What are the characters an investor must develop?
Investing is just like an investigation. We must investigate whether the company that we are investing is good or bad, whether the management is shareholder-friendly or not, how well the business is doing currently and how it is going to do well in future but If we further investigate closely, investing is a brain game that we play on ourselves. The brain always tries to play a trick in our thinking process and this leads us to take an irrational decision. It is important for all investors to understand the cognitive drawback in our brain which pulls us back to take rational and good decisions.
Investing is a brain game
We understand that our brain is not probably designed to make good decisions. Our reptilian brain is designed by nature to make decisions which lead to survival and reproduction. So, expecting our reptilian brain take a rational decision is itself irrational thinking. We make decisions which emotionally satisfy us. In the brain game of investing, our brain comfortably provokes our behavior to make decisions which are not rational. Brain plays numerous tricks on us and these tricks are known as bias. Biasness is created by our own thinking process to fool ourselves. For example, take a simple scenario, where we have bought the shares of the company at Rs 200 and next time if we try to buy the shares of the same company but by now the share price of the company have become Rs 208, and now our brain starts playing tricks on our thinking by not allowing us to pay an extra Rs 8 to buy the shares. We would be waiting for the share price to fall till Rs 200 to buy the shares. This is the classic example of anchoring bias. We are anchored to the price of Rs 200 in such a way that, we are unwilling to pay more to buy the shares of the company. This should convince us that, our brain is the main culprit which doesn’t allow us to make and make good decisions.
It is important to notice that, most of the bias in the human brain is created by itself and not an external factor. One of the ways to reduce our bias is by having the right behavior towards the market.
The thin line which separates normal investor and legendary investor is having the right behavior. Behavior talks in investing. As Buffet says,” investing is all about building character and behavior”. Most investors think that, in order to get great returns, they need to build their portfolio with good companies but sadly that is not true. The first step for successful investing is not about building a portfolio but rather building the right behavior and character. It is interesting to know that, money follows to those people in the market, who have built their behavior and character in the right manner.
Right character for an idle investor
Patience is the master key to unlock the potential wealth. Building patience is one of the important character investors must develop. We may be highly intelligent but if we lack patience then, intelligence is of no use.
The ability of independent thinking
All great investor are great thinkers. They devote the majority of their time in just thinking about the company and business. In the era of social media, where it is easy to get influenced by other people’s thinking process, it is necessary to think independently and make independent decisions.
Following the market masters
It is very astonishing to know, how people underestimate the power of following market masters. Many investors think that following great investors is just a waste of time but that’s not the case. It is the simple phycological fact that, if we follow great people, we think, act and work according to them. Following market master is one of the underestimated skills in the field of investing. One who knows the power of following great men become like them. Just by watching their action, we change our character without knowing ourselves.
Investors must understand that bias in our brain cannot be removed completely but can be reduced. In order to reduce our bias, we must develop an idle character for an investor. An investor must first understand that character-building is more important than portfolio building.