Behaviour – Key to Investing succe …

With stock prices having fallen a few days last week, I received calls from some of my investor friends. Have penned some of my thoughts as under:

It is your behaviour, i.e., how you conduct yourself during the period is of paramount importance. Irrespective of you having immense knowledge of the industry, company, management, etc.; Or, having great analytical ability, however, the key is your Behaviour.

It’s like a very intelligent and hard working person lacking Integrity. A person lacking integrity, despite being hard working and intelligent, is more dangerous than a person having integrity, but a lot less intelligent and lazy. Similarly, an investor having knowledge and being analytical, but lacking Behaviour is far more dangerous and would be susceptible to losing money as compared to an investor with less knowledge and not being very analytical. So, if you want to create wealth, try outsmarting Behaviour, rather than just knowledge and analysis.

Now, how do you develop Behaviour? First, it’s not easy. One of the ways to improve behaviour is Avoiding Instant Gratification. Can you take the pain of unrealized short-term losses when all your friends are talking about the kind of money they have been generating by trading in stocks which have no intrinsic value. Frankly, easier said than practiced.

Perhaps, some of them have been extremely lucky by just exiting or trying to exit before the clock strikes 12 and before Cinderella’s party comes to an end. That’s a very dangerous game to play. That’s the first time and place when your Behavior and mettle gets tested. 

Another way to think about this is your “Long-term Winning the War” mentality vs “Short-term Battle Win” mentality.
One of the other ways of developing a good Behavior is to revisit your investment thesis and recheck whether the thesis still holds good, if there has been any change in circumstances.This is very difficult considering our mind sticks to an Anchor (Anchor Bias), especially when we have gone out loud declaring our investment thesis to the world. It also means not being consistent in your Behavior. Now, that’s tough!! 

Humility and Ability to accept mistakes publicly is one of the key tenets to developing good Investment Behaviour. Warren Buffett is an investing legend because he has not only produced extraordinary wealth for his shareholders, but also accepted his follies, rather than shrugging it under the carpet by giving lame excuses, the way some promoters give, viz. Industry characteristics, Change of regulation, Banks not providing credit when required, participating in auctions, bidding contests in M&A to get their testosterone fired up, erratic salaries and increments despite the company’s poor show, etc.

So, next time, someone talks about Knowledge, Analytics, Returns, etc. try and understand Behavior. That is paramount, it helps you to conquer your thoughts within. After all, true change starts within. Right?

Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.