Investing is a full-time business filled with the opportunity to acquire bad habits and often lead astray, making all the wrong decisions. We need to learn about behavioral traps and the temptations that lie ahead during our investment journey. Today we look into the seven sins – lust, gluttony, greed, sloth, wrath, envy, and pride when applied to the investment world.
In Greek mythology, the Sirens were evil monsters who lured sailors to sleep with their enchanting singing voices, which cause shipwrecks on the island’s rocky coast. Odyssey was curious as to what the Sirens sang to him, he had all his sailors plug their ears with beeswax and tie him to the mast. The story ended with Odyssey and his sailors survived.
We are investing to fulfill our retirement goals which is 20-30 years from now, depending on how far away from your retirement age. In our instant gratification world, coupled with high internet speed, the prospect of quick gains is very tempting. We are lured into moving stocks into sectors, often finding ourselves late to the game, profit has already taken off the table. The lust for other sexier products cause you to sell in advance before they reach fair value.
Active investing which means moving in and out of markets will incur more trading costs. Being faithful to your love ones, going through ups and downs over decades will bear investment fruits and cheaper in the long run.
There are tons of information on the internet that we are trying to decipher every seconds. Sometimes having more information does not mean that your investment framework is more effective.
Take a look at the above image which is the office of Warren Buffett. What do you realize? Other than his famous tray of “too difficult to understand”, what we will like to point out is there is no Bloomberg Terminal or even a simple laptop in his office. A simple investment framework can be more robust than sophisticated financial model.
Having the discipline to filter out noises mean resisting the temptation to change your valuation. Stick to your own investment framework such as looking at the company’s free cashflow.
When everyone is piling their money, their wife, children, house, and mother-in-law into Bitcoins at any price, it is time to steer clear. This is the same for equities, bonds, and properties. This rule applies to all assets or flowers. We had learned from history on Tulip mania bubble. The most expensive words in investing are “This time it’s different”.
When the market is oversold, punters trying to get out from the market, stampeding on one another’s bodies, bloodshed everywhere in the stock markets. This is the stage of bailing out, smart investors will come in to buy and understand why and what they are buying.
Patience is something I lack. Invest for the right reasons and not fear of missing out.
Not doing anything itself is a sin in investing. If you have bought the right business, it is best not to rock the compounding machine and let it grows. The key is not to be lazy in doing your homework, following stock tips and buying blindly. I read a fund manager’s letter and I bought into Bridgetown Holdings (a SPAC) at USD 16/share without understanding what the fuck I am buying. Last check USD 10.40/share.
Investing is easy but you need to understand what you are investing is a completely different topic. We need to do the hard work to understand every company – in terms of the growth level, its moat to sustain its performance in the future and how the business is delighting its customers. Only then you will understand what the real valuation of the business is.
The wrath of markets can be scary. There are rare times when all asset classes drop in tandems such as the 2008 financial crisis and March 2020 COVID-19 global fear. The usual market norm is to have rising inflation, equity and commodity will rise while your bond falls.
You need to have the war chest to deploy during such trying times and emergency funds to tide you through during the darkest hour. When you see the share prices plummeting and everyone is selling, just turn off the monitor screen.
Look at the above GME gain porn, I will turn into a green-eyed monster when you see people striking the lottery over the last few years. It is human nature to envy your friends’ gains. However, we all need to remember the fact that this is other people’s gains, it will not affect your investment portfolio. Rather than wasting your time envy others, focus on constructing a portfolio, invest in assets to provide you the freedom you deserve in the future.
A lot of times I still envy others’ success. The above image is from a friend’s Instagram, he runs his own insurance agency and he must be doing very well (through his team of sales agents). It has been ages since we spoke.
We all believe that we are super investors. The natural tendency to be overconfident in oneself is fatal for investors. They believe that they will not make the same mistakes as others. Very often, they make the same mistakes over and over again.
People remain proud of their abilities, often blaming others rather than looking at themselves. They will take credit when the portfolio goes up and blame unforeseen events when it falls.
We need to spend time to access what we have done right, what has gone wrong in our investment portfolio and gather proof on how to right it to become a better investor.
Don’t remain proud, stay humble.
Every investment on hindsight looks wonderful. This article serves to remind us that we need to stop, think, analyze and scrutinize the facts that we have before making the investment call. We need to resist impulsive buy, yet buy frantically when the opportunity shouts out to you. Build good investment habits and not to be lead astray while you are still young in your investment journey.