Investing Behaviour

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

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– Morgan Housel, Author, The Psychology of Money

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The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Imagine you are one of our cave-dwelling ancestors, minding your own business, when suddenly a tiger appears. Do you –

• Carefully weigh the pros and cons of running vs fighting?
• Calculate the statistical probability of survival based on past tiger encounters?
• Scream and run faster than Usain Bolt?

If you chose C, congratulations! You are alive (well, your ancestors were), and you are also the proud owner of a brain that is about as well-suited for modern investing as a hammer is for performing brain surgery.

Welcome to the latest issue of ‘The Journal of Investing Wisdom’, where I delve into the thoughts, reflections, and readings that have recently captured my attention. This journal serves as a window into my contemplations and the resources that inspire and inform my journey as an investor. I hope you like what you read below. If you are new here, and wish to get insights and ideas like these straight into your inbox, please click here to become a member.

What I’m Reading

A Yogi’s Rules on Money and Happiness

I read an article recently written by Paramhansa Yogananda – of Autobiography of a Yogi fame – during the Great Depression in the US. It was titled Creating Your Happiness.

Not surprisingly, the principles laid out by Yogananda remain relevant even today, 90+ years after he wrote about them.

You see, the old rules of life or money never change and they only become tough on you when you ignore them. Like these golden rules laid out by Yogananda (the emphasis is mine), which if you continue to ignore, may make your life tough.

Over to Yogananda.

The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” I am beginning this new series of posts on the psychology of investing, where I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Why oh why are human beings so hard to teach, but so easy to deceive.

~ Dio Chrysostom (Greek philosopher and orator, 2nd Century)

Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

~ Warren Buffett

Anne Scheiber was 51 years old when she retired from her job as a low-level auditor from the American Internal Revenue Service in 1944. She never earned a salary of more than $4,000 per year, and although she was an exemplary worker, she never received a promotion. Maybe, because she was a woman and a Jew, the lots that were discriminated against in the workforce in general in the west during that period.

On a cold morning in 1931, in a small town in the US, a seven-year-old boy was playing with a young girl when they were unexpectedly attacked by a stray dog. Tragically, the girl was bitten, contracted rabies, and succumbed to the illness. The boy, miraculously, emerged unharmed.

This boy grew up to be known as Charlie Munger. Yes, you read that right.

Reflecting on this incident later in life, Charlie pondered and said, “That damn dog was three inches from me. All my life I’ve wondered: why did it bite her instead of me? It was sheer luck that I lived and she died.”