Many things spark envy: ownership, status, health, youth, talent, popularity, and beauty. It is often confused with jealousy because the physical reactions are identical. The difference: the subject of envy is a thing (status, money, health, etc.). The subject of jealousy is the behavior of a third person. Envy needs two people. Jealousy, on the other hand, requires three: Peter is jealous of Sam because the beautiful girl next door rings him instead.
Business – when the product of any company meets success then peers feel envy which leads to a faulty decision. The faulty decision will lead to financial disturbance.
Investment – When our fellow investor has able to earn good returns that will make us envious of his success. This put us under pressure and we ended up doing some nonsense things which will result in wealth destruction.
How do you curb envy? First, stop comparing yourself to others. Second, find your ‘circle of competence’ and fill it on your own. Create a niche where you are the best. It doesn’t matter how small your area of mastery is. The main thing is that you are the king of your castle. By looking at other castles, people generally burn their own normal homes. So be careful with decisions and emotions getting born due to envy.
At some point in your life, you’ve won a game you’ve never played before or witnessed a young child say or create something with worldly depth. These are both examples of events we attribute to something called beginner’s luck as if chance caused them to happen. – Lifehacker
Investment – When someone starts investing and he has reaped good returns on the initial investment. Then he starts thinking that he pursues an above-average skill and knowledge which has rewarded him well. This is known as beginner’s luck and that makes novice investors blind to making wise decisions and efforts.
The stock market always checks novice investors with beginner’s luck and those who can come out of the trap, can have a better chance to survive further. We should focus on long-term success rather than one year or a month of success. Sometimes, novice investors earned an above 50% return on their investment and they start thinking of themself as talented as Mr. Warren Buffett. Nowadays, one-two correct bets promote them from analysts to fund managers. They started to manage the funds of family and friends.
We should understand that the stock market is a sea and, we need to have remained lifelong students to walk in the depth of the sea. Not a master, because the master is always a market.
We should not get excited by one or two of success but have to remain grounded by focusing on long-term success. If we keep meeting success during a longer horizon then we can consider ourselves mature investors.
When there is unusual profitability, higher return ratios command by a business then such businesses attract the incremental capital from others. This incremental capital results into the stiff competition and particular business become crowded where such unusual profitability and higher return ratio gone for a toss.
Reversely, businesses which are not able to generate huge profitability, higher return ratios, huge capital requirements etc. then such businesses fail to attract the attention of the new capital so that fewer players remain in the industry and due to challenging business environment, those few also reduces. This consolidation results in moving a cycle of profitability and return ratios to the improvement level.
Examples – high profitability and return ratios become lower (Telecom) and
Merely 2-3 telecom operators to ~14 telecom operators and then again reach to strong 2 telecom operators. This journey suggests the rise and fall of companies.
lower profitability and return ratios become higher (Paint)
So that we need to understand that business does not grow to the sky. They all have a cycle. Also, we need to keep in mind that best investors do not get successful all the time. Our human nature makes our success and that also moves in a cycle.
Success changes the people and they start thinking that they are smarter. Success has a negative consequence also where people become richer and motivation level of them started reducing. Unconventional thinking transforms into conventional thinking. Rather we should know our limitations and also, need to understand that we can fail though we become successful investors.
Successful investors believe that they are mastered in the investing and they have less self-doubt, the worry about being wrong and risk of losses. This invites the risky situations.
We have to keep in mind that – “Don’t confuse brains with a bull market.”
Success teaches us to make money and failure teaches us an important of the risk aversion. We always have to focus on risk while balancing between the aggressiveness and defensiveness. When there is a bull market, everyone gives us a piece of advice. But the quality of advice getting checked during the bear market only.
Making money in the market is always an easy task but keeping secured that earned money is a difficult task.
We keep doing hard work and keep learning for achieving success in the investing journey. One success does not make us a successful investor.
If we have earned an Rs.100 cr but we do not have the skill to keep it secure then it will not take time to again reach at zero.
We have seen that when the asset is not accepted by the crowd and all are uncomfortable to hold then the particular asset will be available at a bargain. Similar to us, when we start getting popular, everyone wants to make contact with us, everyone accepts our thoughts then we will not be available at a bargain. We also become crowded. We have to keep ourselves grounded and keep reminding ourselves that no rule, no strategy will work forever.
When risky assets are penalized by the market and due to that, it will be available at the valuation where it will be no riskier.
When there is a monopoly of the business, business generating good return ratios, decent profitability etc. These invites a competition, these plants a seed of failure. Reversely, when everything seems to be worst, then seeds for success getting planted.
Examples – monopoly kind of business worsening due to competition (Auto OEM) and
Competitive business turns out to be good (Footwear)
We believe that a good time will follow more good times but actually, we forget the cyclical nature of everything especially success. So that good time itself having a seed for the bad time and bad time itself having a seed for the good time.
Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.
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.