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Stock Investing is a Humbling Game

Stock Investing is a Humbling Game

Not losing money is a hair-trigger part of the stock investing process. Successful investors say it in variegated ways, but the point is unchangingly the same.

Warren Buffett has often said – “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”

But he has moreover said – “If you don’t make mistakes, you can’t make decisions.”

You see, the problem is not in making mistakes. The problem is in not knowing when you have made a mistake and thus not learning from it.

Unfortunately, openness to making mistakes and recognizing them is vastitude most of us. Why is that?

Two reasons. The first, our society’s phobia for making mistakes, something that begins at school, where we learn to learn what we are taught rather than to resolve problems. We are fed with facts, and those who make the fewest mistakes are considered to be the smarter ones. So we learn that it is embarrassing to not know and to make mistakes. We finger bad when we find out we have made a mistake or do not know something.

The second reason we find it nonflexible to recognize mistakes is our focus on outcome rather than process. We prefer the “right” result from the wrong visualization to a “wrong” result from the right decision, labeling everything that does not “work out” a mistake.

In doing so, we goof to differentiate between those investors who are unaware of the inconsistency between their thoughts and deportment and those who merely come to a wrong decision.

If you have read the story of Socrates’ trial and execution and what the classical Greek philosopher taught the world well-nigh humility, you know that humility is, in fact, one of the greatest resources for any person, including a stock market investor.

Practicing humility gives you the strength to goof forward. The only mistake you do not want to make is forgetting your mistakes. Ignoring the mistakes can make you lose the golden opportunity to use them as stepping stone for stook real wisdom.

My investing career of 19 years has been a big bagful of mistakes, some stupid and humiliating, and the rest very stupid and very humiliating.

I have bought stocks with poor fundamentals just considering they were trading unseemly (Arvind), stocks without understanding their underlying businesses well (Hotel Leela), sold good stocks too early just considering I was scared of losing my paper profits (Page Industries), avoided good businesses just considering their stock prices were slightly higher than my ‘comfortable’ ownership prices (Asian Paints), and sold good businesses whose stock prices did not seem to move for 2-3 years (Swaraj Engines).

Oh, the list is longer, but let me not embarrass myself too much at one go! ????

However, thankfully, my mistakes have not deterred me from working on my investment process, to modernize in such a way that I stave repeating my mistakes from the past. And that has helped me earn a satisfactory return on my investments over the past few years.

According to Peter Lynch, in investing, you are doing unconfined if only 60% of your calls turn out to be right, so it is important to unclose that you will make mistakes.

Reminds me of this anecdote well-nigh Henry Ford, the father of automobile industry. Once, he was stuff interviewed by a friendly journalist. On stuff asked his secret for success, he said, “I have two words for you Sir. Good decisions.”

“And how did you learn to make good decisions?” asked the journalist curiously.

“Two words then – Bad decisions.” Ford replied. He intuitively understood the importance of learning from bad decisions.

Knowing that you do not know a lot of things, knowing that you will make a lot of mistakes, and knowing that you will be crucified for your mistakes, and unsuspicious these as part of the journey, is what causes success in investing.

The stock market, Ken Fisher says, is a “great humiliator.” The weightier way to deal well with it is to play the game with well-constructed humility, considering that is the way you will help yourself from not getting humiliated too immensely or too often.

That is the way this game works in your favour.

You play it this way, or you don’t.

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