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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?

The answer, I believe, lies in the single most important fact about human willpower — it’s incredibly weak.

Here is an experiment conducted by Baba Shiv, a behavioral economist at Stanford University, which shows the weakness of our willpower and how fast it can crumble in the face of minor distractions.

Shiv recruited several dozen college students and divided them into two groups. One group was given a two-digit number to remember, while the second group was given a seven-digit number.

Then, they were told to walk down the hall, where they were presented with two different snack options: a slice of chocolate cake, or a bowl of fruit salad.

Here’s where the results get weird. The students with seven digits to remember were nearly twice as likely to choose the cake as students given two digits!

In other words, if 10 students with two-digit numbers to remember chose the chocolate cake, 20 students with seven-digit numbers to remember chose this option.

The reason, according to Shiv, is that all those extra numbers took up valuable space in the brain — like a “load” — making it that much harder to resist a dessert.

In simpler words, our willpower is so weak and the conscious mind is so overtaxed, that all it takes is five extra bits of information before it becomes impossible for the brain to resist a piece of cake.

This helps explain why, after a long day at the office, we’re more likely to indulge in extra-calorie food.

A tired brain is going to struggle to resist what it wants, even when what it wants isn’t what we need.

Willpower and investing
What we discussed above about the inherent weakness of our willpower also holds true when it comes to investing in stock markets.

However resolute we try to become about staying away from frothy markets, hot stocks, and fast ways of making money, all comes a cropper because we are not able to manage our willpower the way we want.

Our overtaxed minds leave us with little flexibility to think it straight.

Then, all it takes is a few hundred points rise in the Sensex, a 5-10% rise in the stocks we already own, or a ‘great stock tip’ from a stock market expert on a business channel…and we drop our guards!

The greed to earn fast money again takes precedence over the resolution to “always, come what may” do the necessary homework to identify the right stocks.

Is there a way out of the willpower trap?
Are there secret exercises that can make it easier for us to stick with our new year resolutions to lose weight, or the promise to become a better investor?

Yes, if you were to believe the mind scientists.

There is a neat way to circumvent the intrinsic weakness of the will, which helps explain why 10% of the people have a much easier time sticking to their resolutions than the 90% who lose it to their willpower.

The answer lies in “self-control”.

“But isn’t self-control same as willpower?” you may ask.

Well, there’s a difference. When you watch CNBC daily and resist the temptation to follow the bad investment advice blurted out by the experts, that’s ‘willpower’.

But when you resist the temptation to watch CNBC at all, that’s ‘self-control’.

As brain scientists have found out, people with higher levels of self-control have just as many desires, but they are less likely to feel that their desires are dangerous.

Their desires also tend to be less intense, and thus require less inner strength to resist.

It’s not that these people – the ones with higher self-control – have perfect willpower and are able to stare down temptations.

Instead, they are able to intelligently steer clear of situations that trigger problematic desires.

They don’t resist temptation – they avoid it entirely.

They don’t’ try to defeat their desire – they merely forgot it.

Too often, we assume that willpower is about having strong mind or gritting our teeth and staring down the temptation, say of rising stock markets.

But this has been proven to be wrong. Willpower is really about properly directing the focus of our attention, and learning how to control our thoughts.

It’s about realizing that if I’m thinking about the hot stock and that I’m tempted to buy it, I must look away. I must simply ignore the noise that could tempt me into a hasty decision.

You see, the only way to boost willpower is to recognize the inherent weakness of the will.

“Strength does not come from physical capacity. It comes from an indomitable will,” said Mahatma Gandhi.

Willpower exists, but its importance has been built up so much in our minds that when we fail at something, we blame it on lack of it (willpower).

Well, we don’t lack the willpower. We only lack the understanding of the forces that conspire against our willpower.

So the next time you make a will to become a better investor or better person, simply follow what Nike advices – Get out there and just do it.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Vishal,
    Is not the average small investor out of the stock market? yes there will be a small portion of mavericks and silly people. Like the previous stock booms where students and Housewives figured in the news for making money now there are none. The average gambler has taken his business to the real place.
    Are you saying Business TV gets a substantial people to invest?

  2. Hi Ramesh,

    Yes, the average small investor remains in the market. I can talk from my experience of meeting people from within my family, friends, and other acquaintances. Not sure if I can call them silly, for these guys have been investing for a very long time.

    Of course I will keep out the students and housewives out of this list because, as you rightly said, these come to the markets during booms and disappear after the bust! What I’m talking about above is the serious long term investor.

    As for you point about business TV, I’m sure it doesn’t get people to invest (but just speculate). However, the constant blaring of these channels everywhere you go, especially in a large city like Mumbai, diverts investors’ attention and leads them to sometimes lose their focus.

    Regards,
    Vishal

  3. Another excellent article Vishalji. Baba Shiv’s experiment was fascinating to read. The difference between self control and will power was eye opener.
    Your articles are very insightful, it should reach the masses. Pls see if you can make an app for Android and app store markets. Thanks for being selfless and awesome. I usually forward your articles to a bunch ot people in my circle, really hope they are benefitting as much as I am.

    • Thanks for your invaluable feedback and suggestion, Mansoor! And thanks also for spreading the word around.

      As for the “Safal Niveshak App”, I’m not sure how to do that but it’s a really good idea. 🙂

      Regards,
      Vishal

  4. Tony Castelino says:

    It was a good article. Since being in touch with you I have been able to stick to my resolution. Now I have learned to buy businesses and not stocks. Thank you for your guidance and the brain stimulating articles you write. One just has to sit and ponder and apply the simple principles and not get carried away with the herd mentality that exists in the stock markets.

  5. hahahaha, i am pretty sure that CNBC would hate you for the example and you are probably never going to make it to their show even though i think you should have a half an hour program about investing 🙂 you see not everyone reads and there are many fools like me who still watch CNBC in the morning 🙂 i am sure there are many like me out there.

    • Hey Vikrant, thanks for the feedback! I hope CNBC does not read your suggestion about having a half an hour program with me, because I will say such things that the program will of off-air after the first week itself. 🙂

  6. Dear Vishal,

    Watching CNBC or other business channel is not a bad thing! After all you get to know the latest news from such channels only. It is for the smart investor to see which news is good for him to use and which one is bad!

    As an example, I had a stock called Kanoria Chemicals bought at 35Rs. and it was never moving beyond this range for couple of years. These are small cap stocks rarely you hear about it. One fine week the stock spurt up 20% every day and reached a peak point of around 65Rs. It was news driven, I could get that news from those channels only. It is very tough to track every other news by going through the websites and newspapers. I sold all my holdings at different levels between 45 -55 levels with some decent profits. Now the stock is back to the same 27 to 35range. It is just how you analyse and use the available infromation. Let’s not blame the channel for it. I agree they make every market move a very big sensation and that’s bad!!!

    I have some negative experience as well by watching CNBC.

    To me business channels are like internet. You have both good and bad in internet. It depends on which one you choose to view and which one you use and which one you avoid.

    May be in future, who knows, we may have a weekly dedicated hour for SafalNiveshak!

    Regards

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