After finishing our research on Supreme Industries in 1988, the two of us who made the report could not decide whether to buy the share?
Why? self doubt. The important things you asked yourself (as a beginner) were very different than what I am asking myself today. So what I was worried about was:
- What if it falls 20% in a week after I buy?
- Will I look foolish if I buy now?
- Have I got too close to the company, and have I been over influenced by them?
- If it is really so good, why is it available so cheap?
- What am I missing about the company?
- Like the old fashioned moats will these moats also disappear?
So we were really having an ‘analysis paralysis’ in a company which we had studied in depth. We spoke to a couple of big Foreign banks, a big broker (he is still around and doing well)..but decided to break out and buy the share. Still holding.
To analyze a decision after 30 years is not easy, and you may not be sure of all the feelings, but I can see what was happening:
- decision making is scary
- fear of looking like a fool
- fear of loosing money far greater than the pleasure of earning money
Then you realize that it is only OBVIOUS that fears like regret. We also realize that a company ‘will do well’ is not sufficient – it also has to answer ‘is this the best way to allocate my meager and limited capital’. It is not easy to part with hard-earned money to make an investment with an uncertain outcome. All future related activities are scary and worrisome. This is true whether you are making the decision on your own or with the help of a good adviser.
As far as investing a volatile asset class is concerned, the sooner you come to terms with uncertainty, you are better off. For example if you have put options – lying open over a long week end…’Tuesday mornings’ could be scary – especially if a big thing like UP election results!
Wait a Minute. It is obvious that a person who lost say half the supply of food for the community would be hated far more than a guy who added half! So regret is natural, and feeling like an outcast is fair enough, is it not?
How did I overcome this:
- Once I choose fund house and schemes, I do not keep reviewing
- IN many mutual fund schemes like – H top 200, I pru discovery, FIBC, Franklin Prima, Hdfc Prudence – all a pre 2000 decisions, I have just let be. As long as the FM does not change much, I am fine.
- Prices from being a source of information can be one for regret
- Set performance goals rather than result goals
- Understand that if you spend too much time on money, it can create confusion
- Reduce the number of visits to the investing websites
- Be paranoid about your successes. I realize that my fund houses choices was bias 🙂
- I chose some funds because of one sales person – he is still around
- As long as the FM chosen is clean and process oriented, long term alpha was easy.
- Going forward I am convinced that other funds will take over…
- Indexing should be good enough for me
- Create your own GOAL oriented benchmarks
- Have a cooling off period of 24 hours or even 48 hours – where you will do NOTHING
- Have a friend and sounding board
- call up an enemy and take an EXACTLY opposite view and get ribbed 🙁
While one delays one’s decision, the investment value could fall further. However over the course of an investing life, one realises the benefits of Patience. Panicked decision making has not helped ever ! Most of us often compare our returns versus a broad market like the Sensex and Nifty! No problem so far. On a year-to-year basis, though, what drives performance in that index will likely differ from your strategy. For example the next time I am going to look I Pru Discovery is 2022 – looking at some deep value choices. During this period ‘Growth’ strategy like Franklin Blue chip may or may not have given a couple of top performance years.
If you’re a growth investor, you’ll probably lose to the market when value outperforms, and the reverse is also true!
An alternative benchmark can be related to the business fundamentals of the shares in your portfolio. Knowing yourself more important than worrying about wrong doings!
Stay calm. Stay Focused. Be Hungry. Be Foolish.
Enjoy the process – Concentrate.
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