumps, while his idol was still floating in wealth even despite the market crash.
He told me, “My Rs 25 lac savings were reduced to Rs 5 lac, while RJ, despite his own losses, was still sitting on 500 crore of wealth!”
“Why are you comparing?” I asked.
“But that’s what I have done all these years with such great success!” he replied. “I bought every stock that was in RJ’s portfolio, but still my portfolio is down 80% while his is down just 30%. How come?”
I found this last question innocent…and foolish.
I replied, “This is because RJ may have bought a lot of his stocks much cheaper than you did, and thus he may be sitting on profits on a lot of those stocks even after this crash.”
“Oh, I see!” he said with an expression as if I had revealed God’s ultimate secret to him.
The Real Tragedy of Our Life
Charlie Munger says…
If you are comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what? Someone will always be getting richer faster than you. This is not a tragedy.
You see, the real tragedy of our life is not that someone else is getting richer or healthier than us, but that he is getting there faster than us.
Another tragedy is that when we fall into this comparison trap, it’s hard to stop.
Look at fund managers. Most of them have similar stocks in their portfolios, and each of them still claim to have the skills to outperform others.
Read stock forums. Most of them are filled with noise of people comparing their portfolios with others’.
Why do you think any mention of “5 stocks to buy” raises your brain’s antennae? This is because you want to compare those 5 stocks to your exiting portfolio, and buy whatever you don’t have already.
Then, while your tongue will sing praises for successful investors for their stock picks, your heart will bleed while comparing your duds with their 20 and 30-baggers.
I have been guilty of this last one, so you are not alone. 🙂
I remember in the early days of my own career comparing my job profile, salary, and stock picks with other analysts and investors I admired. I tried to emulate them over and over again and never felt I hit the benchmark that they set (especially on the salary front).
It’s only after the 2008 crash that left me disillusioned that I realized that…
Comparisons are Unfair
Here’s an old joke.
After twenty years, a man decided to track down his three best friends from school. He was shocked at what they had become.
The first was an alcoholic who never got a job. The second had been in prison for robbery. However it was when he saw the third that he felt sick to his stomach.
The third one got a fantastic job and a really attractive wife. 🙁 🙂
Charlie Munger says…
Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun.
Now, the root cause of our envy is comparisons we make in life, investing…everywhere.
So, instead of spending your time studying businesses that you may buy for the next 20 years, you spend time comparing the past performance of your stocks with others.
Do you remember when you last said to yourself, “Oh, how did I miss this 20-bagger while he made so much money on it?”
I said this to myself just last week, after seeing the stock price of Relaxo that Prof. Sanjay Bakshi had shared while also disclosing that he owned that stock.
Now, Prof. Bakshi did not reveal the price at which he had bought the stock…but my mind has already told me a hundred times – “Prof. Bakshi kaa stock mere stocks se tez kaise” (Why is Prof. Bakshi’s stock such a great performer as compared to my stocks?)
Just a while back, Prof. Bakshi shared his analysis of Relaxo’s business and I am amazed by the brilliance of his thought process.
Now, either I can continue to compare his brilliant analyses with the average skills I have in studying businesses and remain stuck with my present capabilities, or I can spend time learning to improve my own skills on this front to be able to reach a respectable level some day.
You see, comparison is a trap! But that is what the marketers sell for that is what we have grown up with.
Like I am not surprised to read the frequent sales letters from a company selling stock recommendation services, where the usual pitch is…
Life is treating you unfair. Someone else is making money faster from stocks. Now we will “reveal” to you a way to “safely” create tremendous wealth over the next few years. We will unravel in front of you a simple yet foolproof investment strategy that has made millionaires out of several small investors.
So while I am trying to get over the comparison trap, I read such a sales pitch and curse life to be unfair on me.
While you continue to receive several such sales pitches that pit you against someone else (the man who has already become a millionaire and for whom life has been fair), my encouragement to you (and to myself) is to run our own race.
You may find others around running faster or with more flare – earning faster and greater returns – but nobody else around you has your unique capabilities, experiences or skills.
Nobody else can invest like you – so the sooner you create your own investment philosophy that suits you, and get comfortable in your own game, the better.
Please stop comparing!
My experience says it’s self-sabotage and it’s not worth it.