Most Bollywood movies are about the victory of the hero (good) over the villain (evil).
Most Hindu mythological stories are about the victory of Dharma (good) over Adharma (evil).
And most enduring investment successes are about the victory of returns (good) over risk (evil).
A very happy Dussehra or Vijayadashami to all the readers of Smart Sync Services. There are three religious stories for why Dussehra is celebrated today in India:
- The victory of goddess Durga over demon Mahishasura
- The victory of Lord Rama over demon Ravana
- The victory of Pandavas over Kauravas (Source: Wikipedia)
On the occasion of Dussehra, I am writing a note inspired by this post by Vishal Khandelwal of Safal Niveshak titled 10 Demons of Investing.
However, this post is not about those 10 demons.
Rather, I am going to talk about only one.
For me, this one has been the most fierce and deadly demon. Maybe for you too.
Let me explain.
We benchmark against other people’s performance. While we see their investment returns, we fail to appreciate how much risk they took to get there. And we fail to appreciate the importance of base rates in life and investing.
Consider Rakesh Jhunjhunwala. Arguably the greatest investor in the Indian stock market. I have huge regard and respect for him. And the amount of wealth he has generated by investing in the stock market is mind-boggling. Forbes, at the date of writing this post, mentions him as the 36th richest Indian, valuing his net worth at $ 6.1 Billion. That’s roughly INR 45,000 Cr.
And thousands of new investors dream of becoming the next RJ every day as they come into the market. But they have no idea how it worked out for RJ.
RJ started with almost zero capital of his own. Borrowed money at extremely high-interest rates. Took bold and risky bets early in his career. Some of them worked well for him. And with the initial wealth he created, he invested a significant part of his net worth in listed businesses for the long term.
In short, RJ’s success can be summarized as a combination of Unique investing/trading insights + Bold decisions + High Leverage + Luck + Long-term holding.
If you want to match RJ’s investing return, ask yourself if you can match his investing/trading insights, his boldness to act with vengeance, his level of leverage, his long-term holding capacity, and most importantly his luck.
Returns are visible. Risks, not so much.
You cannot judge (appreciate or criticize) anyone’s investing performance as you can only see one side of the coin.
You end up comparing your returns with the others’ returns but you have no idea about the risk they took.
So, this is one demon I want to defeat this Dussehra.
And that is “Comparing myself with others in investing”.
As mentioned at the start, most enduring investment successes, indeed, are about the victory of good (returns) over evil (risk). But your level of good and my level of good may not match. Same with our levels of bad or risk tolerance.
Think about this.
~Your monthly EMIs are barely met by your monthly income.
~You do not have adequate life or/and health cover.
~You do not have even two months of an emergency fund with you.
Can you even think of long-term investing in the stock market under those conditions?
And what will you do, when the market crashes like it did in March 2020?
Then what is the use of comparing yourself with someone who is debt-free, adequately insured, has a sufficient emergency fund, and is staying invested for the long term.
Reminds me of this old tweet:
What works for others may not work for you and what works for you might not work for others.
Morgan Housel, the author of the bestselling book, The Psychology of Money, writes it so well in “Play Your Own Game”
“Daniel Kahneman once told his financial advisor that he had no desire to become richer; he just wanted to maintain a lifestyle he was satisfied with. She told him, “I can’t work with you.” Kahneman told me in an interview:
She was very puzzled in the context of somebody coming to get financial advice and not trying to get richer. And I’m not sure that I’m all that unusual. Many people retired on pensions and are perfectly satisfied with it and they are not desperate to have more.”
It proves that we are not the same even though we may look the same most of the time.
We, at SmartSync, follow an investing style. You may not appreciate it if you view investing through a different lens. And that is fine with us. And we won’t judge you either on your investing style as we have no idea about your circumstances and risk tolerance level.
So, on this festive occasion of Dussehra, this is one investing demon I am trying to kill.
“Comparing myself with others in investing”.
Which investing demon are you killing this Dussehra?
P.S.- Some of our research/work might help you tread on the path of victory (long term investing success) over vices ( short term gains mentality ) by accessing our deep research on some wonderful businesses with growth and balance sheet stability under Mission Smile. It will surely bring a satisfying smile of fulfillment as well as improvement in investing process and results.