Pain is a complex experience involving sensory and emotional components: it is not just about how it feels, but also how it makes you feel. And it is these unpleasant feelings that cause the suffering we humans associate with pain.
Photo credit: Christopher Macsurak (Creative Commons)
When it comes to investing, there is a third angle to this thought – What you do when you feel the pain? How do you react to it?
Like what you do when the share market is going through a bad phase, and when your portfolio is giving you sleepless nights for reasons outside your control. I believe most people reading this associate the 2008 crisis with one such painful period that’s fresh in their memories.
I attended a lecture yesterday from a famous Indian investor, who has grown his wealth from Rs 0 to Rs 1,000 crore over a span of around 30 years. And what I understood from what he said about his journey was that he has been through several painful periods in his long experience in the markets. And apart from the fact that luck has played a very important role in this wealth creation process – being at the right place at the right time with the right people – it was also his capacity to suffer during the painful times that has helped him reach where he is now.
Now, one mental model to apply here is that of ‘survivorship bias’. We know of this person who has built a fortune, even as thousands like him who started then and who followed similar principles have not much to show for.
But with due and great respect to him and his journey, the lesson that stands out clearly is what most other successful investors would vouch for – Time in the market, not timing the market is what matters.
The ability to keep investing and staying put through thick and thin, ups and downs, bull markets and bear markets – and not worrying where the markets are going tomorrow, or next week, or next month – is what matters.
Anyways, the other, and more important mental model, to associate with this gentleman’s wealth creation is that of ‘delayed gratification’, or the ability to resist the temptation for an immediate (small) reward and wait for a later (large) and more enduring reward.
Here is a video on the famous Marshmallow test, which was based on experiments in delayed gratification – showing why self-discipline is better than a lack of discipline…
If you can’t watch the video above, watch here.
Between Failure and Success
You can easily replace “marshmallow” with “money” in the above video, and the context won’t change. More often than not, putting off pleasure ‘in the now’ is the difference between failure and success over the long term.
Now, only those who have time on their hands, plus the capacity to suffer, can delay gratification.
Most people reading this, I believe, have the first i.e., time on their hands, or 15-20 years to meet their financial goals. Many, however, may lack the second, i.e., the capacity to suffer.
- Either you don’t have that emotional capacity to bear the pain of seeing your stocks going down (with or without the market). Please don’t invest in stocks directly if you don’t have this capacity, or you’ll just be fooling around with your time, money, and peace of mind.
- Or you are so indebted – large part of your disposable income goes towards EMIs – that you don’t have the capacity to withstand any loss of income that also accompanies your stocks going down.
- Or you are not frugal by nature, which means that you may be looking at stocks as a way to “make-money-fast-so-I-can-spend-money-fast,” instead of a long term wealth creation tool.
- Or maybe you are managing other people’s money and thus also managing their expectations – and people often have funny expectations from you. In a prolonged bear market or a prolonged period when you are not asking them to act, they may ask you to liquidate against your wish.
You see, these are all situations that may undermine your capacity to suffer as an investor. But if you invert this, i.e., you realize that you have the capacity to suffer, the only thing that you now need to focus on is the time part – the time in the market part that helped the above-mentioned successful investor in his journey.
Anyways, after listening to this investor yesterday, I tweeted this – Lesson from an investor who’s grown wealth from Rs 0 to Rs 1000 cr – TIME in the market, not TIMING the market…is key to wealth creation.
Lesson from an investor who's grown wealth from Rs 0 to Rs 1000 cr – TIME in the market, not TIMING the market…is key to wealth creation.
— Vishal Khandelwal (@safalniveshak) October 6, 2016
Someone replied to this tweet – Seriously? There are more examples of folks making money timing markets rather than buy and hold.
To this, I replied – Real money is not in the “making”, but in “keeping”.
You see, this discussion about how some people have made a lot of money timing the market vs spending time in the market is endless. And time is really short for me to get into this debate.
But what I understand from my limited experience of observing successful investors over time, and also observing my own practice of investing in the share market is this – Sensible, successful investing is one that lets you sleep peacefully at night. It’s NOT about who makes the most returns and who makes the most money, but who is the most peaceful and stress-free during this journey of wealth creation.
After all, the real riches are the riches that cannot be counted because you possess them inside of you. As Ben Franklin said…
Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.
Just Keep Walking
A Buddhist proverb goes thus…
If we are facing in the right direction, all we have to do is keep on walking.
This thought captures the essence of how we can train ourselves to be patient and stress-free, in life and while investing our hard-earned money. Look at patience like a muscle that grows stronger as we exercise it. So if you want to become a patient investor, it’s important you first practice patience in your daily life.
Impatience and the inability to delay gratification is the number one enemy for any investor and patience and the ability to delay gratification is possibly the greatest virtue an investor can have.
Always remember that life might be a race against time but it is enriched when we rise above our instincts and stop the clock to process and understand what we are doing and why.
A wise decision requires reflection, and reflection requires a pause.
Ultimately, as Jeremy Bentham, an 18th century philosopher, famously asked…
The question is not ‘can you reason?’ or ‘can you talk?’ but ‘can you suffer?’
If you can suffer amidst the trials that Mr. Market may force upon you from time to time, you may not end with Rs 1,000 crore…but an investing life peacefully lived. And the outcome will surely be gratifying too.
R K Chandrashekar says
You are spot on. Time in the market than timing the market, not only helps you to compound your wealth, but more importantly helps you to lead a peaceful, contended life , rather than a rollercoaster one. On a lighter vein, when the marshmallows brought by my son from the US, lasted more than three months, I wrote a piece in FB, that it was not a case of delayed gratification, but more to do with big brother, chocolate.😂
Vishal Khandelwal says
Ha ha, RKC. Just pass on some chocolates to me 🙂
Dhruv Sharma says
Great post Vishal!!!!
BTW, If possible, can u disclose the name of this investor ( who has grown his wealth from Rs 0 to Rs 1,000 crore over a span of around 30 years) :-):-)
Ramdeo Aggarwal . There is video on you tube on how he converted 0 to 1000 crs . But key to remember his first 0 to 12 lacs in 1980s came through brokerage income and trading and next 12 lacs to 30 crs in early 1990s too happened because of same . He realised his folly when his networth crashed from 30 cr to 10 cr in 1992- 93 crash and decided to follow Buffett thereafter .. He followed time in market there on and increased his wealth to 1000 crs .
Dhruv Sharma says
Shailesh, Thanks for the info. Seen the Ramdeo Aggarwal video now 🙂
Mayur Dvivedi says
Yet another Amazing piece of writing for value investing. Thanks.
Vishal Khandelwal says