Investing Behaviour

In a world dominated by men, here is a rare untold story of a woman who quietly made it big as a stock market investor.

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.

As per the executor of her Will, Benjamin Clark, Scheiber, who was already investing her small savings in the stock market when she retired in 1944, started here post-retirement life with a portfolio of about $21,000. Adjusted for inflation, that was about $297,000 in today’s money. Not really a large sum to retire in the US.

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“If all you care about is the mountaintop, the climb is going to be rough.” ~ Anon

“We enjoy the process far more than the proceeds.” ~ Warren Buffett

This is going to be one of the shortest posts I’ve written. One book that I keep by my bedside for frequent reading is Ruskin Bond’s A Book of Simple Living. Here is a passage that I stumbled upon from this book last night, and which resonated perfectly well with how I practice investing and one key idea I try to teach here – the focus on process vs outcome, on the journey vs destination.

[Read more…] about The Journey

I recently spoke at IIM Lucknow. My topic was ‘Surviving the Investing Game.’

Click here to download the presentation and notes, or read it in the panel below.

The title of this post is inspired from Ch. 18 of Peter Lynch’s One Up on Wall Street, that reads – The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices.

For today, I have just added to and removed from Lynch’s list, and have illustrated the silliness using real-life examples of listed Indian stocks. None of what you see below portrays my view on any stock showcased in this post. These are purely examples, and that too from the benefit of hindsight. But they offer meaningful lessons.

Anyways, before you read ahead, please understand that I agree with what Morgan Housel wrote recently that people are not crazy in general. Just that they can…

…be misinformed. They can have incomplete information. They can be bad at math. They can be persuaded by rotten marketing. They can have no idea what they’re doing. They can misjudge the consequences of their actions.

I also agree with Charlie Munger who said that even smart people may have their ‘streaks of nuttiness’ that cause them to make occasional dumb remarks and decisions.

So, what follows below showcases just those moments of nuttiness and craziness that get a lot of people into problems in investing. I have experienced some of these moments myself, just that I have managed to survive to tell the tale. 🙂

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I was recently reading a story on the classical Greek philosopher, Socrates, who was tried and executed in 399 BC. He was tried on two charges – corrupting the youth, and impiety (perceived lack of proper respect for something considered sacred).

Socrates had done no such thing. What he had done was educate the youth, teaching them to challenge arguments from authority and question what they believed to be true.

In the process, he frustrated and embarrassed many powerful people with his constant line of questioning, known today as the Socratic method.

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“Within infinite myths lies the eternal truth, who sees it all? Varuna has but a thousand eyes, Indra but a hundred, you and I, but two.” ~ Devdutt Pattanaik

“Accepting that you don’t know — and can’t know — what the future holds should be liberating, not frustrating.” ~ Jason Zweig

I was recently reading an old post by Jason Zweig titled I Don’t Know, and I Don’t Care.

Jason wrote about –

• How he graduated from not believing in indexing and instead picking sector funds and small cap funds,
• And then realizing that he was not good at fund-picking and that beating the market was amazingly hard,
• And then starting to invest in index funds that he said liberated him from the feeling that he needed to forecast what the market was about to do,
• And that gave him more time and mental energy for the important things in life.

If I were to chart out my own life as an investor, I am still at the first stage as described by Jason above. In fact, about six years back, I wrote about my reasons for not investing in index funds as I believed well-managed, low-cost, actively managed funds were a better bet for investors.

[Read more…] about What We (Don’t) Know

Short practical advice (may skip) – If you cannot withstand losing a bit of your money in a stock market crash (where things easily go from bad to worse to brutal), please stay away from stocks. But if you are fine with the risk of losing some money in the short run in return of wealth creation in the long run, keep owing your good stocks and/or good mutual funds. Buy more (and keep buying) if you believe the quoted (now lower after the crash) prices offer great value in the long run. Then, once you are with your chosen good investments, just get going with other more important things in life like family, work, and self-development…and let go of the outcome of your investments. Accept that whatever happens, happens.

Slightly long theoretical advice (must read) – I read a nice article earlier today on dealing with life’s harsh realities – sharp fall in stock prices is one such reality for most investors – and here is an excerpt from the same…

…the only intelligent thing to do when such turbulent change occurs is for us to sit back and realize that we are only to be witnesses to change, and to respond to it rather than to react to it — much like we would watch a movie unfold on the screen and laugh at the funny bits and cry at the sad bits, while always knowing that what is happening before our eyes is unreal.

Modern quantum physics after Einstein also points us this way — it says that what occurs depends upon the observer, and not on what is observed. So, in effect, as a witness, I am free to choose my response, and therefore the reality I actually experience.

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I am in Chennai for my Value Investing Workshop that happened yesterday.

After my session, I went to meet a friend in the evening. His residential society had organized a bicycle race for kids. I saw more than 50 kids out there jostling for space meant for not more than 10 cyclists. Worse, most of them were without a helmet.

Now, letting your child cycle without a helmet may be ten times riskier than feeding him a course of dangerous non-steroidal anti-inflammatory drugs. And a thousand times riskier than flying in an airplane.

Moving in the front seat of a car without a seatbelt (which most people, especially teens, do when the policeman is not watching) is hundred times riskier than many common and ‘scary’ diseases in India, like swine flu.

Yet we obsess about the low probability events and take big chances with the high probability ones. Why?

[Read more…] about What Are You Afraid Of?