We are a race that has rewarded the go getter, right? So everybody wants to project himself as a decisive person. So in case of uncertainty. So we are confident in our fund picking, our stock picking, picking the school / college for ourselves or for our children etc. We do not like to share the process with our kids. We ‘know’ best.

We buy confidently. We even switch confidently. We hate accepting our mistakes, so we hold on to our losers till we cannot sell it!

Actually we are very confident when we invest, paralyzed into inaction when there is some major change, and panic when the storm is over. This is just hard wiring. We are going for a hunt in a group, a tiger attacks one of us, we have no clue what to do so we climb a tree, jump in the river, or …and AFTER the tiger has killed and gone we may still panic. WE WERE SAVED JUST BY LUCK THAT THE TIGER CHOSE ANOTHER PERSON, not by our skill. Cut to investing.

A lot of humility helps (I could do with a lot, lot, more). Even worse just a few years away from the worst economic mismanagement of the world economy, we believe that the world economy is now well managed. Our portfolio still has the 2008 scars. Our infra stocks are still languishing and we keep calling Larsen&Toubro the barometer of what is happening in the economy. If L&T is the barometer, our country is in a mess. I can assure you that!!

When we are setting our goals, we need to be realistic about equity returns. Remember in a world which had no great environment laws, bribing was the norm, third world governments and dictators could be bought, and US dominated the world Warren Buffett earned about 19% CAGR. Yes, there are Indian funds which have done better than that (remember we have not yet adjusted for inflation) but when people ASSUME that they will get 18% p.a. for the next 20 years or thereabouts, I can only be amused. Honestly some of these IFAs make these assumptions so that the client feels ‘justified’ to pay the ‘fiduciary’ fees of Rs. 35000 per annum. As far as the IFA who sells products, such assumptions ensure SIP investments – or that is the thought process.

As an individual investor it helps to start with a lot of humility. Look at your past luck and past mistakes. I have so many mistakes of my past investing life, that I have no clue why I am as arrogant as I am now. However, one thing is sure, these days I am far, far more a cautious and my mistakes of commission have almost been eliminated. Mistakes of omission are still happening, but at my age I guess I can live with that. I recently (over the past 2 years) moved about Rs. 1o million of a friend’s money to Tax Free PSU Bonds. He, his brother, his IFA, his CA, were all aghast because his equity portfolio was doing well. However, recently they were all happy to see an almost 20% appreciation in his portfolio apart from a 8.3% average portfolio yield.

Let us take the case of the ‘expert’ – the guys who come on television. Generally we like the well educated, precise numbers guy who speaks with confidence. He is normally wrong. However, he has a greater following – Bull or Bear. Typically in the Indian context he is an engineer from IIT, MBA from IIM, or CA. He is articulate. Speaks with an accent, never admits to a mistake, has made money in the equity market, has of course out performed the indices over long periods of time. We actually have no clue how is year to year performance is. Remember if you bought Wipro in 1980 and are holding on till today, and you reinvested the dividend in the index, you would have still outperformed the index because of ONE CORRECT MOVE – and maybe you invested by LUCK.

See how well you plan 4 activities in the same direction. Say you had to go to the bank, get breakfast, pay school fees, chase the car mechanic who is not picking up the phone. Did you do all the activities? did you plan the sequence of visits right? did you take your cheque book along? do you never miss?

Do you see government projects NOT being completed on time? Did you hear about Jio launch in 2014? has it happened?

So stop being over confident. It pays to be humble towards the market. Remember Ken Fisher calls it ‘The Great Humiliator’ ? You may get more than 12% return in your portfolio, but planning that you will get 19 is amazing over confidence. Re look at your goals. Some of them may not be reachable.

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  1. Ashutosh Chakraborty

    Very nicely written. Thanks, Subra.

    I find investing in individual stocks as an aggressive stance by its very nature, once one realizes that every share you buy, there is a person selling the same to you (except IPO, dilution, or other rare cases). Thus, when you are glad to buy company X at a price of Rs 100 per unit because you are sure of its increase, that the seller of that share is so gloomy about the company X, that she/he is glad to get rid of that share for Rs 100.

    Something to think about, when one is getting over confident about some investment.

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