Your brain keeps telling you nice things about yourself. If you are really smart you should let your INTELLECT rule over the MIND. Only when you read books like Yogavashisht you realize that Indian literature has 15 words for MIND.
When you are dealing with your mind…look at the Indian words for mind. Manas(mind), buddhi (intellect), ahamkara (ego), chitta (individual consciousness), karma (previous deeds), kalpana (imagination), samsriti (flow, worldly life), vasana (desire), prayatana (effort), smriti (memory), indriya (sense organs), prakriti (nature), maya (illusions), kriya (actions), jeeva (living thing),…………………
Once you have so many words for MIND, you realize that some of these words are REALLY THE Enemy of investing. Sometimes the mind is the enemy of the intellect. The mind wants something, the intellect tells you “idiot this is fattening”. Sometimes the mind wins and sometimes the intellect. However Indians called buddhi also mind. Think of all these words – and find out why the Mind is the enemy of investing.
Now the question is how to manage the Mind while investing. It keeps saying what you want to hear. So when you see gold prices going up, you see Trump’s trade war, Saudi threatening a war, Pakistan nuclear power – what is called CONFIRMATION bias. You conveniently forget what Warren Buffett says about gold. However a friend tells you that WB would have been better off investing in Gold from 1999. 20 year under-performance is really not something to be scoffed at. We are all sufferers of CONFIRMATION BIAS. We desperately search for data confirmation for things that we have ALREADY DECIDED. You will have to send 22 horses to pull me away from Colgate. I can find many friends who will never touch Colgate. That is Confirmation bias.
Even worse is OVER-CONFIDENCE bias. Being right is easy. Staying right for 30 years is the challenge. For example I bought Hdfc bank in 1994 for Rs. 40 (easy perhaps)…but staying with Hdfc bank for the next 25 years was STAYING RIGHT. I can assure you it is not easy. Luck? skill? seriously I don’t know.
We are too lazy to want to see a different point of view. I have been accused of not seeing the “new ulip” which is supposed to be cheaper than a mutual fund (I think that is a joke). It is obviously easier to rationalize and to say “I told you so”. In most cases all the big investors must be having a sounding board.
The longer that you spend in the market, greater is the chance of being over- confident. I have not seen something like this happen SO SUCH A THING WILL NEVER HAPPEN.
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