Behaviour wins! Always.
Behaviour is the most critical component of investing. A simple test of one’s behavioural quality will tell a lot about an investor. Typically, most investors want to invest on seeing good returns out of their past investments. If they return well, they want to put more money. Now, this may not be the right approach most of the time. One can’t drive a car by only looking at his rear view mirror.
If one is always looking at his portfolio to judge of it is doing better than a fixed deposit, the simple behavioural inference is that he doesn’t understand equity investing. Equity investing is about the future. If the past was ordinary or even worse, one must examine if the future promises better. Most times, the future brightens up when the investor mood is very gloomy. If one can’t put up his best investment behaviour in times of gloom, he possible won’t behave well even in the best of times. Behaviour reduces an investor to a loser. Markets don’t. This simple truth is lost on most investors. And, where do they leave their money when they can’t show the right behaviour? In fixed deposits of banks that have gross NPA’s in excess of 10%. Never mind that deposit guarantees aren’t valid beyond a lakh of rupees. Now, that’s hardly prudence. So, the only option before an investor is to learn investment behaviour. Surely, nobody can afford to kid around with his own money.
“A hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.” Howard Marks.