Albert Einstein defined insanity as ‘doing the same thing over and over again and expecting different results’.
In the stock market, these are some things that most people do, over and over again…
- Worry where the Sensex is moving next
- Worry where interest rates are moving next
- Worry what FIIs will do next
- Worry about the GDP growth next quarter and next year
- Worry about the government’s fiscal deficit targets
- Worry what the next quarter might bring for companies
- Worry what will happen in the US, Europe, and China
- Worry why most people are worried about these worries
The truth is that these worries either keep people away from investing, or these lead them to make serious errors of judgment with their investments.
Pick up any business newspaper or switch on any business channel (at your own risk!), and you will hear people – analysts, fund managers, economists, anchors, speculators, traders – spreading these worries all around.
This is insane!
As an investor, if you are to get successful at investing your money for great returns from stocks, you must shut yourself from such insanity.
Worrying about all this short term stuff is like worrying when Tendulkar will score his 101st hundred, and then boiling your blood each time he gets out without scoring it.
The better idea is to give the Tendulkars (great stocks) in your portfolio some breathing space from these short-term worries and let them score several hundreds for you over the long term.
In cricket, the form comes and goes but the class remains. This is also true of the great companies in your portfolio.
While such companies may get disturbed for some time by these short term worries, know that in the long term, the only thing that will make them work will be their underlying businesses – strength of their balance sheets and cash flows, and the quality of their managements.
So the only thing you – as a sensible investor – must worry about is how to pick the right kind of stocks that have great underlying businesses that can bear the short term insanity yet stand tall over the long term.
And how do you pick the right kind of stocks?
Of course, not by listening to what the army of insane people out there are telling you to do!
It’s ‘your’ money at stake, so you must bear full responsibility of the same.
Learn the simple art of sensible investing…be your own analyst and fund manager…and then manage your own money.
Doing this might seem tough at first, but then, as Einstein makes me believe – “If I want better results than what I’ve achieved in the past, I must get sane and do things differently.”
Einstein also said, “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”
I don’t know about you, but I think Einstein was a pretty sane guy.
Do u track Chennai petro, i could not believe when i saw a share with dividend of Rs. 12 per share quoting at 155.
Thank in advance
Vishal Khandelwal says
No RichFellow, I have never studied Chennai Petro. In fact, I have never studied any company from the oil & gas industry…these are not within my circle of competence.
I am not sure if I am mixing the names up, but I read somewhere that Einstein was terrible at investing and he burnt his hands in stocks and went bankrupt. It’s funny his quote is used here on an investing blog, with due respect to the genius.
When one has seen stock market not go anywhere in the past 2 years, it becomes a little difficult to believe and also to convince. If one has invested in the boom of 2008, even in Mutual Funds, it would be hard to have faith. But then, one should look up to people who stood against time like Warren and team, Lynch etc.
Great article as always.
Vishal Khandelwal says
Yes you are right Mansoor. Einstein, like Newton, had lost a bundle in the stock market. As Newton later said, “I can calculate the movement of stars but not the madness of men.”
The reason I have quoted Einstein above is because investing is all about that – creating models using the best ideas from all fields, including science and psychology. So, as you can see above, I’ve talked about Einstein’s view on human nature (insanity) while avoiding anything that he would have talked about investing specifically.
Nice adaptation of known facts !!!
hello sir i m 28 years old , please suggest me any best mediclaim policy for individual,
sachin wagh says
Very true. Doing things in simple way is the most difficult part.
Look at what is happening in many households. Show sinn off. A large LED at neighbour’s place and there is envy, guilty feeling in own home. Education rat race. Our kids ‘have to’ score better. So put more pressure them. After all what would are neighbors , this world think? That our kid is mediocre. People don’t think of ‘repairing’ household goods. They think of replacing good by an exchange offer.
I visited my father’s friend along with my father. One thing I noticed. The refrigerator was 25 + year old. It had no color left from outside. But it was working. Probably it was a Godrej or a Kelvinator. And to my surprise, the aunty was defending why she didn’t think of replacing it !
That’s what is called old good Indian values and also respecting husband’s hard earned money !