Illusion of Skill
In this blog series, 21 behavioural biases were discussed.
These biases affects our life and Investments. Hope you liked them and were eye
openers for few. The primary objective of writing on this subject was to create
awareness around this unknown evil of biases. Another objective of linking
these biases with Investing, was to create tribe of informed investors.
Once
you are aware of self biases and Investment wisdoms, you are most certain to
become wise Investor!!👍
Thank you so much for your patronage and compliments on this
blog series. I am overwhelmed🙏
Today’s blog is on “Illusion of skill”. The critical one!!
As they say “It’s more important to know what you don’t
know. Rather than knowing what you know”. Couldn’t understand? Read it
again.
Many a times we feel, we know this or can do that easily👍. But once we are at it, we realize it’s not our cup of tea!! Don’t
you agree?
At times we also feel we have learned enough about something
and do not pursue to learn it more. Ask any successful professional (Doctor,
Architect, Lawyer CA) how important it is for them to keep learning? “I know
everything syndrome” in them could mean death or low growth of their practice😊.
Any successful/renowned professional, will be student for
entire life. That’s what even client expect from these professionals. Mere degree is no certification of wisdom!!
Same is true for every human being. Continuous skilling is only way to survival
or growth. IT professionals deal with the challenges of obsolesce of coding
languages and technology.
In investing, many investors feel they are skilled. Here are
some of the reasons Investors have shared with me
1)
I am skilled because I have been investing since
decades.
2)
I am owner of business therefore I know how to invest.
3)
I am CFO of the company hence I am good at
Investing.
4)
I am MBA- Finance, CA or CFA etc, therefore I am
skilled.
5)
I have many smart Wealth Managers coming from
large Banks/Institutions. So I know all the buzz.
6)
I have been reading Investment and finance
magazines (or taking social media doses regularly) since yrs.
7)
I have been tracking markets since years and now
I am skilled.
I am sure all of you have some of these belief in yourself😊.
Well success in
investing is not dependent on the skills alone. You need emotion management
more than, financial skills.
In bull market, lot of investors become guru (self-proclaimed)
and start sharing own success stories😉.
Like herd everyone also becomes disciple of that guru. I am yet to meet a person
who shared his failure stories. Have you found one?
In investing it is more important to also know your safe
capital and risk capital. I have seen many investors hold up to 50% of their
corpus in risk capital (knowingly or unknowingly). Any amount more than 10% in (undue)
risk capital is staggering, no matter how much wealthy you are! At the end of
the day it is your hard earned money and can’t afford to take undue risk.
If you feel you are skilled Investor, here are some of the
self-check questions:
1)
What % of investment decision of your’s were
right?
2)
Did you invest significant amount of money in
those Investment ideas? If not, you invested in gut feel and made some money.
If you had strong conviction about that investment idea, you would have
invested big money.
3)
How often you did you exit at peak and entered at
bottom in those investment ideas?
4)
Have you done enough research before investing
and exiting? If you didn’t it is herd/luck or tip.
5)
What was your source of Information about the
investment idea? Was it social media, TV, colleagues, friends etc.? If this is
your source of information, you invested
on borrowed conviction (not skilled).
6)
Did you ever missed out exiting before the
prices crashed?
7)
Are you holding stocks with up to 90% capital
erosion?
No need to reply to me, but I am sure you are able to
understand my point.
I personally believe, Investing is not science but it is
Art. I spend good time understanding markets and its behaviour. I spend time
with fund managers, CIOs and ask them questions like a learner. This helps me
draw a picture about future, basis which I decide on the investment ideas.
Diverse views helps me to re-check my hypothesis. I still feel I am student and
learning about various cycles, hypothesis and frame works. It’s my moral
responsibility to give better Investing experience to my clients, who trusted
me with their money🙏
Knowing what you
don’t know is first step in right direction!!
Apne Investment ka khayal
rakhna!! Ye hi aapke bure aur achche waqt ka sahara hai👍🙏
If you find our blogs helpful, pls do like, share and
comment
Author –
Bhavesh D
Damania
Founder -
Wealthcare Investments
EduPrenuer,
TV show panellist and Blogger
"Risk comes until you know what, where and why you are
Investing"
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