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It’s a Trap! It’s a Trap!

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 frustrating.

It’s exhausting.

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.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. hi vishal
    jon acuff statement you shared is so simple yet profound and brilliant. i must admit PJ’s investing style was partly with me as well before i encountered your blog (Thanks for changing our psychology towards investment) .

    The timing of your ‘Bata’ analysis and then a week or two after ‘Relaxo’ by prof. baskhi is really productive and making me think of footwear industry all this month 🙂 and yes the enviable graph of Relaxo!.

    long since i thought of asking you and found the perfect timed article … about your views on RJ/his investment style who is considered warren buffet of india (don’t know why?) i mean never found him in yours blogs .. as i said i made some mistakes of holding some stocks he held ( PJ way!).

    and finally just a thought these days .. i am finding many people (and yes me a lot) doing online shopping (including vegetables/fruits! .. Big Basket) and the recent entries of Amazon and Groupon and their tie-up with courier companies and i think this industry may grow a lot as people are busy doing physical shopping (i may be wrong though) .. so just wondering if you can throw some light on these industries especially the courier listed companies with respect to investment angle one fine day.

    Thanks
    Sanjeev

    • Thanks Sanjeev!

      We all have been PJs sometime or the other in our lifetime, so you are not alone. 🙂

      So be very careful when you see enviable graphs! 🙂

      On RJ, no comments. He does not fall in my scheme of things.

      On your thought on courier companies, of the two listed – Blue Dart and Gati – of whatever I have heard of read of the former, things are going in well there. But for the latter, I think it is going through some financial troubles. Will write on them if and when I am able to read up more on them. Regards.

  2. Jana Vembunarayanan says:

    Hi Vishal,

    Great post.
    From ‘Psychology of Human Misjudgment’

    Bias from envy and jealousy – I’ve heard Warren [Buffett] say a half a dozen times, ‘It’s not greed that drives the world, but envy.’ And you go through the psychology survey courses, and you go to the index: envy, jealousy, in a 1,000-page book — it’s blank! There’s some blind spots in academia, but it’s an enormously powerful thing.

    Regards,
    Jana

  3. Comparison is never fair, because every individual is different.

    We cannot completely avoid comparison because competition is part of life, but let competition be a healthy one and lets not compare all the time. There is a saying that all five fingers are not the same and are meant for different functions. There is also an old colloquial saying that one must use his/her own brain and do what suits one’s own needs, requirements or circumstances to see success in life.

    Sometimes its tempting and people want the short-cut or the easy formula to get rich quickly or to make a multibagger gain. Even a few people who are well educated, financially intelligent and rich fall in the trap of enticing hot stocks, get rich quick schemes, etc. The whole issue crops up when you get tempted or influenced by someone to make the next 2-bagger or 3-baggger in a few months. Such multi-bagger promises could either be extraordinary cases or false promises.

    If you sticks to good investing habits and have a bit of patience you will get rewarded eventually. Even if the wait is longer it is worthwhile because you avoid all the pitfalls and losses other people are making (due to their greedy stock picks). These losses when avoided provide you with more cash to invest when some stocks are available at distress valuations. The patient investor is like a turtle initially, but when market falters the rabbit loses his edge and turtle moves ahead becoming a slow and steady, and unlike in the tales, in markets the slow and steady investor actually becomes fast and steady once he/she manages to sail through one or more tough market cycles.

  4. Great topic of interest, of course, for many…:)

  5. You know what Vishal…I was thinking exactly what you have written in your post after reading through Prof Bakshi’s post on Relaxo. And then I read Jon Acuff’s thought you shared.

    Such a beautiful start to my day. I am using this thought as my screen saver. 🙂

    Great post as always. Thank you so much for writing it. Cheers!

  6. Brilliant post Vishal. 🙂 Thanks!

    “Don’t compare your beginning to someone else’s middle.” WOW!

  7. Nice Article!! Reality is that we spend most of our life comparing with others and so we can’t enjoy what good things we have in our life.

  8. Sudhir Bhargava says:

    Wonderful article, as always.
    Comparison is probably inevitable but depends on what it results in.
    If we can use it to propel ourselves to a better future the good old hard ethical work way great else it is just a spiral downwards.
    The Jon Acuff thought is marvelous.

  9. Wonderful, wonderful! More than half of our problems, and the world’s problems will be solved if we can master just this behaviour. However, I have been aware of the perils (extremely low ROI) of envy. But for many years after this awareness, I am still mastering the tendency to compare. Trust me, comparing leaves one completely deflated! And deflation is not where learning begins. Learning begins with hope, with inspiration, with faith. So I am keep practicing.

  10. Biswajeet Pattnaik says:

    Dear Vishal:

    Well a very insightful article. Well, l think envy is the side-effect of a competitive spirit which limits our innovative and creative instinct. My question is HOW to keep one’s mind away from envy? No matter how much we think and talk of not being envious, it finally gets in to our system. Last week, I read an article -why GEN Yis unhappy? I suggest you to read that. As the article says : Happiness = Results – Expectations. Is it having high hopes and expectations cause of all worry and envy?

    Best regards,
    BiswajeetJ. Pattnaik

  11. Thanks Vishal.

    A very nice post.

    Two learnings for me:

    1. After reading Prof. Bakshi’s analysis I did some back of the envelop calculation on the valuation and returns.

    At these prices, and volume estimates, a back of the envelope suggests that it could still continue to compound at 15%pa.

    Prof. Bakshi and his friend have done much much better!.

    While 15% is still great, I recollect Warren had quoted someone in his letter about Wall Street – “What wise do in the begining, fools do in the end.”

    It’s best if this stays as a reminder for me.

    2. Most of us knew about the product much earlier. Mr. Salman Khan appeared before Mr. Sanjay Bakshi! But I for one, missed it. Peter Lynch talks about looking beyond the product to check if the company is listed. One could have still decided not to invest, but goes on to show how if one does their own diligence can find multi baggers.

    Ashish

  12. R K Chandrashekar says:

    Hi Vishal & fellow tribesman
    Very timely post.As always Vishal as the unkanny ability of hitting the nail on the head or shall we say the foot- Relaxo!! Here is a bit of advice- whenever you feel of being in this trap(comparing), remind yourself of this wonderful saying” I cried because i didn’t have shoes, till i found a man without feet”) Every day, as you wake up, count your positives- being alive, good health, happy family, job on hand, roof over your head, good neighbours, etc , ALWAYS BE CONTENTED WITH WHAT YOU HAVE. For every relaxo, you have missed out, there are scores of stocks out there waiting to be discovered- only if we do our homework. The trick is to keep your eyes and ears open, do your homework before it becomes public knowledge-best buy and on the radar of every joker in town.

  13. Kashif Akhtar says:

    Recently I came across this book being recommended .
    I have not yet read it yet.
    Envy: A Theory of Social Behaviour Author: Helmut Schoeck
    May be if some one has come across it can through some light.

    Regards,
    Kashif

  14. I agree with you Vishal. This menntality of comparison is well used in famous Surf advertisement. “Unki sari meri sari se safed kaise”. This single obsession of comparison is poison in all sphere. It kills the great potential of Absolute and Ulimited!

  15. Gaurav Bhagwat says:

    Hell… I also thought like that… How did I miss out on Relaxo. Objective was not to emulate… Objective was to know how did he get that idea? I am using filters and screeners since 2009. Relaxo never appeared in my filter (because I was too rigid in using screeners) Now this is a fun to know. When RoE was well within 20% with small amount of debt, now RoE has zoomed up. Normally I use online filters like screener.in to source the ideas. However the interesting question is: how do you understand the movie even before the script is ready completely? Maybe, I will learn something as I observe more..

    Good post Vishal… Keep up the good work.

  16. Eswar Santhosh says:

    Comparison is a rat race. I am a snail, so I move at my own pace. Once I realized that, I stopped comparing.

    Comparisons can never be avoided. By any metric in life, I can’t say I am successful, but I am content. In a comparison, we always look ahead. But, it pays to look back, be it our own path or others who are behind us. We would realize that while we have a long distance to cover on one hand, we are always better off compared to where we started.

    Comparisons are also good in a way. If we become over-confident about our ability at any stage, a comparison humbles us. Secondly, just by changing the question from “Why did I miss X?” to “How do I develop the ability to spot opportunities like X before others?”, it propels us to move forward.

  17. Prof. Bakshi has done it again! This time with Killer Jeans! 🙂

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  1. […] guess is that this extreme reaction against lack of fairness is because of envy, another mental model which we will discuss in detail some other time. However Kantian Fairness […]

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