Experience – The Guru

Experience teaches us how to respond when faced with similar situations comparable with our past. When we are faced with the same situation, we think about what we did the last time, remind ourselves how we made decisions, recognise the outcomes we got, and then decide how to respond to the present.

The past can help us deal judiciously with the present. Experience teaches us to deal with the same situation in a better manner than we did before. This naturally mellows responses when we face them repetitively.

A novice has no such baggage and is likely to be fearless. He wants to test his limits and does not want to be limited by anything. Borrowing experience from others does not appeal to him. He thinks the ‘more experienced’ are scarred and driven by fear. Being fearless is helpful in rising markets. Participation is likely to be wider and stronger. But, it can cut both ways.

When markets fall, the less-experienced are likely to see far more pain than the experienced investors. They may have taken more risks or ignored risks when the ground situation was rapidly changing. The time to calibrate risks is when there is too much confidence all around.

Experience teaches you to be sober through times of euphoria. Success should not make you lose your sobriety just to participate in the last leg of euphoria. The mind must slowly be conditioned to move towards safety. Letting go of the FOMO (fear of missing out) must gradually happen even as euphoria rises all around us.