The Two Secret Weapons In Investing: Humility & Its Best Friend
Hey friends,
How have you been doing so far? Thanks to all of you, readership has gone up the past month! You inspire the content direction when you comment and email me your thoughts. While I continue to do my best to provide all of you with helpful content, please share this content on social media if you have found it useful!
This year, it seems like many of you are reporting wonderful results! I am so excited to know that you are all one step nearer to your financial freedom target.
However, while we celebrate our results, let’s not forget to also be grateful to the other factors who may have contributed to our successes.
Why is this important?
It’s inevitable for humans to attribute most of our success to our own efforts. That’s just a natural reflex of self-motivation so that we can propel ourselves to our next goal.
However, there is always a rather fickle and temperamental friend, which also plays a crucial role in our success.
It comes and goes as and when it likes, sometimes even disappearing when you feel like you most need it.
It is called “Luck”.
We may hate acknowledging that it is a part of our success, but it is always hiding there.
I remember that back when I obtained my SPRING scholarship, it was actually a well-connected senior staff who helped me secure the interview first. Although I did perform to my best abilities subsequently, luck still played a role in me getting the scholarship.
So three years ago when I obtained a huge 6-figure gain from Hi-P International, I started to reflect on the process – How did it happen?
It all started when a friend asked me if I knew any good companies listed on the Singapore Stock Exchange. As a gesture of goodwill, I started screening the companies and chanced upon Hi-P International.
If not for that friend, I might not have found Hi-P International at all.
You see, while I could attribute all of it to my own skills, the truth is that I was lucky too.
If investing is all about skill-based, why would seasoned investors still tend to have a wide variation in their yearly performances? There is an unexplainable concept called luck.
But there’s a secret to it.
What if I told you that you can actually create/improve your own luck?
I know, I know.
Before you start dismissing me as some cultist, hear me out.
Have you ever envied some people because they seem to have everything going right for them?
Back then, in my secondary school days, I felt the same way.
“My friends are lucky to be born in wealthy families.”
“My friends are lucky to have more money during Chinese New Years.”
The list goes on.
But as I grew up, I recognised that although some people in life are just lucky, but we should never let that discourage us. We can create our own luck too.
You can create luck by being nice to people, connecting with like-minded people and serving others. Additionally, people are more likely to support and love you when you are genuine.
You don’t even need 100 people to give you that love and support. You never know what resources a single person could provide to push your business/career.
Without realising the role of luck, it will be easy for you to blow your trumpet and feel like you’re invincible.
It happens very often, especially for new investors who just scored huge gains in their portfolio.
I want to caution against this feeling of invincibility, as it is often the reason why investors make reckless moves. Feeling like you have an infallible investing process is a dangerous position to be in. Back then, I was a victim of such behaviour too.
It’s hard to break down a positive outcome to the exact percentage points belonging to luck and own skills. You don’t want to undermine your own skill but you also do not want to mistake your investing luck for skill. Nevertheless, when we accept that luck plays a role in life’s outcomes, it humbles us in our achievements.
Moving on, to help you become a better and more mindful investor for the long term, there are two broad themes I want to explore together.
- Negative “Positive” Reinforcement
- The Downside of “I Know Everything”
Negative “Positive” Reinforcement
Although humans are known to be complex, we are fairly simple when reacting to behavior modifications.
Have you ever been scolded by your parents when you have done something wrong? In psychology, that’s called negative reinforcement. It’s aimed to correct your bad behaviour.
On the opposite spectrum, when somebody compliments you about something you care about, you are likely to feel happy. Internally, your brain is processing it as a positive reinforcement activity.
But don’t just take my word for it. Ask yourself, if your loved ones told you that you looked fantastic in your new dressing style, how likely are you going to dress in a similar way for your next social event?
I think both you and I know the answer.
All of us have creatures of habits and we are trained by the responses we get.
As investors, we are not very different. When you make money, you are likely to continue the series of actions which leads to the gains. On the flip side, you will avoid actions that create losses.
Things do get a bit complex when you make money by following other investors without performing your own research.
- You will go into the wrongful thinking that making money from the stock market is very easy.
- You may become relaxed in your research process.
- The profits may make you believe that this process works because it worked before, and you may even invest with larger amounts in the future.
Ask yourself, while you have made money, have you gained any new knowledge from the process? Are you investing or are you speculating?
Making money is overrated and acquiring true knowledge is underrated.
During my army days, I was dabbling in a lot of intra-day trades on Singapore-listed companies by following a certain guru. When I made $200 – $400 in a matter of minutes, it reinforced my speculative activities. I carried on, thinking that I’d struck gold. Losses didn’t deter me because I kept thinking back to my first win.
It was only much later that I came to realise I was actually losing a lot of money in the longer term. That was when I decided it would be best to stop speculating altogether.
In the scenario of pure speculation, should there be a market correction, it is going to make you very uncomfortable because you did not perform the research. This may throw you off into a panic. Or, if your guide disappears one day, you’d lose your pillar completely.
Instead, I want you to affirm that you can be a good investor and that you don’t need to possess any extraordinary calculus or connections. Build your own foundation and knowledge because nothing is more important than knowing exactly what you’re doing, especially in the stock market. Pick up investing books or watch webinars.
Focus on acquiring the good traits of an investor and over time, you are going to feel completely calm despite the daily erratic swings of the stock market.
Nothing beats peace of mind, knowing that you’ve done your homework. After that, it’s just a waiting game to see when the stock prices rise.
My takeaway for this topic is to be aware when you experience a positive reinforcement on something that could actually be a negative event. We tend to associate positive outcomes as positive events, but it could just as easily be the other way as well.
Don’t let easy money reinforce the activity of speculation or taking a loose approach towards owning stocks.
The Downside of “I Need to Know Everything”
As an investing coach, I am acutely aware of the pressure that coaches face. Very often, when we teach, our students expect us to know everything. However, this expectation could sometimes also be due to our own imagination.
This then creates fears when we don’t have the answers to their questions.
“Will my student think less of my knowledge about investing in stocks?”
“How will she/he perceive me when I say I don’t know the answer?
These are the usual thoughts I have. I perceive these thoughts as traps.
If I were to let my ego take precedence over serving my students, I would try to smoke them by giving them half-baked answers. If I did that, while they may get their answers, my conscience would eat me alive.
Why am I sharing this story to you? Unknowingly, as investors, we display this kind of behaviour too.
Many times, when we share an exciting company to our friends, we might get some feedback on our thesis such as:
“Why does this company have so much debt?”
“Why did the CEO sell his shares?”
“Don’t you think Amazon is better than this company?”
In some cases, we might not take the feedback with open arms. Instead of seeing it as constructive feedback, we might jump into a “defensive” mode where any questions are perceived as attacks on your investment thesis. This may cause you to provide low-value answers to those questions because you just want to prove the other party wrong quickly.
I don’t want to jump into conclusions. Some of you may actually know the answers well.
However, there may also be instances where you may provide half-baked answers to your friends to either protect your ego or to save yourself the trouble of explaining/finding out.
What do I mean by that?
Question: “Why does this company have so much debt?”
A half-baked answer is: “The debt has been there for a long time already, it is normal. You should not worry.”
A better and more thoughtful answer could be: “That’s a good question, I’ve never really asked myself this question before. Although the debt has been there for a long time, I should probably find out why the debt level is still so high.”
To improve, you have to release all kinds of attachment to the company you’re investing in. Instead, thank your friend for providing those valid questions, and research to get the answers before answering.
Treat it as an opportunity to find out what have you missed in your investment thesis.
Essentially, you are releasing yourself from the burden of having to know everything. You should not be so hard on yourself if there is something that you don’t know.
It is simply impossible for us to know everything; we might miss out certain details every now and then.
That being said, it is not okay to be lazy. Find the answers and get back to your friend. You will grow very quickly.
In short, the expectation of needing to know everything is unrealistic. The downside happens ONLY when it causes you to pretend to know everything AND give false answers to your friends.
For many investors, it’s tempting to give forecasts too, because it gives people the perception that you know what’s happening. It’s actually harder NOT to give any commentaries about the direction of the stock market.
When it is so convenient to express markets views, we have to remind each other that none of us really know where we are headed. Looking at many forecasters, how many of them are actually right? This article from MarketWatch may give us a clue.
Also, it is important to consider how honest the forecasts may be. When giving out a forecast, there is always a danger of being over-optimistic or self-justifying. I always believe the economy to be a complex and adaptive machine. That’s why it’s extremely difficult to forecast with precision.
Conclusion
- Recognise the role of luck in what we do every day. It is better to be humble rather than overly confident. Even Buffett recognized the role of luck when he was asked for his recipe for success.
- Be aware of negative “positive” reinforcement on our behavior. When we get our investing outcomes without putting in any effort, our brain is processing this event as positive. We might then be predisposed to engage in similar or riskier activities in the future.
- We don’t need to know everything, but it’s important for us to seek answers.
P.S. For more content about picking companies that GROW, feel free to check out my Instagram and Facebook where I post my regular thoughts! I hope to connect with and know more about you!
