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A few months back, during my lecture to a class of MBA students, I asked them to finish a sentence. The sentence was – “If you play a slot machine in a casino long enough, eventually you will ………” *
The class yelled out in unison “WIN!”
As most people reading this know, that is exactly the wrong answer. Slot machines are engineered to make everyone but the casino a loser in the long run. But MBA kids don’t know that, and they are never taught that. I assumed they confused the benefits of persistence with the actual odds of succeeding.
Anyways, I met a couple of my neighbours in the gym today, who smiled – as if mocking me – when I told them about my work that is to teach people to make lesser mistakes with their money and also learn to make sensible investment decisions for the long term.
“Who makes money in the stock market?” asked one of them who is a property agent. “I have been owning some penny stocks for the last 20 years, and most of them are down almost 99%. So I have been persistent enough but have not made money even in the long run.”
Before I could ask him the secret of achieving such an “amazing” feat – of not earning positive returns from stocks in two decades – he added, “And then there are some real estate stocks that I bought in late 2007, and even those are down almost 95%. So nobody makes money in the stock market…and this long-term thing is all bull c**p!”
The second gentleman, another property agent, said, “You are right! I think the best way to make money in the stock market is to buy stocks on margin, and sell them as soon as they rise five or ten rupees. This long-term theory does not work in this market. It’s like a casino where you have to play fast and move out quickly if you really want to make some money.”
Before I could utter a word in favour of long-term, sensible investing in stocks, the first gentleman asked, “By the way, do you have any stock ideas to buy now?”
“You know what?” I said, “You must not own stocks but invest through mutual funds if you really want to participate in equities. Stock picking is not for everyone.”
“Why?” he asked, “There’s no excitement in mutual funds like there is in trading stocks!”
“That’s the reason you must not invest in stocks…because you want to do that to seek excitement. You will be better of betting on horses,” I said with a smile.
He did not speak the next word and went back to exercising. I felt relieved.
It’s Difficult to Change People
Over the years, I have learned that it’s very difficult (or nearly impossible) to change people’s worldviews and habits once they move into adulthood.
When you are young (pre-adulthood), and your mind is still malleable and your worldviews are still getting created, there is a great chance that you may change your beliefs and habits as you soak in new knowledge and wisdom. But when you grow into an adult, your worldviews (like stock market is a casino, real estate is great, people are untrustworthy, etc.) and habits stick with you.
“We are what we repeatedly do,” Aristotle proclaimed. “Could the young but realize how soon they will become mere walking bundles of habits, they would give more heed to their conduct while in the plastic state.”
You may practice a new habit for 21 days or 66 days (different studies prove that a new habit can be formed if you practice something consistently for these many days), but for most of us, going through that 21 or 66 days is in itself a huge challenge. And thus most of us drop off after a week or ten days of remaining persistent of trying to form a new habit.
And thus I felt relieved when that discussion with my neighbours, on the right and wrong way of playing the stock market, ended in the gym earlier today. And this gave me a new reason to talk more to the youngsters around me, and explain to them the power of long-term compounding of learning, about the math of success and failure (base rates, probabilities etc.), and what they should do and avoid doing with their money and careers and the likely consequences they may end up with.
To start with, I would teach my daughter today that all persistence is not good. And sometimes accelerated failure – and taking lessons from it – is what would lead her to succeed in life. I would tell her that sometimes it’s better to quit than to prove your grit. Not everything is worth doing, let alone doing for extended periods, and not everyone who works hard is pursuing something worthwhile.
Finally, I would tell her that it can take guts to cut your losses and move on. And that could play an equally important role in her life as the usefulness of persistence.
* I’ve borrowed the question on casino mentioned at the start of this post, and which I now ask in my lectures, from Scott Adams’ wonderful book – How to Fail at Almost Everything and Still Win Big.
Very nice Vishal! You can also think of it as – what is my expected payoff from this exercise? If its a negative payoff, then quit immediately. If the payoff is positive (and hopefully big), then continue for a long time. Gambling has negative payoff for the gambler. Deep value investing has positive payoff. Likewise, what Guy Spier calls- Compounding Goodwill has positive payoffs, so you can continue it. After reading Antifragile, Dhandho Investor, Thinking Fast and slow- I am able to see the importance of optionality in life; which options to take and which ones to avoid.
Pardon me, but my mind is all warped with same 2 or 3 ideas right now. 🙂
Thanks Vikas 🙂
This is it. “sometimes it’s better to quit than to prove your grit. Not everything is worth doing, let alone doing for extended periods, and not everyone who works hard is pursuing something worthwhile.
Finally, I would tell her that it can take guts to cut your losses and move on.”
Great post!
Many thanks, Vipin!
Why we are not been able to judge that ” we are persistently practicing the WRONG ” ?
Vishal, I must appreciate they way put things into perspective . Some people might think investing in equity is “boring” and that is dangerous ; and it’s difficult to change the mindset. You are a great teacher
Glad to know that you find my work of some value, Mandar. Thanks!
Dear Vishal,
I am being little bit straightforward in this comment & request you to take this in a positive spirit & focus to change on the below aspects which I am mentioning:
1) Vishal – Your writing style has become so monotonous & boring. For many many months I tolerated your Story telling (almost all pathetically fictional) but I can’t take it any more.
2) Your fictional characters around you to whom are always give gyaan are so dumb always & you are the only Gyaani in Gym, Restaurant, Appartments etc.
3) Kindly stop this bullshit. Seriously think something new style of writing. I really love how your partner Anshul writes. His style is amazing. You have to learn from him.
4) I know that you only invest in Mutual Funds but give gyaan on investing in Direct Stocks. Well that is your business & I am not talking about that.
5) For the final time – Unlearn the way you write. Stop glorifying yourself in every article as a wise person around everyone. Honestly yours is just bookish knowledge, and that too half baked knowledge.
Finally – Pardon me if this honest feedback hurts you. But this is the feedback of most of the readers.
It’s up to you to post this message openly or not. I am leaving that to you.
By posting this comment on your blog, it tells me atleast you are honest, else it will just confirm my perspective on you.
Hope you will take it as a constructive feedback.
Thanks for your feedback, Sidharth. Leads me to introspect.
Though you could have been kinder in your choice of words. 🙂
Also, not sure what’s the basis of your comment – “I know that you only invest in Mutual Funds but give gyaan on investing in Direct Stocks.”
Also, not sure how you can generalize your feedback and suggest that “this is the feedback from most of the readers.”
Anyways, thanks again!
Hi
I’ve been following your blog from few days.
Your latest post is fantastic and resonated with me. I thought it was something my audience would appreciate,
Thanks
Thank you!
Thank you Vishal for enlightening us through your articles. Persistence some times create the blind spots which person may not be able to see.
Liked your style of explaining complex issues with simplified ideas
Thanks for your kind words, Sunil!
Great article Vishal! Reminds me of of why Lord Krishna is also called “RanChodDas” :-). Totally agree that sometimes somethings are just not worth pursuing especially where the odds of success are so much against you or the costs far outweigh the benefits!
Hi Vishal,
As a follow-up question that arises out of my mind, do you have thoughts on when to persevere and when to quit? I do think when you are deep into something it can be difficult to let go and besides you wouldn’t know at that time whether it is a good option to quit. Only in hindsight one gets to know that quitting was the right thing. Do you have any thoughts on that?
Very nice article sir..
Well written article and informative. You’re quite right about adults being set in their views, particularly when it comes to investing.