When we have an expectation from anything then it will start creating an attachment towards it. Such attachment can affect us while our expectation does not meet in real. Attachment ties us with particular things and we cannot able to go away from those particular things. So that we should be reasonably expected from our investment and never ever get attached to any of the investment made by us. When our assumptions got wrong then we should exit from the particular investment. But due to ego, attachment towards an investment, we keep on holding a wrong investment also. Many a time, Initial small losses can be transformed to the huge losses due to our attachment towards our investment.
Many a time, we all have experienced our thought – “I will exit my investment when it comes to a break-even” when we are in loss, we keep on thinking that how much more it will go down; let me add more money to the same idea. Such thoughts can kill us without informing us.
We need to focus on capital protection because –
Percentage to make up for the capital to 100%
If we fall by 10% then we need to rise by 11% to reach a break-even point. And similarly, 100% require when we fall by 50%.
When we come to know that we are wrong then we should exit from a particular investment rather put more money to it. Many of us make such mistakes where we keep on averaging our losing ideas. We should have a stringent process where we should have a clear exit criterion also so that we should not be affected by emotion. Having a clear process is to work as a blessing for us during the worst time of our investment journey.
Mr. Twain has declined to make an investment which was suggested by Mr. Bell. Mr. Twain considers himself as well informed and well experience but in reality, he has an experience of failure to the investment field. We have to analyze ourselves whether we are really well experienced or not. And we only can perform such own analysis when we do not have an arrogance, overconfidence and ignorant into our mind.
I have seen many investors/analyst who has made plenty of mistakes and wrong investment decision but they consider themselves as a well experienced and more knowledgeable investor compare to others. They are not ready to accept that they have a history of failed investment, they do not realize it and learn from it. They keep on repeating those mistakes again and again. We should come out of from the behavior and work on what we know and what we do not know our strength and weaknesses, in-short self-analysis, knowing ourselves better than others. When we come to know about our strength and weaknesses then we can have a chance to perform to overcome our weaknesses and stronger our strength.
We need to identify that we are wrong and for that, we have to be self-analytic. As we come to know that we are wrong then we must have to admit it and work on come out of it. If we found that our investment was wrong then we should book it without looking to loss or profit. I know it is difficult to do. I also got attached to one of the newspaper business at the initial days of my career and it took one year to admit my mistake and booked losses. But that investment has taught me that when you realized regarding the wrong decision than first go and close the position. Otherwise, it will stop us from focusing on the right decision also.
This is the best way to manage our risk. I can give one example of the same. If I have a one investment idea where I want to make an investment and I am ready to take a loss of Rs.30 per unit of investment. Now, I count 1% of my portfolio (Let’s say as an example, it’s an Rs.1000000) so 1% of Rs.10,00,000 I.e. Rs.10,000. So that I should buy 333 units of particular investment (Rs.10,000 / Rs.30 loss I am ready to take). Here, if I go wrong then also I have taken a risk of 1% on my entire portfolio which helps me to stand for a longer period of time. Percentage of risk is different by person to person and probability of winning and losing from the particular odds.
One of the books which have influenced me and my investment journey is “The Most Important Thing by Howard Marks”. This book teaches us the most important thing which we need to develop for becoming a wise investor.
“The Most Important Thing” has many concepts which can help us to our investment journey. I have posted articles on the book. Now, I have compiled different articles into the one file for the ease of reading.
Jainam Share Consultants had organized a movie day on 6th January 2018 and the name of the movie was “Chal Man Jeetva Jaiye”. I am really thankful to Jainam Family for giving me the chance to watch a worthy movie. I am grateful to the entire cast & crew of the movie for the wonderful performance and script.
I am really grateful to Riddhi who helped me with editing and very effective ideas.
I always believe that we can learn many concepts from our surrounding environment. Similarly, this movie has some of the amazing concepts that I have learned and you can also which can be beneficial to our investment journey and as well as to our life.
Decide our process to get success in our life
Extract from the movie – The movie began where it was shown that a father is pressurizing his son, Dev, a lot for achieving victory. Dev, unknowingly started following his father’s dreams but he did not know how to get a victory.
Co-relation in real life – A similar situation happens with all of us when it comes to our investments. Investors’ starts investing in multi-bagger stocks whereas they don’t even have enough knowledge about the company. We need to gather knowledge first and then decide whether the company is worth investing. If we don’t do a thorough study about the company, then there are chances that we might lose our capital rather than achieving reasonable returns.
Pressure and stress can affect our decision-making ability
Extract from the movie – Dev was pressurized by his father to achieve victory and as a result, he lost his focus from all aspects and started losing in all the fields. He was often scolded and tortured by his father for not being able to earn medals and certificates. Dev had always been forced upon the dreams that his father had for him. Dev was never given a chance to explore about his interests and that affected his decision making power.
Dev’s uncle, Vasant, had incurred a major loss in the family business and was highly stressed about it. He got pressurized by thinking about the materialistic and luxurious life of the family that he wanted to maintain and that led him in making a wrong decision. He chooses an unethical way: of leaving the country and doing fraud with the lives of the people by taking away all their money that they had invested in their company. He thinks of this way as ethical because Mr. Ajay Walia (whose company got bankrupt and he lost everything) had also done the same. Looking at someone else do it; made him think of the wrong way as the right way and he forgets about the moral values and ethics that he had learnt from his parents of not doing fraud or cheat with the lives of the people.
Co-relation in real life – Likewise, while there is a mad bull run in the market, when we see our fellow investors making money, we feel stressed and that pressure leads us to unethical thinking. We lose the capability of spotting the good investment companies; thus leading us to losses. Sometimes, such situations encourage us to compromise with our ethics & values for making an investment decision; hence forcing us to make faulty decisions. Rather than getting jealous of others making money, if we focus on our decisions and stick to our ethics; then there will be ample of opportunities coming up within our competence area that will lead us to good returns.
Remaining emotionally stable also during the worst period of our life
Extract from the movie – Viren, who is playing a character of Vasant’s son, saw his father being stressed and hence taking wrong decisions. So he keeps himself calm and stays emotionally stable and decides that he won’t let his father take the wrong decision. Vasant asks his family to support him and the whole family does that except Viren and Dev. Although knowing that this is the crucial time for the entire family and they will have to face the whole family; both the brothers decide to stick to the ethical and the correct path. The family often scolded them, tried to emotionally break them and also tried to prove them wrong but these brothers keeps fighting for what’s right and not bothering that it was their family on the other end.
Co-relation in real life – Market often shows us a challenging period during our investment journey but we need to remain emotionally stable and keep ourselves away from emotional diseases such as ego, envy, greed, fear etc. All such emotions influence our decision and lead us to get deviate from our process. Please refer to the article for further details of how does our emotion influence our investment decision BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “COMBATING NEGATIVE INFLUENCES”
Importance of different viewpoints
Extract from the movie – Vasant and Viren both have different perceptions of the same situation. Viren was enforcing for a different viewpoint which led the entire family re-think about their decision and yes they finally accepted the viewpoint that Viren and Dev has been explaining since the beginning, as it was a better and an ethical way of dealing with the problems. We should accept the viewpoint of the other and try to empathize from their angle. There is a possibility that we might get a new perspective to see a problem and that can be more useful to our decision making.
Co-relation in real life – When it comes to our investment journey; we face the same situation. There are ample of people who will give you too many companies to make investments in, as per their knowledge and their research. But it’s up to us whether to believe all of them or to believe some of them. People have different mindsets and there will be a situation where 1 person days good about the company whereas the other says bad. In such a situation; we get to know a different viewpoint and a different perspective from various people we trust on. But we should at times believe on people and re-think couple of times before investing as it is a matter of our earned money through hard work.
Acceptance of our mistake
Extract from the movie – Vasant accepted his mistake of taking a wrong decision due to stress and ego and he decides to change his decision. If he wouldn’t have accepted the viewpoint and changed his decision in time; then that would have led him to lose his brand value, his goodwill, his happiness, his inner peace, the trust that others had in him, his relationships, etc.
Co-relation in real life – We often make mistakes during our investment journey but we need to realize it at the earliest and accept our wrong decision by not getting influenced of other factors. We should think of recovering our losses and increasing our profits rather than feeling guilty on our wrong decision.
Have faith in yourself
Extract from the movie – Vasant in his past had grown the business and created a brand value. He had never lost his money. But when he faced such a situation; he had lost faith in his own self and he thought that he doesn’t have the courage to rebuild the empire. But Viren always showed trust in his father’s ability and he kept on saying that he knows that his father has the ability to build an empire again.
Co-relation in real life – During a sluggish market scenario, there are times that even our best investment cannot generate good money for us. But we have to have patience and trust on our decisions that sooner or later we will earn and gain good returns.
We are losers just because of ourselves and not because of others
Extract from the movie – Dev was unable to express his thoughts in front of his own family. His continuous failure due to his father pressure had restricted him to open up and talk about what he wanted to. When he was asked to faced his complexions and his fear; only then he fought with his own self and was able to realize that he failed because he had created a belief in his mind that he is unable to do anything in his life.He only can able to create an impression in front of his family after getting the realization of his weaknesses. It was then that he realized that it wasn’t his father that was the cause of his failure but it was his inner self that didn’t let him take a leap. But when he overcame his weaknesses; he achieved success.
Co-relation in real life – We also face similar situations during our investment journey. We might have made losses couple of times. But we should face those failures and try learning of overcoming them rather than withdrawing the money. One should think of recovering the losses and switching from the negative balance (loss) to the positive balance (profits). Because if we don’t think positive then those failures might affect our future decision for making an investment.
As it is rightly said “YOU MAY FIND THE WORST ENEMY OR BEST FRIEND IN YOURSELF”
Building brand value takes efforts for years but just a few minutes to ruin it
Extract from the movie – Vasant and his brothers had worked really hard for years to create a brand value for their company. But if he would have decided to take a wrong decision of declaring bankruptcy; then that would have ruined the brand image that they had build in for years. People would have cursed them for their decision as they would have cheated them. And this would have created a negative impact for the company and its image.
Co-relation in real life – Similarly, we should always be careful while taking a decision in life and not make any blunders. We should think with a peaceful mind and not atleast when we are stressed. If done so in stress; we can lose the trust that people have in us and we can harm our reputation which we have built with our hard work over the years. Remember, “DON’T LET ONE MISTAKE RUIN A BEAUTIFUL THING”.