7 Habits of Highly Unsuccessful Investors – If you are not successful, you would surely have them.
27th June 2019
7 Habits of Highly Unsuccessful Investors – If you are not successful, you would surely have them.
Greetings from Hitesh! We are resuming our journey of investment education again. In the last month – we have shared our view on Indian Market / USA market / GOLD from various angles. When TEJI is in full BLOOM – I have often heard many guys saying me – “I should have listened to you”.
My role is just to share my views and educate you about market opportunities. Beyond that, I can’t do anything. Over the years, I have observed that – non-performing investors have some common traits. I am sharing the same for education purpose. If you find that you are also following same consciously or unconsciously – please work on them as they will be the killer of your profit.
Please read them slowly.
1. GREED: -
Most people invest to make money and there is nothing wrong in that desire as it adds to the personal growth and growth of the overall economy. The danger comes when that desire gets converted into GREED. Greed is an extremely powerful force which puts off NORMAL GUYS common sense. They start believing that they can double money in the fastest possible time. If they can do it TODAY, they are not ready to wait for tomorrow.
They like the Quote from movie WALL STREET “Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies and cuts through to the essence of the evolutionary spirit.”
Greed leads to believe that you can make tons of money without RISK. This has never happened in the market. This leads to failure.
2. FEAR: -
100% opposite of GREED is FEAR. FEAR is not logical and sensible avoidance of RISK. It connotes EXCESS. FEAR is more like a PANIC. Fear is an overdone concern that prevents investors from taking investment actions when they should.
In market fall, mostly, smart investors are buying stocks at their prices. But normal guys will wait for the “U” turn to take place. Another mistake happens when they sell good shares at loss during fall in the market. So, fear acts as a double-edged sword for them.
FEAR leads to missing of opportunities.
3. Suspension of Disbelief: -
People often dismiss the logic, time tested methods, financial history in their journey of investments. They end up accepting illogical investment propositions and they end up losing their last shirt.
Somehow, I see NORMAL MINDS have an innate attraction for Chamatkar/Magic. They want something instantly by taking no risk/no pain. If any con-artist convinces them for MOON, they will go with him. They lose their common sense instantly.
Greek Orator DEMOSTHENES had said “Nothing is easier than self-deceit. For what each man wishes, that he also believed to be true.” During TEJI, people tend to disbelieve the concept of Fair Value and they are taken for a ride.
Those who have come to the market post-2009 have seen one side TEJI till 2017. For them, I am sharing Kenneth Galbraith 1990 phrase.
“When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generations as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Experience, to the extent that it is a part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”
4. The tendency to conform to the heard rather than to resist, even when HERD is wrong: -
Many people who do not share the consensus view of the market start to feel left out when the market moves against their view. They start going crazy after some time and they also join the HERD.
During TECH BUBBLE of 1999, Buffett portfolio did not perform well as he did not invest in those stocks. Wall Street started to write him off. But since he is THE BUFFETT, he held on to his belief and we know what happened to those who joined the herd.
During 2005-2007, when real estate stocks were moving up as if there is no tomorrow, RAKESH abstained from buying a single stock of real estate companies. DALAL STREET was full of criticism of RAKESH for missing the opportunities. Look what happened to those companies and what happened to the companies held by Rakesh.
Time and again, the combination of pressure to conform and the desire to get rich causes people to drop their independence and skepticism, overcome their innate risk aversion and believe things that don’t make sense.
5. ENVY: -
Do you remember the ONIDA punchline – “Neighbours envy, owners’ pride”? As such GREED is wrong and when it combines with a comparison with others, it becomes lethal. We call it ENVY.
People who might be perfectly happy with their lot in isolation become miserable when they see others do better. In the world of investing, most people find it terribly hard to sit by and watch while others make more money than they do.
6. EGO: -
It is challenging to remain objective and calculative when you face the following situations.
A:- Investment results are evaluated and compared in the short term. So, it hurt the ego, if one is not performing better than the others.
B:- Incorrect and imprudent decisions to bear increased risk generally lead to the best return in good times. This is EGO boosting and people tend to take the more and more illogical risk.
C:- The best returns bring the greatest ego rewards and recognition. It’s fun to feel smart and have others also agree with that.
In the above example of Buffett and Rakesh, it was hurting to their ego and it was a question of their long-term track record going into drain, still, they kept their senses intact and did not go for ego satisfaction of beating the market.
Those who can’t keep their ego under check, can’t build long term wealth.
7. Capitulation / Surrender: -
Investors hold their conviction as long as they can, but when the economic and psychological pressures become irresistible, they surrender and jump to the bandwagon.
In general, people who go into investments are intelligent, educated, informed and numerate. They have a fair knowledge of economy and business. Many are able to reach reasonable conclusions about value. But then psychology and crowd influences move in. Most of the time assets are overpriced and they are moving up further or they are under-priced and moving down further. Say you have not bought the overpriced shares like BAJAJ FINSERVE (p/e of 430 something as per NSE) and it is moving one side up. It is nearly gone up by 3 times in the last 15 months. Now, how long you can resist these?
We have heard a story of a BRAHMIN carrying a goat and three cheaters meet him one after other and tell him that he is carrying on a DOG. He brushed aside the first one. When the second one told him the same thing – he looked at the goat to confirm. But when the third one told him – he said maybe I am wrong and he kept the GOAT on the road and went away.
The market has an N number of ways to influence your conviction and not just three like the above story. So, you need to have a support of CHARACTER along with Conviction. Buffett is sitting on the cash pile of more than USD 100 billion and the US market is moving up one side. He is a combination of character with conviction.
How to overcome these 7 habits?
The answer is to build the CHARACTER. Somebody has said - Watch your thoughts they will become your words. What your words – they will become your action. Watch your action – they will become your habits. What your habits – they will become your CHARACTER.
So, start working on your thoughts. As soon as you get thoughts to make money via shot cuts – deal with that immediately. If you don’t deal them at THOUGHT levels – you will be inclined towards short cuts and become prey of these 7 habits.
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Have a GREAT DAY.
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Live With Passion…Invest With Passion.
Hitesh Parikh.
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