7 Habits of Highly Unsuccessful Investors – Take Printout and read this Every day. You will bless me for life.

06 September 2018

7 Habits of Highly Unsuccessful Investors – Take Printout and read this Every day. You will bless me for life.

Greetings from Hitesh! We are resuming our journey of investment education again. Our last post on Success has been well received and I thank all readers for their time and feedback.

Today we will deal with 7 habits which makes the most intellectual and successful guy in his business/job, a 100% failure when he comes to the investment area.

There is no dearth of people doing the detailed and smart analyses of given data. What stops them is their EMOTIONS and they are hard to control. Let us see those emotions which makes them unsuccessful.

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 overall economy. The danger comes when that desire gets converted in to GREED. Greed is and extremely powerful force which puts off NORMAL GUYS common sense. They start believing that they can double your 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 STEET “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 the GREED is FEAR. FEAR is not logical and sensible avoidance of RISK. It connotes EXCESS. FEAR is more like a PANIC. Fear is overdone concern that prevents investors from taking investment actions when they should.

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.

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 an they are taken for a ride.

Those who have come to the market post 2009 have seen TEJI only. 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 endeavour 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 then to resist, even when HERD is wrong: -

Many people who do not share consensus view of the market start to feel left out when 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 stick 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 scepticism, 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 comparison with others, it becomes a 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 other 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 more and more illogical risk.

C:- The best returns bring the greatest ego rewards and recognition. It’s a fun to feel smart and have others also agree with that.

In 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 800 as per NSE) and it is moving one side up. It nearly doubled in last 6 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 second one told him the same thing – he looked at the goat to confirm. But when third one told him – he said maybe I am wrong and he kept the GOAT on the road and went away. Market has N number of ways to influence your conviction and not just three like above story. So, you need to have a support of CHARACTER along with Conviction. Buffett is sitting on the cash pile of more that USD 100 billion and US market is moving up one side. He is a combination of character with conviction.

What NEXT?

You need to honestly investigate yourself with respect to above 7 factors. If you are not aware about them, your performance will get affected.

Have a GREAT DAY.

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Live With Passion…Invest With Passion.

Hitesh Parikh.