Investing

The Sketchbook of Wisdom – Pre-Order Ends on 15th January: My new book – The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life – is almost here (shipping starts in mid-February). Pre-order by 15th January to reserve your copy. Click here to pre-order now.

* * *
I received an email recently where one reader asked – “What you say about long-term investing in the stock market is all good. But doesn’t it get boring after a time? I mean, first the process of reading annual reports to find good businesses, and then if you find some, holding on to them for the long run doing nothing. How does one maintain interest in this thing? How does one make this process and journey exciting?”

I thought these were good questions. In fact, questions like these used to bother me when I started out on my journey of reading annual reports, analyzing financial statements, and practicing long term investing more than a decade back.

In fact, I was talking to an investor friend recently, who confessed of boredom because he was not able to find stocks worth buying in this rising market. “Even if you are a long-term investor, what do you do but feel bored when you don’t find anything worth buying because everything seems to be so inflated?” he questioned.

“I agree,” I said.

[Read more…] about Beware the Boredom of Bull Market

Adolf Merckle was a leading German entrepreneur who, in the early 1970s, founded Germany’s first generic drug manufacturer, Ratiopharm. For several decades he also held large parts of cement company HeidelbergCement as well as vehicle manufacturer Kässbohrer.

In 2007, he was worth US$ 12.8 billion, and among the five richest people in Germany.

However, near the end of 2008, Merckle’s investment company VEM faced a liquidity shortage, and he also faced huge losses on speculation in Volkswagen shares, which he bet would fall but instead surged. It is believed that he lost as much as €500 million on this speculative bet. His trouble was made worse by the spreading financial crunch, which hit his corporate empire hard.

Crushed by watching his life’s work slip through his fingers, on 5th January 2009, Merckle walked out into the bitter cold night and threw himself under a speeding train.
“An industrialist losing a fortune on the stock market has different motives for killing himself than a father with six children who loses his job,” said Detlev Liepmann, professor of economic psychology at Berlin’s Free University. He added, “Merckle’s livelihood was certainly not threatened by his risky investments but he was threatened by shame, a loss of face in society, and a loss of honor.”

A man who spent a life working hard to do good, built a billion-dollar wealth, then lost a part of it due to wrong bets and collapse of world markets, died of guilt and shame seemingly because he equated his financial failure with failure in life.

Though at his memorial service, Gerhard Maier, a retired bishop, said, “What brought a man of great will who felt responsible to God to the point where he took his own life is something that, deep down, we humans will never comprehend.”

There is Merckle in All of Us
Well, the reason I brought in Merckle’s tragic story today is because there is a part of Merckle in all of us that causes us to feel shame for our financial mistakes – even small – that often leads us to bigger mistakes. Of course, most people in the same spot as Merckle would not think of killing themselves no matter what happens.

People talk about regret aversion and how we make decisions to avoid regretting an alternative decision in the future. But I would rather call it ‘shame aversion,’ because most of the time most if you see guilt or shame as a more powerful emotion than plain regret.

So, we feel guilty for not investing in rising stocks when we see our friends making money on them. We feel guilty of not having invested in stocks when the prices were down, and we knew (now, in hindsight) that we should have sold our houses then to invest.

We feel bad accepting we made a mistake that causes us to hold on to our losing stocks (bad businesses) because the shame of such acceptance would be too heavy to bear on our already frail hearts. So, not only would people bet heavily on hot stocks in frothy markets, but they would also double-down when these stocks fall to avoid the shame of turning their paper losses into real ones.

Losing Money on Stocks is NOT a Shame
My dear friend, there is no shame in losing money on a stock or any investment. Everyone loses at some point in time, and there is not a single investor who has never made a mistake.

Of course, that does not mean you bet your house on stocks – even the best ones. Losing ₹ 1 crore on a ₹ 100 crore net worth is not the same as losing ₹ 1 crore on a ₹ 2 crore net worth. So, you should always be worried about losing big money permanently. But that worry should show up in the kind of work you do on your process to pick stocks, not after you have already lost money.

Investing or money are such insignificant parts of this beautiful thing called life that you must not lose sleep over them, forget losing your life.

Markets change, cycles turn, everything passes, and there are numerous opportunities one gets to rise after a fall, clean the dust, give up any guilt or shame of falling, and start walking again.

The noted British writer and speaker Alan Watts said –

Man suffers only because he takes seriously what the Gods made for fun.

Russian philosopher and novelist Fyodor Dostoevsky agreed in a way when he said –

The cleverest of all, in my opinion, is the man who calls himself a fool at least once a month.

Learn from your mistakes, but stop taking them, or yourself, so seriously.

How much I wish Adolf Merckle, and others like him who passed through similar tragedies, understood this.

How much I wish you do.

* * *
That’s about it from me for today.

If you liked this post, please share with others on WhatsApp, Twitter, LinkedIn, or just email them the link to this post.

If you are seeing this newsletter for the first time, you may subscribe here.

Stay safe.

Regards,
Vishal