Are you aware of the Second Level of Thinking while investing?

17^th May 2021

Are you aware of the Second Level of Thinking while investing?

Dear Fellow Travelers,

Namaste! After 48 years of his death, Bruce Lee is still attracting a good amount of readers. I have always felt reading his thoughts is reading some enlightened master. Thanks, a ton for reading our post. Today, we will deal with the important aspect of the second level of thinking while investing. I am not talking about the SECOND OPINION but SECOND LEVEL. Those who live according to the opinions of people around them – they will never be happy. So, understand the difference.

Let me deal with my first experience with the Second Level of THINKING: -

Way back in 1994, I had spotted a company. It was my first pick, so I was very positive for the same (should I say BIASED?). I bought just 100 shares at Rs.27. In those days’ settlement cycle was for 15 days and the shares used to come in the physical certificate. Many times, delivery was given even after a month also. The same thing happened to me. I got my shares after 45 days.  By that time, share prices jumped to Rs.50. I could sell my shares without taking delivery.

So, I asked my BOSS – who was the retired fund manager of UTI – Had I bought 1000 shares I would have made Rs.23000 profit?

My boss looked at me and said– Yes. But what would have happened if the share prices have gone down? Every rupee fall would have taken your Rs.1000!!

This was my first lesson in Second Level thinking.

How Day today investments decisions are taken?

Novice Investor: - Company fundamentals are Good. Let us buy the company stock.

Seasoned Investor: - It’s a good company but everybody thinks it’s a great company and it is not. So, the stock is overrated and overpriced. Let us sell.

Novice Investor: - The outlook is for low growth and high inflation. Let us sell our stock.

Seasoned Investor: - Outlook is bad. But since everybody is selling in panic, let us buy.

Novice Investor: - Company’s earnings will be negative. Let us sell.

Seasoned Investor: - Company’s earnings will be negative but it may be lesser negative than CONSENSUS and the stock may give a positive surprise. Let us buy.

Why smartest of the smart guy think – differently?

Today everybody is equipped with Smart Phone and GOOGLE. Since other investors may be smart, well informed, and highly techno-savvy, they find out an edge for themselves. They think something that other guys haven’t thought about it, see things the other guys haven’t seen, or bring insights the other guys don’t possess.  They know it deep down that – being right is the necessary condition for becoming successful in investments but they must be RIGHTER than the fellow investors.

They know that the First Level of thinking is simplistic and superficial, and everybody can do the same. It’s a more obvious kind of thinking. It’s more of an opinion kind of thing. E.g. If the earnings are going to be good, the stock should move up!!

The second level of thinking is deep, complex, and convoluted. They think about following….

 1.  What is the range of likely future outcomes?

 2.  Which outcome is most likely to occur?

 3.  How to prove that I am going in the right direction?

 4.  What is the consensus view and what is the probability, that it will happen?

 5.  How does my expectation is different from the consensus?

 Thinking about the above possibilities needs what Dr.DE BONO says – lateral thinking abilities. Very few can train them for this kind of thinking and those who can do are also not ready to take a massive mental load in finding the above answers. That’s why the big money goes to the people who are ready to think unconventional.

How Middle Class Operate in their life?

Two most important events in the Middle Class person life is buying a house and Marriage of their son or daughter.

Marriage: -

Middle-class / normal guys celebrate marriage as if they are made in heaven and celebrated on earth. They spend a good amount of money on marriage.

But TOP guys, apart from spending big money, spend little more in hiring a TOP LAWYER to prepare – PRENUPTIAL AGREEMENT. They think about the possibility of DIVORCE also and they are prepared before the marriage takes place. This unconventional behavior keeps them away from getting poorer in case the marriage doesn’t work out.

Buying a House: -

To buy their first house – they will go out of the way to earn money or take a loan and they spend a good amount to decorate with good furniture and other stuff. They spend tons of money for – Look and touch Feelings in Furniture, Paintings, Antiques, and things like that.

Smartest of the smart spend another 5-7% amount and make it 100% as per VASTU COMPLIANT. When their house is 100% oriented with the VASTU Science, they not only stay in the house but also happily stay and grow in that house.

How the outcome gets influenced by your thinking?

Say you are thinking First Level way and you go right – you will get AVERAGE PROFIT and say you have gone wrong; you will get AVERAGE LOSS.

But if you are thinking Second Level – you will get above-average profit and if you go wrong you will manage with little stop loss. So, you have a lesser than average loss and more than average profit.

 

What Next?

Be honest and see your thinking patterns while you invest/buy a house or spend in a marriage. If you are operating out of First Levels only, you will have a tough time when things are not going your way.

Back up all your decisions with second levels of thinking.

I wish you all the best.

 

Follow me on Twitter @hiteshmparikh / WhatsApp - +91-9869425399.

 

Live With Passion…Invest With Passion.

 

Hitesh Parikh.