Investing Behaviour

How to Avoid Your Worst Enemy as a Stock Market Investor

If you have been a member of the Safal Niveshak tribe for long, you know our hottest topic of discussion here. It is how various aspects of human behaviour influence investing.

As we have discussed at times, we are often our worst enemy when it comes to investing our hard-earned money.

An understanding of how vulnerable we are to our own psychology can help us avoid the stupid investor delusions that can screw up our financial security.

There is an old adage about the game of poker: If you sit down at the table and can’t figure out who the sucker is, get up and leave because it’s you.

These insights about investor psychology can keep you from being the easy prey.

Burton Malkiel, in his investing masterpiece, A Random Walk Down Wall Street, cites the study done by Charles Ellis, a longtime observer of stock markets and author of another brilliant investing book Winning The Loser’s Game.

How to Get Very Lucky as an Investor

The famous American writer Dorothy Parker once said, “I hate writing. I like having written.”

I know many people who are like that about their life and work. They love to fantasize about what life will be like when they ‘make it’, but they like to skip over the part that reads – hard work.

Like the young man I met a few days back who has spent the past ten years of his life destroying his body with alcohol, excessive food, and a sedentary lifestyle…but wanted to know a quick way to get fit, lean and healthy in just the next six months!

He, probably, expects to get ‘lucky’ in his life by getting whatever he wants without the hard work to accompany it.

Really? Is ‘luck’ really about instant gratification?

If I look back to the lives of great people, the answer I get is something absolutely different.

The ‘Willpower Trick’ to Become a Smarter Investor

January is the month of broken resolutions. The jogging tracks are packed for a week and working desks are cleaned for the first time in ages, and meetings start and end on time.

We pledge to finally become the person we want to be: slim, neat and punctual.

Alas, it doesn’t take long before the jogging tracks are once again empty, the working desks start to crumble under the weight of unwanted junk, and meetings occupy more time than actual work.

Just into the third week of the month, we forget about that pledge to become a saner, kinder, and gentler person.

You see, human habits are stubborn things. We make resolutions without realizing whether we have the necessary willpower to achieve them.

This explains why almost 90% of all resolutions end in failure, as per a 2007 survey of over 3,000 people conducted by the British psychologist Richard Wiseman.

So what’s the reason our resolutions end in such dismal fashion?

What I Learnt from the World’s Most Arrogant Investor

I was reading through fund letters from The Baupost Group, managed by value investor Seth Klarman.

Here is something very interesting that I came across in his year-end 1996 shareholder letter. Klarman wrote…

We regard investing as an arrogant act; an investor who buys is effectively saying that he or she knows more than the seller and the same or more than other prospective buyers.

This statement contains a big truth that I, as an investor, ignored all these years.

So I bought a stock because I thought my analysis was right. I thought my calculation of the stock’s intrinsic value was right. I thought my decision to buy the stock was right even when I always wondered what could be the reason someone else was selling the same stock.

All in all, my arrogance – of being right – made me buy several stocks over these years. While I’m satisfied with my long term returns, I consider my performance more a result of luck than my own aptitude of picking up the right stocks.

In 2012, You’ve Got Two Choices As An Investor

Two Choices There are two primary choices we have in life…

To accept conditions as they exist, or
To accept the responsibility for changing them

If you are an investor, 2012 again presents these two choices to you.

Changing your investing life – the way you think about and treat your hard-earned money – can seem an incredibly tough and complicated thing.

This is especially true if you’ve failed a great number of times (like I did), and resigned yourself to not changing.

“This is tough!” I used to tell myself after every failure with my investments.

“Will I ever become a good stock picker?” I told myself every time I suffered a loss.

“Who would want to read what I write on stock market investing?” I doubted as I was beginning on the Safal Niveshak initiative.
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Your Best Investment for 2012

If I could create the definition of better investing, it would read…

“Educating yourself to become more consciously aware of the immense power of your mind to create the action of earning wealth.”

I believe ‘your mind’ is your greatest asset and investing on the development of the same is more important than investing in any stock or bond out there.

The famous British philosophical writer James Allen wrote in his breakthrough book As A Man Thinketh…

“Man’s mind may be likened to a garden, which may be intelligently cultivated or allowed to run wild; but whether cultivated or neglected, it must, and will, bring forth. If no useful seeds are put into it, then an abundance of useless weed-seeds will fall therein, and will continue to produce their kind.”

As A Man Thinketh is a small book that explains how the human mind can create its environment and circumstances.

The author believes that the root cause of prosperity and poverty is how a person thinks.
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A Big Lesson I Wish I’d Learned Early in My Investing Life

I’ve learnt several lessons in my lifetime as a stock market analyst and investor.

One of the most enduring of them has been – taking small losses is often better than taking small gains.

The sad part is that it took time for me to learn this important lesson.

I’d read it many times that investors must try to “cut their losses short and let their winners run”.

Sage advice, but I did not follow till about the fourth year of my career. So I was…

Asking people to sell stocks after small gains only to watch them head higher, and
Recommending stocks with small losses only to see them worsen.

You see, no one will deliberately buy a stock they believe will go down in price and be worth less than what they paid for it.
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John Templeton’s 16 Rules for Stock Market Success

Sir John Templeton “This time it’s different!”

How many times have you heard this from a stock market expert or from your friend who has made big money from stocks in a short time?

These words are commonly used in the stock markets to explain that stock prices can touch the sky, or touch the earth’s crust depending on whether they are rising or falling.

But if you were to listen to the legendary Sir John Templeton, these are four most dangerous words in investing – “This time it’s different.”

Apart from this, there are many other investing lessons that all investors can take from the experience of Sir John, who was the founder of the Franklin Templeton Group.

He has done well to distill his years of experience and expertise into the “16 Rules for Investment Success.”
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3 Great Investing Lessons from Dev Anand

Image Source: The Hindustan Times

“What is Dev Anand doing on a website dedicated to stock market investing?” you might be thinking. “Agreed, people are remembering the most romantic hero of Indian cinema after his demise, but still, what lessons can an investor take from him?”

See, it is human nature to overlook the importance of those who are here and now. Those who are great and live among us seem more normal because they’re breathing the same air that we are.

But we realize the greatness of such people only when they are gone. Like now, when Dev Anand is no longer with us, I realize some important life lessons that he epitomized.

So, I’ll pause today and remind myself of the 3 important lessons I, as an investor, can take from the legend that was Dev Saab. [Read more…] about 3 Great Investing Lessons from Dev Anand

Who Else Wants to Get Rich?

“No one wants to die. Even people who want to go to heaven don’t want to die to get there…your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

I consider these words of Steve Jobs from his famous 2005 speech at Stanford University as one of my guiding lights in whatever I pursue in life, including investing.

In not investing the way someone else does, and having the courage to follow my independent thinking and act on the same, I try to put in the hard work whenever and wherever it is required.

Anyways, let’s leave out the heaven and death part from the above statements of Steve Jobs, and concentrate on wealth building.

Everyone wants to get rich someday. Even I do.

But the biggest question is – how many of us ‘prepare’ to become rich, if we weren’t born with a silver spoon?
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