Podcast Transcript
How we develop conviction matters. Everybody agrees that the quality of conviction will determine many things- how we translate conviction into investments, how we allocate money into an investment, and how we hold onto the investment.
Generating conviction, growing conviction, preserving conviction and translating conviction are four important elements in conviction management. It cannot be randomly generated. It has to originate in a certain way. The origin has to be simple and powerful. One must be able to explain in a few words about how one has generated it.
Then he must manage all the negatives that prevail around his conviction. This is very difficult especially if you are the kind who builds conviction before anyone else. Building conviction demands extraordinary simplicity and clarity of thought. Importantly, one must organise his thoughts in a certain manner. When one’s thoughts are organised in a way that raises conviction, one tends to make it a holistic ally. Generation of conviction needs a state of mind where there is little or no anxiety, complete lack of peer pressure, and just a curious approach towards ideas. In that state one is able to take a clear, calm, and composed view of things. Then, he is able to grow his conviction freely.
Growing conviction is about validation. One must seek and address negatives. At times, negatives can be forcefully thrown at conviction. While actively seeking opinions, one must carefully find honest answers, deal with the facts and not be bothered about the opinion maker.
Preserving conviction is important as companies tend to sway away from our expectations when the macros shift rapidly. But, in the I long run, macros will stabilize and our original expectations will play out. During difficult times one must be able to preserve his original conviction. This needs to happen when all around, opinions constantly change rapidly.
Translating conviction is about ensuring that one is invested during the best phases when conviction plays out. Often people can only claim to have spotted multi-baggers. They would not have held onto them long enough. This defeats the very purpose of conviction. This has to be zealously avoided. One has to hold onto conviction till the best times arrive and play out. One needs to remember that consensus will be elusive till it is almost the time for you to sell. So, waiting for consensus to ripen is the best way to translate conviction to its full potential.
Managing conviction well means all four phases must be handled maturely, patiently, singularly and solidly. It is mostly about one’s self. That can at times be almost narcissistic. But, there is no escaping that. It will always be all about you. But with a little help from friends you can do better.
Managing conviction is deeply personal. But it is also innately process driven.