Investing Behaviour

Welcome to the latest issue of ‘The Journal of Investing Wisdom’, where I delve into the thoughts, reflections, and readings that have recently captured my attention. This journal serves as a window into my contemplations and the resources that inspire and inform my journey as an investor. I hope you like what you read below. If you are new here, and wish to get insights and ideas like these straight into your inbox, please click here to become a member.

What I’m Reading

A Yogi’s Rules on Money and Happiness

I read an article recently written by Paramhansa Yogananda – of Autobiography of a Yogi fame – during the Great Depression in the US. It was titled Creating Your Happiness.

Not surprisingly, the principles laid out by Yogananda remain relevant even today, 90+ years after he wrote about them.

You see, the old rules of life or money never change and they only become tough on you when you ignore them. Like these golden rules laid out by Yogananda (the emphasis is mine), which if you continue to ignore, may make your life tough.

Over to Yogananda.

[Read more…] about A Yogi’s Rules on Money and Happiness

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The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” I am beginning this new series of posts on the psychology of investing, where I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

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Why oh why are human beings so hard to teach, but so easy to deceive.

~ Dio Chrysostom (Greek philosopher and orator, 2nd Century)

Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

~ Warren Buffett

Anne Scheiber was 51 years old when she retired from her job as a low-level auditor from the American Internal Revenue Service in 1944. She never earned a salary of more than $4,000 per year, and although she was an exemplary worker, she never received a promotion. Maybe, because she was a woman and a Jew, the lots that were discriminated against in the workforce in general in the west during that period.

[Read more…] about The Psychology of Investing #1: Conquering the Investor’s Worst Enemy

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On a cold morning in 1931, in a small town in the US, a seven-year-old boy was playing with a young girl when they were unexpectedly attacked by a stray dog. Tragically, the girl was bitten, contracted rabies, and succumbed to the illness. The boy, miraculously, emerged unharmed.

This boy grew up to be known as Charlie Munger. Yes, you read that right.

Reflecting on this incident later in life, Charlie pondered and said, “That damn dog was three inches from me. All my life I’ve wondered: why did it bite her instead of me? It was sheer luck that I lived and she died.”

[Read more…] about The Silent Force Driving Success in Life and Investing

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I was at a friend’s place recently, and since we are in a bull market, and against my wish, we got down to talk about investing.

As I had expected, most of the discussion was around what the markets have done in recent times, and where they are likely to go after the new government gets down to work. I tried to move the conversation towards long-term investing, but was pulled back again and again by things that worry people in the short term. And that led me to think about this post about, well, a few things you should not care about as an investor.

Let’s dive right in.

[Read more…] about 5 Things You Should Not Care About as an Investor

A couple of announcements before I begin today’s post – 

1. Mastermind Value Investing Course Admissions: I invite you to join my premium, online membership and course in Value Investing – Mastermind – at a special discount of ₹2,000, available till 25th June 2024. Mastermind teaches a structured, step-by-step process of stock picking as practised by the world’s most successful investors. And it’s not just a course anymore, but an all-in-one membership to my most detailed value investing course, plus exclusive members-only content like special articles, ebooks, transcripts of my podcasts, notes from the books and other timeless resources I am reading, and curated content that I am consuming and learning from. Click here to know more about this session and join.

2. Rethinking Financial Freedom Masterclass: I am holding a 2-hour online session on the subject of “Rethinking Financial Freedom.” The session is free for Mastermind members. However, if you are not one, you can join the session by registering now. The session will be on Saturday, 29th June 2024, 8 to 10 PM IST, on Zoom. Recording will also be available after the class. Click here to know more about this session and join.

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Investing is often perceived as a game of selection. Pick the right stocks, and you’re on your way to financial freedom. The allure of discovering the next big thing, the company that will skyrocket and bring unimaginable returns, is powerful.

However, this perspective only captures part of the story. The stocks you choose not to own can have an even more significant impact on your success as an investor.

This counterintuitive notion underscores the importance of discernment and restraint in investment decisions.

I drew this illustration a few years ago, to explain the process of selecting the “right” businesses worth investing in for the long run –

Counterintuitively, this process also shows how the funnel helps you reject the “wrong” businesses – that do not pass either your circle of competence filter, or financial stability filter, or moat filter, or valuation filter.

The 100 (assumed) stocks you start with at the top of the funnel, are left with 20 at the end of it. This is because you choose to say ‘no’ to the remaining 80.

Warren Buffett remarked –

The difference between successful people and really successful people is that really successful people say no to almost everything.

Warren was talking about life in general, but this principle applies very well to investing. The difference between successful investors and really successful investors is that really successful investors say no to almost every business/stock.

By rejecting the majority of investment opportunities and focusing on a select few high-quality businesses, you can avoid the pitfalls of overexposure and poor investment choices.

This is also a matter of patience. The market always presents opportunities that seem too good to pass up. However, not all opportunities are worth pursuing. By exercising patience and waiting for the right opportunities, you can avoid the trap of impulsive decisions that often lead to suboptimal outcomes.

Patience also involves the willingness to hold on to cash when there are no compelling investment opportunities. This goes against the common belief that one must always be fully invested to maximize returns. In reality, holding cash can be a prudent strategy during periods of market exuberance or uncertainty, allowing investors to take advantage of opportunities when they arise.

Not to forget that such behaviour – of saying no to most things – is also a test of your independent thinking, which is a great character attribute of a good invetsor. When you follow the crowd, it can lead you to herd mentality, where investors make decisions based on popular opinion rather than sound analysis. Look no further than the Twitter, Instagram, or YouTube apps on your mobile phone for proof.

Independent thinking involves conducting your own research and due diligence before making any investment decision. It means questioning the prevailing narratives and being skeptical of big promises.

When you develop a disciplined investment process and stick to it, you can avoid the traps of herd mentality and make more informed investment decisions.

Saying ‘no’ also aligns well with long-term thinking. Investing is not about getting rich quickly, but about building wealth over time. This requires a long-term perspective and aligning investment decisions with one’s financial goals. Chasing short-term gains by saying ‘yes’ too often, leads to dud investments that can jeopardize your long-term financial security.

Before I end, let me say it again that the power of saying no cannot be overstated, in life or investing. Sticking with investing, it involves –

• Avoiding bad businesses,
• Exercising patience,
• Thinking independently,
• Aligning with your long-term goals,
• Learning from mistakes,
• Building a margin of safety, and
• Maintaining emotional discipline.

When you focus not just on the stocks you own but also on the ones you consciously choose not to own, you can significantly enhance your chances of investment success.

Bruce Lee got it dead right when he said –

It is not daily increase but daily decrease, hack away the unessential.

This is one of the most critical lessons I have learned and practiced in my life and as an investor. And that has helped me simplify my life considerably and brought me tremendous peace.